Internationalization decision-making in business strategy

Decision Whether to Internationalize or Not?

Companies competing in the oil and gas extraction industry are faced with some unique challenges and opportunities as the demand for energy increases and the inexorable march to peak oil continues. Emerging economic powerhouses such as China, India, Brazil, and Malaysia will need ever-increasing amounts of energy to fuel their economic development and consumer demand, and it is becoming apparent that companies that can extract oil and gas efficiently and reliably enjoy a competitive advantage. Not surprisingly, the oil and gas industry is highly internationalized, with a global supply chain and customers. One company that has experienced success in this environment has been RBG Limited, a UK corporation created in 1995. This company forms the focus of this study to identify salient factors affecting the decision to internationalize or not, and these issues are discussed further below.

Review and Analysis

In an increasingly globalized marketplace, many companies are trying to internationalize without giving much consideration to the implications of such initiatives. In their rush to jump on the internationalize bandwagon, some companies have either failed to achieve the positive outcomes they intended or have otherwise failed to gain a competitive advantage using this process. Not surprisingly, then, many companies have been reluctant to internationalize because of the unknowns that are involved. In this regard, Arbaugh, Camp and Cox (2008) report that, "While internationalization and its consequences have been the focus of extensive research, the question of 'Why don't firms internationalize?' has received much less attention. Considering that in spite of the "march of globalization" often trumpeted by the business press, the fact that most high-performing North American entrepreneurial firms still are domestically oriented makes this an interesting question" (p. 366). The theory of new venture internationalization indicates that among existing companies, some will be more amenable than their competitors in seeking new opportunities outside the sphere of their existing markets (Clerq & Bosma 2008). This theory builds on the strategic choice view of organizational decision making, in that it focuses on the firm's pursuit of specific goals as an important factor associated with the nature and pace of internationalization. Therefore, the commitment to internationalize will likely differ according to two knowledge-related firm resources, the company's management team size and the company's existing level of innovation (Clercq & Bosma 2008).

Indeed, projecting an international presence on the level required by the internationalization process no longer represents an insurmountable enterprise, and there are a wide range of resources available to help new entrants in a given market sector level the playing field with existing market leaders. These trends means that companies seeking to grow their businesses are faced with some challenging issues when it comes to identifying the optimal approach, with internationalization being the route of choice for some, including RBG Limited (hereinafter alternatively "the company"), an oil and gas extraction company discussed further below.

RBG Limited

Since the company' incorporation in 1995, it has experienced a number of acquisitions and mergers that has fueled its growth. For instance, in 2005, the company acquired Core Technical; in 2006, Wilcox Engineering was acquired and a joint venture with SRQ was created in 2007. Finally, in 2008, the company acquired PWL, providing RBG with the employee complement shown in Table 1 below.

Table 1

RBG Profile and Key Facts

Factor

Description

Comments

Company Name

RBG Limited

Incorporation date 25 October 1995

R/O Full Postcode

AB21 0DP

Registered Number

Primary UK SIC (2003)

Code -- 11.20

SIC Code 11.20: Service activities incidental to oil and gas extraction excluding surveying. This sector provides oil and gas service activities on a fee or contract basis, for example directional drilling and re-drilling or repairing and dismantling of equipment.

Turnover in GBP

261,837

(as of 31/12/2008)

Number of Employees in Last avail. year

2,965

Previous Names

1. RIGBLAST GROUP LIMITED (2005-01-07)

2. LEDGE 248 LIMITED (1996-04-19)

Website

http://www.rbg-group.com/

Source: UK Companies House, http://xmlgw.companieshouse.gov.uk/

RGB Ltd. Mission and Vision

The company's stated mission is "To be the fabric maintenance and construction support service partner of choice within the global energy industry" (Our aims and ambitions 2011, p. 1). The company's stated vision is as follows:

We will be renowned as the number one global fabric maintenance and construction support partner, providing safe, quality and innovative services. The industry will admire and recognise our capabilities and our performance; our competitors' employees will want to work for us. The market will expect us to deliver, because we always deliver. As people we will all be valued, given opportunities and enjoy work. Growth will be the norm across the business, and change will be expected and promoted. (Our aims and ambitious 2011, p. 2)

As can be readily discerned from the company's mission and vision statements, RBG seeks to expand its international operations further in the future as part of its fundamental corporate strategy for growth. This type of growth, though, represents a proposition that will inevitably require expansion into additional international markets and these issues are discussed further below.

Market opportunities

The decision to internationalize will involve identifying what type of strategy will be used to pursue new market opportunities in countries outside a company's existing network of operations. According to Kasper, Van Helsdingen and De Vries, there are two basic strategies that can be used by companies seeking to internationalize: (a) client following and (b) market seeking as described further below.

