Internationalisation of Pets at Home (LSE:PETS)

Keyword: Theories of internationalization, Dunning Eclectic Paradigm (OLI model), Sequential theory and Foreign Entry Mode, Learning Theories of internationalization, Network Theories of Internationalization, Uppsala School of internationalization, Method of foreign Entry, International business assignment writing services

Introudction

This paper discuss the need as well as the process of internationalization for ‘Pets at home’ in the light of different theories. In addition, in the light of the analysis of these theories market for internationalization will be advised for the company.

Akehurst and Alexander (2015) discussed that Internationalisation is defined as a process of the development of company operations across the borders. Additionally, it is a process in which company operations adapt to the international market condition and the environment. Moreover, it is a continuous process in which organisation involvement in the international operations increases.

Jones (2014) evalutes company expansion across the border may influence because of number of reasons, as well as internationalization, goes beyond traditional exporting and carried out local marketing and selling activities in the host country market. Internationalisation occurs when company expand its selling, production or other activities across the border. The adaptation to international markets is a continuous process where an organisation takes small incremental steps (Buckley and Ghauri, 2015).

Company Profile – Pets at home

‘Pets at home’ is UK pet supplies retailer which offers number of services to pet owner through a number of channels. The company is a committed to provide omni-channel experience across its all platforms which include stores, multiple websites, exclusive products, vet services, as well as grooming saloon for the pets. Furthermore, the company mission is ‘To Be The Best Pet Shop In The World and is articulated through the PawPrint’ (petsathome.com, 2014).

The range of products company sold includes bedding, toys, accessories, medication and veterinary services. Company annual sales increase had an average of 9% in 2012-2014, as well as earning, has increased by 7% per annum. In 2014, company have had an IPO along with company valuation at £ 1.5 billion (Felsted and Robinson, 2014).

PET at  home and Internationalization

The company has experience tremendous growth in the UK. Despite its massive size and strong presence in the UK, the company does not have its operations in any other country. Therefore, to take advantage from existing success company will start its operations globally. This will help the company to achieve further growth and revenues.

The new economic opportunities will deliver more profits, increase operational efficiency, overcome saturation in UK market as well as the company will have more customers (Thompson and Martin, 2016).

Theories of internationalization

Internationalisation theories have a focus on the processes of an organisation which helps the companies to expand their operation across borders.  Moreover, these theories explain the factors and reason which are important to understand why and how companies carried out internationalisation (Brush, 2015).

Dunning Eclectic Paradigm (OLI  model)

Dunning eclectic model is a useful framework to explain the international business activity patterns of a business. It highlights the competitive advantage source for a company which helps the firm to start its operations globally (Rugman, Verbeke and Nguyen, 2015).

According to this model, global companies usually have three types of advantage which are based on the ownership (O), localization (L) and internationalization (I) advantage. Moreover, ‘O’ indicates other forms across activity, ‘L’ where companies going to expand and ‘I’ why firm going international (Buckley and Hashai, 2014).

Ownership advantage

In case of ‘Pets at home’ ownership or competitive advantage shows that how can it compensate the additional cost when it will set-up its operations globally. In other word, it explains specific advantage company through using its asset in the international market rather domestic. Pet at home has strong experience of manage multiple product and service delivery in the UK market.

The Omni services, brand name and unique business proposition can help to achieve ownership advantage. The strong business and competencies will minimise the costs in the international market. Ownership advantage is most suitable with licensing arrangement (Ellram, Tate and Petersen, 2014).

Localization advantage

In addition, location advantage is specific to the country and its characteristic. Nevertheless, it is the same comparative advantage from the theory of international trade. For pet at the home comparative cost of input have significant importance. The advantage pet at home have is that its efficient business model and strong economic and social-cultural environment in the UK.

Nevertheless, these factors are internationally no mobile and specific to UK. Furthermore, internalization involves the transaction attributes of the an organisation. In case of ownership advantage, the company should choose to export (Wilson and Baack, 2016).

Internalization advantage

In case of pets at home, internationalization advantage would represent that its will prefer to open its own store rather missing licensing or collaboration in the international market. It is represented ample opportunity for the pet at home to take advantage from internationalization because its unique business model and proposition its offers. It will deliver additional benefits to the company based on its competences and resources rather than selling its own products.

In the light of the sequential theory during the processes of internationalisation, company enter the foreign market as reduce the transaction cost as well as offer better control. Nevertheless, internalization advantage helps the company to makes a foreign direct investment (Buckley and Hashai, 2014).

