Models for Internationalisation of After-Sales and Support Function of Engineering Derived Company in the Oil Service Market
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During the last couple of decades the "oil service" industry, which evolved around the North Atlantic oil & gas exploration and production market, has to an increasing extent cast its eyes on new and often emerging markets. This as their domestic market has started to mature. This shift in focus has brought a whole lot of internationalisation challenges on the table related to design and deployment of business models that best suit the objectives of the companies within targeted markets. This study is based on the internationalisation challenges and dilemmas of the Lifecycle Services and Support (LCS) department of Aker Process Systems AS, and aim to highlight and discuss the specific internationalisation and market entry challenges of this particular company within its targeted market. The following questions were asked: What different models for cross border expansion are theoretically on the table? What are the key strengths and weaknesses of these in respect of the case company? What are the most critical managerial considerations and their recommended solutions? The underlying scientific aim of the study is to present through a specific example some internationalisation dilemmas that are assumed commonly valid for certain knowledge based industries that through delivery and deployment of rather complex technical equipment outside their domestic market seek to further capitalise on their deliveries through the subsequent after-sales and service market. The service market differs from the equipment delivery market in that it is much more tied to the final geographical destination of the equipment or plant. To assess the identified research questions a total of 31 publications were assessed within the scientific traditions of international marketing, business management, organisational research, economics and cultural studies. Out of the initial selection 15 publications were eventually applied, providing scientific contributions to the research questions, assessments and potential solutions. The analysis revealed that a total of six conceptually different theoretical entry- and internationalisation strategies may be applicable for the company in question. However, in order to advice on these it became apparent that it was necessary to introduce and discuss in particular the aspects of knowledge transfer, agent theory and transaction cost theory. This as each individual area represents key challenges and that must be accommodated and harnessed by the eventual business solution in order for it to be regarded as effective, reliable and sustainable over time. The assessment revealed that several of the theoretical options have severe weaknesses that must either be solved by choosing away the root cause at a conceptual level, by use of behaviour- moderating contracts (such as outcome-based contracts), by application of suitable incentive systems, and/or by introduction of suitable monitoring measures. The preferred option should be to avoid the potential for conflict at the conceptual level if possible. An important finding was that the contractual agreement with parent owned subsidiary, and equity- based joint venture with parent owned subsidiary alternatives have potential for agency problems that can only be solved at parent company level. This as the recommended solution requires incentive- systems that cannot be decided and implemented at lower level in the corporate hierarchy. This sends a strong signal to corporate leaders that there exist an agent-principal relationship between parent and subsidiary companies that must be carefully managed in order to avoid disqualification of strategic alternatives at subsidiary level. The fundamental findings of the study are that the equity based solutions are to be preferred over non- equity solutions, and that "family" ventures are to be preferred over non-family ventures in case fully owned subsidiary should be out of the question. However, no alternative is prefect with regards to the identified key strategic challenges, as such that outcome-based contracts, appropriate incentives and control measures will become important management tools to curb risk and maximize gain. One final observation done is that while international research within the relevant fields of internationalisation of firms seems to focus on more easily delimited topics such as outsourcing of production, international marketing, cross border trade, cultural awareness etc, very little research seems to have been done on the more entangled challenges and success factors relevant to the industrial after-sales and service market. More targeted research within this area is then generally recommended.