1. Client following: In this strategy, companies follow the client to provide services in the foreign subsidiaries of the customer in their own country.

2. Market seeking: In those cases where companies are searching to grow their business in new markets, they will enter into new international markets to expand and serve new customers in foreign countries. These customers have to become familiar with this new entrant and new relationships have to be built. This is more complex than the foregoing "client following" strategy (Kasper et al. 1999, p. 29).

In RBG's case, it has traditionally applied a client following approach, taking its services where they are needed in the dynamic oil and gas extraction industry environment. In other cases, though, a growing body of evidence indicates that organizational size and age are not barriers to internationalization (Yamakawa, Peng & Deeds, 2008). As a result, some of the primary factors that have emerged as leading reasons why some companies pursue internationalization while others do not relates to various perceptual and experiential issues that will vary over time as a company's leadership team changes (Manlova, Brush, Edelman & Greene 2002). Two of the most likely factors that will influence the decision to internationalize are the current levels of domestic success and the degree of barriers to entry in new markets (Manlova et al. 2002). The so-called "domestic success" perspective as explicated in the Uppsala model of corporate internationalization, indicates that companies will seek to internationalize their operations at the point their domestic markets have matured, but not typically before this maturation has been achieved (Arbaugh et al. 2008). Therefore, so long as there are existing opportunities in the domestic market for growth, firms are less likely to internationalize (Arbaugh et al. 2008). By contrast, the so-called "barriers to internationalization" perspective maintains that companies are reluctant to internationalize as a result of significant differences in knowledge and/or national cultures (the so-called "psychic distance") between the headquarters country and other countries, and/or perceived financial or economic risks. According to Arbaugh and his colleagues, in these cases "firms may be interested in internationalization, but perceived external hurdles discourage them from doing so" (Arbaugh et al. 2008, p. 367).

Other authorities agree that these factors influence the decision-making process concerning whether internationalization is in a company's best interests or not, but suggest that many companies make the decision based on a unique set of circumstances. For instance, Hutzschenreuter, D'Aveni and Voll report that, "International expansion is a topic on the agenda of almost every large company" (2009, p. 45). There are a wide range of reasons that may compel companies to pursue internationalization, including (a) access to unique resources, (b) access to growth markets, (c) exploitation of economies of scale, or (d) benefits from differences in factor costs (Hutzschenreuter et al. 2009). These authorities, though, caution that "International expansion is a complex task," and add that, "During international expansion, a firm starts to operate subsidiaries in countries with which it is unfamiliar and in which it is an outsider" (Hutzschenreuter et al. 2009, p. 45). In these types of cases, companies lack the specific information they need to conduct business in these new environments, such as knowledge concerning customer preferences and competitors or knowledge concerning how to interact with local governments, unions, or employees (Hutzschenreuter et al. 2009). Over time, companies gain this knowledge by trial and error, or through the use of country-specific partners than can help them navigate the intricacies of doing business abroad. This steep learning curve has caused some authorities to recommend an incremental approach to internationalization, while others suggest that a more radical approach is necessary wherein there are "bursts of internationalization" (Hutzschenreuter 2009, p. 46). Likewise, Gillispie suggests that an incremental approach can be used to "test the waters" for even very small companies seeking to project an internationalized presence. In this regard, Gillespie recommends that companies, "Craft a scaleable master design that represents the major aspects of your business worldwide and anticipates the degree of localization that will be required in each market. The degree of localization can have a real impact on budgets and timelines" (2008, p. 45). These are important factors for companies in general where limited resources and a lack of experience may preclude more aggressive internationalization initiatives, and these issues are directly related to a company's internal resources as discussed further below.

Internal resources

The company has a wide range of specialized internal resources which are described in Table 2 below.

Table 2

Internal resources of RBG Limited

Business Unit

Description

Specialist Cleaning

RBG's Specialist Cleaning division offers a comprehensive range of services designed to restore production processes to optimal operating conditions. RBG is fully equipped to provide safe, effective and environmentally friendly solutions for a wide range of specialist cleaning applications.

Fabric Maintenance

RBG is a recognised market leader in the provision of fabric maintenance services, typically supplied as part of integrated services contracts. The company has an extensive capability, delivered by experienced, multi-disciplined deck and service crews.

Rope Access

The division has been a member of the Industrial Rope Access Trade Association (IRATA) since 1990 as an operator and trainer providing specialist multi-disciplined access solutions to the oil, gas and petrochemical industries. The company provides a variety of access solutions, either as part of integrated maintenance contracts, or on a stand-alone project specific basis, including offering clients a full project managed service, incorporating planning, integrated management, engineering, inspection and maintenance and execution.

