Essay on Global Internalization: The Path to Sustainable Business Growth

Introduction

Internalization is one of the primary goals for almost every company in the world today. From an economist perspective, the term internalization refers to the process where businesses tend to become more immersed in foreign markets. In the modern world today, most corporations start their processes domestically, but with time, they draw a plan on how the business will expand its domestic operations to international countries. According to Asgary, Samii, and Frutos-Bencze (2016), internalization has had a substantial role in changing the business landscape by creating a market situation characterized by intense competition. Importantly, the reasons for internalization differ from one corporation to another. Most firms, however, opt to expand to global nations since the domestic market is inadequate for healthy financial growth and the immense opportunities present in other states. Therefore, internalization is one of the techniques executives use in a company to reduce the overall costs of operation.

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Arla Foods is a cooperative company that deals with the production of dairy products. The headquarters of the company are located in Viby, Denmark. The corporation resulted from a merger between two firms, Swedish Dairy firm and Danish corporation. Primarily, the company combines traditional techniques and technologies in the world today to ensure that the products remain natural from the farm to the refrigeration step. Just like any other company in the world today, Arla could increase the overall profits accrued by increasing its presence in Southeast Asia. Mainly, this paper is a global business plan for Arla foods to expand to Nepal, a country located in Asia, which offers an array of business opportunities that the firm could tap into to increase its presence in the region and generate revenues while also reduce its overall operating costs.

Phase 1- Planning the Global Enterprise

Global Business Opportunity

Arla Foods is a company with various opportunities that it could utilize to expand to Nepal. Most people in the globe today are showing a preference for healthy foods due to the rising numbers of lifestyle diseases. The corporation is known to be useful in producing and delivering healthy foods. The increase of choice for healthy foods can make the Arla Foods gain access to different markets since it will provide highly demanded healthy foods. With this in mind, the corporation can gain entry to the dairy market in Nepal following the rise of healthy foodstuff.

Consequently, different nations in the world, Nepal inclusive, have many consumers of dairy products. The large number of consumers makes it possible for Arla to expand its market to the country. The company will get to sell its products in the nation, which will result in brand awareness. Importantly, identification of opportunities within the company acts as an eye-opener for internalization (Asgary, Samii & Frutos-Bencze, 2016). Aside from that, the aging population has had a role to play in increasing the demand for functional and healthy food. Arla is one of the companies in the world that supplies functional and healthy foods critical for the aging population. From this, it is clear that the company is positioned in a way that could give it access to various countries, especially those with a high number of the aging population. Nepal is a country whose aging population is highly demanding for functional foods. The dairy market in the country, therefore, is attractive to the company, Arla Foods. Also, the nation has a large number of middle-class populations that are also prone to buying dairy products. The middle class provides the market for the products generated in Arla Foods, which makes it a suitable business venture.

Domestic and International Competitors

Arla Foods is faced with a variety of competition that could prevent it from succeeding in its entry to the Nepal market. It is worth noting that strong competitors are a threat to the corporation since most of the competitors have extensive knowledge of the market. Fonterra is one of the main competitors for Arla Foods whose headquarters are located in Auckland. Fonterra competes in the food processing field and generates 159% of the overall revenue gathered at Arla Foods ('Arla Foods Competitors, Revenue And Employees - Owler Company Profile' n.d). Also, SADAFCO is another competitor for Arla Foods that operates in the food processing industry and generates revenue of $12.4 billion more than that of Arla ('Arla Foods Competitors, Revenue And Employees - Owler Company Profile' n.d). The third competitor is Parmalat that also competes with Arla Foods because it provides employment to over 6800 employees more than those at Arla and is renowned for manufacturing and food products ('Arla Foods Competitors, Revenue And Employees - Owler Company Profile' n.d).

Chile is one of the regions in the world today with different dairy companies that know the market as opposed to that possessed by Arla Foods. In addition to that, the value proposition of the competitors is close to that of the company, which makes the competition a challenge. Mainly, this could hinder internalization of a firm into the global market. With the rising competition facing the company, price-sensitive markets is another issue that makes the company sell its products at relatively low prices, making it difficult for the corporation to generate profits. With this in mind, the company should find a way of managing the risks hence making it easier to expand to external markets and limit the threat of competition.

