Expanding globally with local vision: foreign market entry and the value chain

Abstract

Purpose

In this paper it is argued that value chain structure, that is the way that skills and activities are divided between different firms within an industry, often evolves in a locally specific way and this has serious implications for the global expansion of firms. It is argued that for managers to be successful with global expansion they must consciously consider both the division of activities in the value chain of the new market, and the degree to which their own skills and capabilities can readily compliment or interface with those of local partners and suppliers.

Design/methodology/approach

Data was collected and case studies developed on firms that have faced challenges related to value chain structure when undertaking foreign market entry. The study followed directives for case‐based research, and was based upon multiple sources of evidence: archival data, industry publications, interviews and direct observation. The study conformed with Yin's recommendations for developing construct validity and reliability. Multiple sources of evidence were used to achieve data triangulation, thereby reinforcing construct validity. As analysis of the companies under analysis evolved, progress was communicated to key executives and managers in the firms under analysis, thereby encouraging the early identification of possible rival explanations and ensuring internal validity. From the academic literature, field visits and the development of case studies, the research was refined during 2007‐2008 in a reiterative process of application, testing and adaptation. Common issues were identified and used to build theory and make the concepts generic enough so they could be utilized by other managers.

Findings

Decades of wisdom about foreign market entry tells managers to assess whether their unique skills and capabilities might offer comparative competitive advantage in markets where aspects such as socio‐cultural attributes, regulatory and legal structure, level of economic development and the availability of supporting administrative and physical infrastructure can differ from the home market. They are encouraged to analyze these potential hurdles carefully, and to decide if their company‐specific skills and capabilities outweigh country‐specific challenges in operating abroad. But beyond the firm and country specific elements that are traditionally considered as part of foreign market entry decisions, the structure of the foreign industry's value chain, and the capabilities of the firms operating within that chain, can also play a very significant role in the potential of global expansion. Industry value chains, and the activities and skills of the firms within those chains, can evolve in distinctly different ways, even within industries that produce similar products or services.

Practical implications

The paper takes a cross‐industry view to draw practical recommendations for managers considering foreign market entry from both the manufacturing and service sectors. It is argued that for managers to be successful with global expansion they must consciously consider both the division of activities in the value chain of the new market, and the degree to which their own skills and capabilities can readily compliment or interface with those of local partners and suppliers.

Originality/value

Even the smartest managers can put a great deal of effort into the “traditional” tools of foreign market entry analysis while at the same time remaining blissfully ignorant of the value‐chain‐related problems that they might encounter. This is not because they are negligent, but because they have come to take for granted the manner in which the value chain functions in their home market, and almost no one from the consulting or academic world has challenged them to question these deeply held assumptions as part of typical approaches to market entry analysis. The paper takes a cross‐industry view to draw practical recommendations for managers considering foreign market entry from both the manufacturing and service sectors. It is argued that for managers to be successful with global expansion they must consciously consider both the division of activities in the value chain of the new market, and the degree to which their own skills and capabilities can readily compliment or interface with those of local partners and suppliers.

Citation

Anderson, J. (2009), "Expanding globally with local vision: foreign market entry and the value chain", Journal of Business Strategy, Vol. 30 No. 5, pp. 32-39. https://doi.org/10.1108/02756660910987590