Mechanical Services

RBG assists clients in achieving their business objective of a safe and leak free work environment by providing appropriate management and control techniques.

Electrical & HVACR Division

This division provides a broad scope of electrical and HVACR services and equipment.

Nondestructive Testing (NDT) Inspection

RBG provides a comprehensive range of project and operational inspection and non-destructive testing services. In the current climate where oil and gas operators are striving to extend the life expectancy of their assets and associated plant, the integrity of these assets must be assured. RBG has invested in a wide range of conventional and advanced NDT equipment to provide this integrity assurance. These services are delivered by highly trained, experienced and competent personnel.

Fabrication

RBG's Fabrication division has an extensive track record of delivering excellence in a wide range of oil, gas, subsea, civil engineering, marine and drilling fabrication and construction projects.

Vendor Inspection & Expediting

This division provides an extensive range of services to support the supply chain management function and the manufacturing process.

Manpower Solutions

This division specialises in providing recruitment services to clients in the international oil and gas industry. The company's experienced and professional personnel work with candidates and employers to match the right people with the right vacancies.

Flooring & decking

This division is a leading manufacturer, supplier and installer of marine deck covering systems. Besides offshore and marine activities, the company also provides decorative flooring sub-contracting services to the UK domestic, retail, industrial and commercial sectors.

Scaffolding

The division provides technical support, control and data management services for design, erection and dismantling of scaffolding structures at offshore and onshore locations. The company is fully compliant with the latest European Standard for temporary scaffolding works, BS EN12811-1:2003 and TG20.

Marine Services

This division offers a full range of air and nitrox diving services with particular emphasis on inspection, repair and maintenance related scopes of work. All scopes are assessed and engineered to ensure customer requirements are met and solutions provided for a variety of inshore and offshore locations.

Source: RBG Service Information 2011

Marketing objectives

The company's current marketing objectives are focused on its thriving North Sea contracts. According to a recent press release from the company ('RBG Secures Major North Sea Contracts 2011'), RBG secured more than £150million of new contracts during February 2011 alone, creating 60 new positions in the company in the process. The press release adds that, "RBG, which provides a wide range of expert services to maintain the integrity of production facilities, has experienced a period of significant activity in the North Sea, securing contract wins with a number of major operators to be delivered over the next few years" (RBG Secures Major North Sea Contracts 2011, p. 2). The company's CEO, Dave Workman, observed earlier this year that, "The industry is emerging from a significant downturn and we are now seeing the predicted recovery. We have started strongly in 2011 with an upturn in contract activity, particularly in the UKCS, with demand growing across all of our service lines" (RBG Secures Major North Sea Contracts 2011, p. 1). Some of the more notable corporate objectives that have been achieved recently include:

1. A three-year inspect, repair and maintenance (IRM) air and nitrox diving contract award from Maersk Oil UK, worth up to £36 million including extension options. Around 100 employees from the company's marine and subsea division will provide a range of integrated services including vessel-based diving, autonomous diving support craft and ROV services, for Maersk Oil's North Sea assets.

2. A multi-million pound contract with a major UKCS operator to deliver an integrated range of fabric maintenance and integrity support services on three North Sea platforms. The five-year contract, which has two one-year extension options, will see teams of experienced and multi-disciplined RBG personnel provide essential services such as deck operations, access solutions, protective coatings and other specialist activities (RBG Secures Major North Sea Contracts 2011, p. 2).

The press release also emphasizes the company continues to pursue additional marketing opportunities by becoming even more agile to respond efficiently to changing demand in the marketplace. According to the company, "These investments will ensure that RBG is well positioned to serve the global energy industry and provide integrated and tailored solutions to meet any project requirement" (RBG Secures Major North Sea Contracts 2011, p. 2).

Benchmarking -- via internal and external analysis

One useful way to establish relevant benchmarks to measure the potential implications of internationalization in the future is to examine current performance levels and other key statistics among RBG's several business units (Graafland-Essers & Ettedgui 2003). This data is most likely already available in various databases, but combining this information with projected "what-if" scenarios can help companies decide whether internationalization is in their best interests or not (Karlof, Lundgren & Froment 2001). With respect to RBG, though, the internal analysis is complicated by the company's current level of globalization, and the external analysis by the almost two dozen countries in which the company competes. Besides its global corporate headquarters in Scotland, the company maintains eight major international offices in the United States, Europe, the Middle East, as well as Trinidad & Tobago and the Caspian region (About us 2011). At present, this global network provides oil and gas extraction support services in more than 20 different countries (About us 2011). In addition, the company has extensive international experience already that dates back more than 3 decades in a wide range of settings, including major projects and contracts in the Caspian region, the North Sea as well as Trinidad and the Gulf of Mexico (RBG Service Information 2011, p. 3).