The Reasons To Become Multinutritional Enterprises: Apple, ASOS, Spotify
Within this essay, I will be discussing why firms decide to expand and become multinational enterprises; which is a business that is headquartered in one country but has operations running in separate countries across the world (Peng and Meyer, 2011). I will also consider the different processes businesses partake in order to internationalize successfully. ASOS ultimately globalized in order to boost its sales. Apple globalized in order to source cheaper resources, materials, and workers in separate countries to the United States. Both companies achieved this by following the Uppsala model. Spotify internationalized in order to increase customers and dominate the music streaming market by using the localization strategy. These businesses strive for significant economic outcomes through globalization.
Overview of Apple
Apple is an international technology company that originated within the US in 1976 and has since expanded across the world. Apple primarily globalized to obtain materials used in their products in countries such as China, thus resulting in cheaper labor which boosts profit. Apple has a complex manufacturing process due to them sourcing components from separate manufacturing companies and also export products from warehouses worldwide. It became the first valued trillion-dollar company in 2018.
Why Apple Internationalized
Obtaining resources and workers globally is a major reason why enterprises decide to internationalize (Katsioloudes and Hadjidakis, 2007). An example of this being done by Apple is how their device displays are primarily produced in Japan through a company called Japan Display and in South Korea by LG Display. While producing the iPod Apple employed 13,920 workers from the United States, and 27,250 workers abroad; meaning the vast majority of workers were sourced from countries outside of the United States (Freeland, 2011). Apple use over 700 different suppliers across the globe, around 600 of these companies are found in Asia, and around 300 of these suppliers are based in China. Companies can boost profit by using foreign labor as employees work long hours producing high quantities of components for low wages (Katsioloudes and Hadjidakis, 2007). This practice is primarily used by manufacturers in developing countries within Asia. It is argued that by using these factories companies create a positive competitive advantage (Evans and Toolan, 2019). This results in Apple being able to compete against big competitors such as Samsung, who also obtain resources worldwide.
How Apple Internationalized
Apple has gained a significant competitive advantage by using manufacturers worldwide and also rely on this global presence to survive against competitors (Rugman, Collinson and Narula, 2012). Apple has a complex business structure due to offering both products and services internationally. Apple began expansion by manufacturing products globally, but also opened Apple stores worldwide. By 2018, Apple had opened roughly 500 stores worldwide. Apple follows a standardization strategy as all of its products are the same; they do not change no matter what country they are sold in. In 2014, the iPhone 6 was available in 69 countries and every phone was the same. Apple’s internationalization followed the Uppsala model as they have fully licensed their activities of exports, imports, and sales worldwide. Apple’s website is available globally, thus they have warehouses across the world in order to ship products within a suitable timeframe. Apple also has to export products from factories and import them to their shops, and secondary sales shops. They have established a subsidiary of sales and well-organized manufacture of products in foreign countries. Apple saw how valuable a successful global supply chain impacts businesses and through obtaining resources globally has impacted their business positively. The AMR report states how “Apple has broken new ground in the area of transforming its supply chain into a value chain” (CIO, 2019). Overall, Apple successfully became a multinational enterprise due to its increase in profit by outsourcing resources and workers globally.
Overview of ASOS
ASOS is an international online clothes and accessories website founded in 2000. Unlike Apple their international activities grew over time as they started off based in the United Kingdom and globalized in 2013; they now ship products to around 230 countries worldwide. This is extremely vital to ASOS’s success; the increase in profit generated by international sales during 2016 represented more than 62% of total revenues (Wells and Ellsworth, 2016). In 2017, international sales increased by 54% to £548.4m.