Sequential theory and Entry Mode

Vahlne and Johanson (2015) explained that the theory explains firms enters in the foreign market through multiple stages such as discontinuous export, use of an agent to export, issuing licensing, collaboration as well as making foreign direct investment in the international market. In case of pet at the house, the company is better of utilization its ownership and internalization experience. The company is current operating as a pure domestic company and it has reached saturation point where growth is slow.

Therefore, it should expand across the border. Nevertheless, company business model does not fit well with exporting of the product but it should rather make the direct investment (Casillasa, Barberob and Sapienzac, 2015).

Learning Theories of internationalization

In the light of learning theories, organisation knowledge and resources are viewed as assets and learning plays an important role in terms of economic benefit through the learning curve. Moreover, learning gives the organisation an opportunity to gain knowledge and experience which helps the organisation to reduce the cost. The basis of the learning theory presumes that organisation have to make a decision based on the limited information along with limited capacity in terms of information processing.

Consequently, it is considered that organisations learn and gain experience through following the successful result and avoid the outcomes which have not produced desired result for the company (Zucchella, Palamara and Denicolai, 2015).

Casillasa, Barberob and Sapienzac (2015) analsyed that Pet at home has knowledge and experience of managing the pet supply business and over the years experience gain by the company can deliver economic benefit during the processes of internationalization. However, a pet at home does not have experience of internationalization and, therefore, the company have limited information available to make a decision.

The importance of organisation is associated with both behavioural and cognitive abilities of the people in an organisation. Once firm enters in an international market it will start a learning processes which helps the organisation to apply the practices to new markets (Zucchella, Palamara and Denicolai, 2017).

Hatch and Cunliffe (2015)  discussed that Pet a home based on the learning theory can gain insight through ‘direct experience’ as company enter the foreign market as well as network or research-based learning where company take advantage from the experience of others. The direct and research based learning is an important tool to understand the foreign operations and market characteristics. Moreover, it can apply the knowledge to achieve success in the international market based on the outflow of knowledge.

Network Theories of Internationalization

Akehurst and Alexander (2013) discussed that network theories explain the process of internationalisation as expanding existing relationship or creating new relationships in the international market. Network model theory emphasise on the value of both formal as well as the informal relationship of the company during growth and internationalization stage.

In the light of network theories, it people who make a decision as it focus on the social context of an organisation. The value of network could not emphasis less as they enable the linkage of resources and activities. In the light of network theory, business relationships are viewed among number of stakeholders such as customer, provider, customers as well as competitors of the company (Anderssona, Eversb and Griot, 2015).

Thompson and Martin (2014) stated that in case of pet at home, network relationship will help the company to determine its strategic options. They strategic options help the company to chose their market based on the range of activities. Nevertheless, network approach will not help the pet at home on which mode should be used to enter the foreign market as it concern with the strategic decision of the company.

In the light of network theory, a pet at home will make a decision of internationalisation based on the network rather considering the economic or institutional factors. Network theory helps the organisation to identify and highlight the managerial problems in terms of relationship management with a range of stakeholders. Pet at home can get benefit from its network which will help in the internationalization process of the company (Ge and Wang, 2016).

Chettya, Johansonb and Martin (2014) discussed that network for the pet at home will help in case of no relationship in the host country. The relationship in the network has three dimensions which are timing, information and referrals in the network. These three factors will help to acquire information which increase the speed of internationalisation for the company.

Pet at home needs to understand condition and relationship with the supplier in the home market and how these relationships can strengthen the international expansion. Once penetration in the market is achieved then it evolved the relationship and strengthen its position in the market.

Organisation learning considers company market and technical in terms of success in the market. Network approach view company market knowledge and its networking for success in the international market (Chettya, Johansonb and Martin, 2014).

Uppsala School of internationalization

Buckley and Ghauri (2015) analysed that Uppsala model consider the internationalisation as a slow process because it is based on the learning of organisation as well as the market conditions and regulations. Moreover, the theory explains the state and change during the process of internationalisation. The four element organisation should consider are market knowledge along with market commitment. The next important factor to consider is current activities of the organisation as well as the commitment of the organisation

For pet at home, the first stage involves is the acquisition of the experience in the domestic market. Nevertheless, the company have plenty of experience to be successful in the domestic market (UK).