Economic-Geographic Environment

Importantly, Nepal is a least developed country, which makes this business plan an interesting one to understand and focus on. The state falls in the least position of socio-economic development in the globe. Nepal is located in a land-locked region and has an extended border with India. The country is significant for internationalization of Arla Foods, considering its history of market orientation and promotion of Foreign Direct Investment (FDI). It is worth noting that the country has some steps to enjoy from the integration of a global economy to the promotion of the FDI, which makes it attractive for the Arla Foods products despite the disadvantage of the nation's geography in appealing investors from foreign nations. According to Asgary, Samii, and Frutos-Bencze (2016), the focus has been placed to enhance trade in the least developed nation. The world today is focusing on the high costs and complexities involved in conducting business in countries such as Nepal that are least developed. The fact that the cost of doing business in the country will improve soon and the complexities will minimize makes the country suitable for companies such as Arla Foods since expanding to the country will make the firm develop a market presence in the area. Also, the region will attract other companies as it advances economically. However, Arla will have already captured the market and will have a competitive advantage over the other firm. It is important to note that the economy of the country is advancing significantly, and Arla Foods would hardly face any challenges that are inclusive of losses when they expand to the region.

Social-Cultural Environment

Primarily, the socio-cultural factor and cultural variances have a substantial role to play in influencing the internalization of firms. According to Asgary, Samii, and Frutos-Bencze (2016), the way of life, government, and how an organization operates is different in overseas countries as opposed to the domestic firm willing to globalize. The Nepali society is a home for people of different cultures, ethnic backgrounds, and religious groups throughout the geographical boundaries of the nation. The culture of the country has been changing substantially over the years. The changes have been prevalent in recent decades, with most of them being fast and irreversible and characterized by their focus on the new generation. Also, the urban culture in Nepal is fast developing through modern education, media, employment, and different other factors. The rural lifestyle is experiencing a slow pace of change and development. The changes in the socio-cultural environment of the country have brought a variety of trends in the Nepalese market. The impact has been tremendous that it can be noticed easily. The food and food habits of the country is changing substantially with a focus on functional foods, which makes it a suitable location for Arla Foods to internationalize. The socio-culture of Nepali society would not be a significant challenge for Arla Foods.

Political-Legal Environment

The Nepalese dairy market is favorable for Arla Foods, considering the political and legal environment. The country has human resources willing to provide cheap labor to work in the processing plants. However, political instability is an issue that the country has been experiencing for a while. Also, the country seems to have some challenges in investing in research and development that slows down the innovation level in the country. However, this challenge could be an advantage for Arla Foods that has been involved in international markets before and has finances that could be used to facilitate the necessary research in the industry. The increased interest of dairy products in Nepal is an advantage that Arla Food has that ought to foster its expansion to the region. It is worth noting that the Nepalese government issues subsidies to companies interested in dairy farming and the sale of dairy products, which is a positive sign that the business of Arla Foods is encouraged. From the analysis of the external influences of dairy farming in the area, one can see that the market remains significantly attractive for Arla Foods.

Phase 2- Organizing for Business Activities

Global Company Structure

The primary objective of Arla Foods' internalization strategy to Nepal is to grow steadily and gain the utmost market share. The primary emphasis will be the operation, quality, brand familiarity, and high-quality staffing. Also, the firm will have a market entry strategy since Hoffmann et al. (2017) indicated that different strategies for internalization exist and no single approach is useful for internationalization markets. Mainly, this implies that a variety of reason such as the rates of the tariff, adaptation of a product, transportation, and costs of marketing influence corporations to go for different strategies when expanding internationally. Arla Foods will use direct exporting. According to Hoffmann et al. (2017), direct shipping is a technique that allows corporations to sell the products directly to the selected market. It is worth noting that direct exporting differs from indirect exporting since it involves an immediate commitment made by an organization and the international market to control the brand and operations in the foreign market. Importantly, Arla Foods can choose to expand to Nepal by selling the dairy product to the market. Direct exporting is preferred to indirect exporting that involves electing an agent in the country of choice that will focus on the distribution of the commodities to the market. One reason for the preference of direct exporting is the fact that the organization can control the staff and the brand awareness programs in a way that best matches the company's interest and objectives.

Further, franchising will be another essential market entry mode that Arla Foods will use. According to Hoffmann et al. (2017), franchising is a market entry mode where a single company supplies other corporations with various properties. The entry mode is standard in the service sectors that include car rental organization, hotels, and restaurant. As Hoffmann et al. (2017) indicated, franchising work...