Why ASOS Internationalized
Increasing the number of sales made for most companies is a major motivation for globalization, as through globalizing it has been shown how a company is able to increase profit (Katsioloudes and Hadjidakis, 2007). Most companies generate large amounts of profit from their products being sold globally, such companies include Volkswagen, Samsung, and Amazon. This has even been acknowledged by the United Nations as they stated globalizing can increase profits (Wälde, 2002). To increase their number of sales ASOS had to internationalize and sell products globally. ASOS targeted countries like China with huge populations to reach high numbers of consumers. To further increase products sold ASOS then targeted countries that had high spending rates such as the USA, a target of many businesses (Rugman, Collinson, and Narula, 2012). ASOS customize their products to fit current trends within different countries, this increased their numbers of customers. Also, through digital marketing, they were able to expand their sales by generating brand awareness resulting in higher sales.
How ASOS Internationalized
ASOS entered into foreign markets by using the Uppsala model (Shown in figure one), this model focuses primarily on the gradual learning process a business makes (Johanson and Vahlne, 2009). This follows how ASOS licensed their products to sell worldwide, this includes licensing patents, trademarks, or technology to a foreign company in exchange for a fee or royalty. Then, ASOS decided how to export products via distributors through warehouses through a sales subsidiary office. Lastly, ASOS developed foreign direct investment in order to sell products globally. Overall, through globalizing ASOS was able to generate huge increases in profit, they did this by following the Uppsala model which proved very successful. (Figure One)
Overview of Spotify
Spotify is international digital music streaming company, launched in 2008 it is now available in 78 countries across the world; with 87 million paying customers and 191 customers overall. In 2018 the company floated on the New York stock exchange for $1 billion. Spotify is available on most devices through mediums like the app store for Apple devices. They have internationalized in order to gain more customers and dominate the burgeoning music streaming market.
Why Spotify Internationalized
Dominating a market is a goal all companies strive to achieve; Spotify is at the top of the music streaming market with 60 million paid subscriptions compared to Apple music at 30 million in 2017 (Shown in figure two). By expanding into other countries Spotify was able to increase its market share in order to gain a competitive advantage over competitors. This is important as if Spotify becomes available in countries in which a competitor like Deezer does not operate then Spotify can gain strong brand awareness with consumers and gain loyal customers who repeat their subscription monthly with Spotify without changing to a competitor when those competitors do try to break into the market. This gain of customers then causes Spotify to increase its profit. Spotify also increases its brand image by gaining recognition as a major business in the market; businesses will want to work with them or sell their businesses to Spotify. From 2014 to 2017 Spotify acquired nine businesses such as The Echo’s Nest (Ingham, 2017). (Figure two: Richter, 2017)
How Spotify Internationalized
Spotify was able to internationalize through the localization strategy to gain economies of scale (Fleicher and Snickars, 2017). They use localization techniques to gain interest; to do this they go into a market and research what artists are popular in those countries and form partnerships with them to advertise on their platform; which ultimately gains interest. In 2016, Spotify had to localize their artists and advertisement in order to compete with competitors within Asia, this is called the follow the competitor strategy (Rugman, Collinson, and Narula, 2012). This was achieved through tailoring its music for local tastes, targeting phone use; an example of this is how in Japan the countries biggest phone messaging service is called Line. Spotify created a feature that meant songs could be shared on this messaging service, partnered with local phone service companies to include deals with Spotify for paid subscriptions, and used completive pricing (Lee, 2016). Since Spotify entered Asia the music streaming use has tripled. As a result, there has been an increase of foreign songs becoming successful in areas such as Latin America and South Korea. Another way Spotify has localized is through hyper-localized advertisements, such as campaigns that appeal to targeted audiences, while advertising the concept of digital streaming globally. This can be done as Spotify is available in 20 different languages. Through localization, Spotify was able to dominate the music streaming market across the world; increasing customers and brand recognition.
Overall, enterprises are motivated to globalize in order to: boost sales, obtain cheap resources/workers, and dominate their market to increase customers. Apple and ASOS have internalized using the Uppsala model; it does not matter that ASOS is a fashion company and Apple a technology company the business model has allowed these companies to succeed despite their being in very different industries. Spotify internationalized using the localization strategy. ASOS, Apple, and Spotify have increased sales and their consumer base hugely through internationalization, therefore have been successful in growing their businesses worldwide.