The important factor to consider is that internationalisation processes should be started with countries which are regional and cultural similar to the company host country. The first step involves is managing the business through traditional exporting arrangement which are irregular (Vahlne and Johanson, 2014).

The next stage involves would be exporting through an agent and afterwards company establish its sales subsidiary. In case of Pet at home who have a mix of both services and products as well as it has an international advantage, therefore, the company needs to start with the foreign sales subsidiary. Nevertheless, the company can take advantage from the licencing arrangement in to develop understanding and learning the international market (Pukall and Calabro, 2014).

The appropriate way to start off the internationalisation is expanding to psychic nearby market and afterwards it can expand its horizons to countries which are geographically dispersed and have culture distance as the major factor. The interdependence of the market knowledge along with commitment decisions and role of current activities of organisation with market commitment have position correlation and impact.

The Uppsala Internationalization Model
The Uppsala Internationalization Model

The organisation learning helps to understand the market knowledge and decision. As it defines how knowledge and experience can transfer from one country to another. The incremental penetration in the international market will help gain knowledge and experience for successful operations.

On the other hand, technical knowledge can transfer from one country to another. The general knowledge is useful for the geographical diversification of the company (Johanson and Vahlne, 2015).

Pet at home and  internationalization

Pet at home does not experience and knowledge of the international because company operations are limited to UK only. Nevertheless, in order to achieve internationalisation company need to consider number of factors. In the light of the eclectic model, the pet at home has ownership and internationalization advantages.

Therefore, this suggests company can either issue franshiee for its store or can adopt to make a direct investment in another country. The Uppsala model explains the internationalisation processes as an incremental process. This will help the to understand the market and gain experience in the foreign markets through Franshiee (Brush, 2015).

Nevertheless, the nature and type of business of pet at home does not fit well in terms of exports and company better opening its retail stores. The starting point for the company would issue a licence in nearby European countries where the market has similar characteristics like the home market.

Once company gain knowledge and experience then it can target emerging markets where there are number of economic opportunities for future growth and revenues. Therefore, the company should start with licencing through exploring its networks and afterwards make the direct investment to launch a sale subsidiary in the more geographically spread region (Mikler, 2013).

Method of Entry

Licensing and Franschising

Zahra, Ireland and Hitt (2016)  analysed that the suitable method of entry for the pet at home are equity and non-equity based. Nevertheless, due to the different nature of business it is not possible for the company to start with export based method of entry. In case of non-equity based method entry, the company starts the internationalisation process with licensing or franchising.

The licensing involves issuing the permission to the international party to engage in the legal business on behave of the licensor. Pet at home does not have made investment and it can take advantage from the resources of other company. This is useful method of entry when cost are high.

Foregn Direct Investment (FDI)

Another method is non-equity is franchise where international party states use the franchisor name rather technology. It is quickest and low-cost method of entry as well as it enables to learn the local environment. Nevertheless, equity-based method of entry involves making a direct investment in a country. It requires the large amount of capital investment but offer greater control over the business. The range of options involves in equity based internationalisation includes joint ventures, merger and acquisition or strategic alliance (Majocchi, Mayrhofer and Camps, 2014).

Conlcusion and Recommendation

Internationalisation is a process in which firm gradually expand across borders and it is vital for growth and future profitability of the company. Pet at home have successful operations in the UK and have achieved Listing in 2014. Nevertheless, the local market is saturated for the company and i.e. it needs to expand it horizon globally.

In the light of Eclectic theory, the pet at home has ownership and internalization advantage. This can help the company to expand through franchise or foreign direct investment. The nature of business does not fit with export based internationalisation.

Learning theory explains that the company can develop knowledge over time and in case of pet at home, through international to psychic nearby market it can gain market experience.The technical knowledge can transfer from UK where company operations are efficient.

Moreover, network theory can help the organisation to explore countries through exploring the formal and informal relationship of the company.

At last, not least, Uppsala model suggests that the company should take the internationalization process in gradual steps.

  • It is a recommendation that pet at home should start internationalization processes through exploitation the ownership advantage. The psychic distance approach and franchise network will help the company to understand the market.
  • The company should focus on the knowledge from franchise network and then exploit the internalization advantage to exploit the new economic opportunities in geographically and culturally different market.
  • The company should exploit it, stakeholder, to identify the potential opportunities in the network to speed up the process of internationalisation. Nevertheless, internationalisation in incremental approach and company should rush to make large equity investment without prior learning of the organisation.

 

 

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