Internationalization Strategies for Services Article #18 By: Christian Gronroos Presented By: Chris Tschombor

Purpose and Objective  Discuss key challenges for service firms planning to go abroad  Discuss the three methods of entry into an international market  Marketing hard services vs. marketing soft services  Present five different types of internationalization strategies for services

Services & The International Market  Services are the fastest growing part of international trade  However, in the USA the export of services accounts for a small portion of total service production, only around 6% in 1997, which has grown to 30% since the beginning of the decade.  In the European Union between 10 and 20% of service production was exported almost 10 years ago.

Previous Work  Obstacles of internationalization include lack of resources, too little knowledge about exporting, and the belief that cultural differences may make the process more difficult. (Winstead & Patterson, 1998)  The choice mode of entry into the international market is to either follow existing clients or look actively for new markets (Erramilli & Rao, 1990)  Services for foreign markets have been divided into hard and soft services. (Erramilli, 1990)

Challenges of Service Firms Going International  Most literature on internationalization and export strategies is geared towards the needs of manufacturing firms rather than service firms.  Research knows very little about how service firms enter foreign markets and there has been little practice to back up theory.  What little research that has been done on internationalizing service firms suggests it is a risky move to make.

Modes of Entry 1.Client-Following Mode Firms follow manufacturers that they are supplying with services, into their domestic market. 2.Market-Seeking Mode In efforts to expand service firms, search internationally for new markets. 3.Electronic Marketing Mode Technological advances of today have created many new opportunities for internationalization.

Hard vs. Soft Services Hard Services Require little or no local presence by the exporter.  Architectural design  Education  Life Insurance  Music Soft Services Require major presence by the service firm or a local representative.  Food service  Health Care  Laundry  Lodging

Methodology: 5 Main Strategies for Internationalizing Services Export Strategies 1.Direct Export 2.Systems Export Entry Strategies 3.Direct Entry 4.Indirect Entry Electronic Strategies 5. Electronic Marketing

Direct Export  Direct export of services may basically take place on industrial markets.  Consultants and firms repairing and maintaining valuable equipment may have their base on the domestic market and move resources whenever needed to produce the service to the client abroad.

Systems Export  Systems export is a joint effort by two or more firms whose solutions complement each other.  For example, when a manufacturer delivers equipment of factories to international markets the need for other services is often present.

Direct Entry  Means that the service firm establishes a service- producing organization of its own on the foreign market  For a service firm, a local organization normally has to be able to produce and deliver services from the beginning.  To decrease potential problems with a direct entry strategy, firms can acquire local markets operating in the same service market, rather than establishing a new organization.

Indirect Entry  Used when the service firm wants to avoid establishing a local operation that is totally or partially owned by itself.  For example, in the lodging business and the restaurant industries, franchising is an often used concept for indirect entry into a foreign market.

Electronic Marketing  A strategy in which a firm extends its accessibility by use of advanced electronic technology.  Using electronic marketing allows firms to not be bound to any particular location.  For example, in Europe music and fitness equipment are offered through satellite television services.

Conclusion: Will Customers Accept Foreign Services?  Regardless of what entry mode a firm uses, the customers must accept services from an international firm.  Openness to foreign cultures may support international services, where as patriotism and conservatism may keep consumers from buying.  Younger, as well as more educated consumers, are significantly less likely to reject foreign services.