Background

Chapter 17 - The Internationalization Efforts of Small Internet Retailers
Managing IT in Government, Business & Communities
by Gerry Gingrich (ed)
Idea Group Publishing 2003

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Internet Retail and the Need to Internationalize

Emerging technologies have fundamentally changed many of the transaction-based and value-adding retail activities, and are moving them into cyberspace (Shaw, Blanning, Strader, and Whinston, 2000). Retailers are recognizing how Internet-empowered strategies can be used to deliver the set of attributes demanded by the changing customer, and are redesigning their business models to gain a competitive advantage. Katros (2000) describes the emerging trends and best practices of retailers in adopting Internet technologies, such as dynamic merchandising, targeted selling, ubiquitous retailing, and multi-channel retailing.

Internet retailing is driven by a number of benefits to both the retailer and the consumer, including the access to a more affluent customer base, lower information dissemination, and transaction costs, broader market reach, increased customer service, additional feedback channels, and access to consumer and market research (Auger and Gallaugher, 1997). The Internet has, therefore, become a strategic and critical medium and channel for retailers.

The widespread use of the Internet has affected the globalization drivers in many industries, thus having a direct affect on any organization's global strategies and operations (Yip, 2000). Various market, cost, governmental, and competitive factors drive the trend for organizations to internationalize. These include global customers and channels, economies of scale and scope, favorable logistics and trade policies, and competition from global organizations (Kuhn, 2000). The proliferation of the Internet internationally has accelerated the effect of these drivers. For instance, the Internet enables customers to be global, supports global marketing, exploits cost differences between countries, side steps trade barriers, and increases a commonality in consumer demands across countries (Yip, 2000).

Organizations need to adapt to these changes innovatively to survive. The Internet has made it easier for organizations to infiltrate global markets by enabling an instant global reach and global marketing. Furthermore, the Internet enables easier competitor monitoring, quick response, and effective inter-organizational linkages (Yip, 2000).

Multinational Strategies

Business studies dictate four strategic approaches to internationalization, varied on the symbiosis between the need to maintain responsiveness and gain a competitive advantage in a local setting, and the need to integrate across business processes and activities to obtain a competitive advantage globally (Griffin and Pustay, 1998; Kuhn, 2000). The international strategy utilizes a firm's core competency as a competitive weapon in foreign markets. The multi-domestic firm operates with independent subsidiaries, each focused on a particular domestic market, free to customize its product and strategies to the needs of the local customer. The global strategy views the world as a single marketplace, and strives to create standardized goods and services that will meet the needs of customers worldwide. A transnational strategy seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness.

Internet retailing literature is riddled with studies on the trade-off between online-only retailing (pure play)and physical retailing (brick-and-mortar). Otto and Chung (2000) discuss the use of cyber-enhanced retailing to provide additional customer value and satisfaction by leveraging e-commerce technologies and the traditional shopping experience. However, many traditional brick-and-mortar retailers fear cannibalism of existing channels with the adoption of Internet strategies (Chen and Leteney, 2000). While early adopters hypothesize the exploitation of established brand names, physical infrastructure and distribution, and logistic networks to nourish e-tail success (Pottruck and Pearce, 2000), statistics and theory have yet to substantiate the claim. Birch, Gerbert and Schneider (2000) perceive synergies between established retailers and their Web sites to be fewer than anticipated, while the obstacles facing these organizations are substantially greater. Holistically, e-tailers who wish to succeed at global e-tail must find the correct balance between global integration of their operations and responsiveness to local consumer demands, while maintaining successful Web, or a combination of Web and physical, strategies.

However, studies relating to the issues faced by e-tailers adopting global strategies are lacking. Farhoomand, Tuunainen, and Yee (2000) identify many issues in global electronic commerce and propose a framework for classifying these issues into technical, cultural/political, economic, legal and organizational issues. However, as none of the case companies in the study were in the retail industry, it is motivating to take a closer look at Internet retailers.

Case Backgrounds

The three case companies provided a unique opportunity to conduct a study as each company stemmed from a spectrum of backgrounds, and each adopted distinct strategies in its e-tail and expansion approaches. Data was collected primarily from 13 semi-structured interviews with key personnel at the top and middle management levels in the companies in late 2000 and early 2001. Further data regarding the cases was accumulated from documentary evidence such as press releases and news and business reports. The interviews and documentation provided rich contextual data that is briefly summarized in following sections.

Company A is an Internet company that utilizes retail as a supporting function to its core consulting activities. Striving to be a knowledge resource for its customers, its online retail activities are the essence of the organization's services. The retailer operates on an online basis only, but a supporting physical office in Singapore acts as the organizational headquarters and service point for its local customers.

The company began its operations in 2000, and consists of 20 full-time employees, with 40 temporary virtual employees and partners situated world-wide. These virtual employees provide much-needed and necessary information and expertise of markets around the world. While the organization does not have its roots in its retail industry, it is privately funded by individuals and headed by a core management group with strong backgrounds in e-commerce.

The Web site aims to operate globally, not turning down deliveries to most parts of the world, e.g., its occasional orders from Vietnam and the U.S. However, because the organization has not marketed itself internationally, it has received few international orders. The company's strategy is to establish a critical mass in Singapore and use this as a test bed, while marketing itself aggressively in high-growth countries around Asia, including Malaysia and China, and eventually into the U.S. in the future.

Company B is owned by a large multinational conglomerate with a diverse business background in telecommunication and manufacturing. To reinvent itself for the digital economy, the conglomerate spawned a virtual retailer in Singapore, believing the country has a large growth potential in its retail industry.

Also launched in 2000, the online retail company aims to transform the attitude of online shoppers by providing a personalized and enriching shopping experience, and by enhancing its customer service to exceptional standards. Headquartered in Singapore, the pure play e-tailer operates with a nucleus management team of seven, and another 16 full-time employees.

The e-tailer operates in three countries Australia, Singapore, and Malaysia and prides itself on its price competitiveness, value proposition, and high standards of customer service and satisfaction. The company markets itself aggressively in all three countries, emphasizing on branding. Striving to remain virtual, the organization does not have any physical infrastructure in place, apart from its headquarters in Singapore, and a fulfillment centre each in Malaysia and Australia.

The organization is researching possible countries in the region to expand its operations, while trying to shorten delivery cycles, capture greater market share, and improve fulfillment.

Company C is owned by an organization with a relatively long history in retailing in the Asia-Pacific region. With many retail stores in countries around the region, the organization reinvented its strategies to deal with consumer demands. In 2000, it launched an online subsidiary of its retail outlets to fulfill the need for an e-tail channel.

The e-tailer subsidiary operates with a workforce of 60 employees in various functional departments, and maintains a strong but independent relationship with its parent company, operating with a synergistic click-and-mortar strategy. The e-tailer works closely with the network of physical stores around the region to promote its activities, to provide a personalized shopping experience and exceptional customer service, and to leverage off the existing distribution and fulfillment capabilities.

The e-tailer mainly serves customers from Singapore, Malaysia and Indonesia, but is technically and logistically capable of fulfilling global orders. It is attempting to establish itself in other countries around Asia particularly China, the Philippines, India, and Thailand through strategic partnerships and co-marketing.

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