Today, regarding all industries, nothing is meant to last forever. If we look at industry trends in terms of corporate strategy, we clearly notice that most major companies are gearing toward an asset-light approach to remain competitive. The internationalization process has determined companies worldwide to find solutions to minimize transaction costs and the expansions costs on foreign markets.In the maturity stage of the internationalization process, many companies from various business sectors, have chosen the ” asset light” approach, a business model focusing on minimizing “in-house” resources and maximizing usage of outsourcing opportunities.internationalization, asset-light approach

Georgiana Surdu

English

Research Papers in Economics

The Internationalization Process and the Asset-Light Approach  184 
THE INTERNATIONALIZATION PROCESS  
AND THE ASSET-LIGHT APPROACH 
 
Georgiana Surdu
 
 
 
Abstract 
Today, regarding all industries, nothing is meant to last forever. If we look at industry trends in 
terms of corporate strategy, we clearly notice that most major companies  are gearing toward an asset-
light approach to remain competitive 
The internationalization process has determined companies worldwide to find solutions  to 
minimize transaction costs and the expansions costs on foreign markets.  
In  the  maturity  stage  of  the    internationalization  process,  many  companies  from  various 
business sectors, have chosen the ” asset light” approach, a business model focusing on minimizing 
“in-house” resources and maximizing usage of outsourcing opportunities 
 
Keywords; internationalization, asset-light approach 
 
JEL Classification: M14, M16 
 
1.  Introduction 
The tariff reduction and economic globalization makes all kinds of resources 
flow more freely around the world, the global economy is bound to undergo major 
restructuring of the industry chain. This paper presents that the companies worlwide 
can use asset-light operating strategy to focus resources on product design, R&D, 
sales,  service  and  brand  promotion  a  high-profit  industrial  chain  stage  and  to 
establish a competitive advantage for those companies.  
"Asset light business model", also known as "virtual business model", is about 
to  outsource  its  non-core  strengths, relying  on  supply  chain  service  providers  to 
conduct rapid expansion of sales channels, their focus on the design and marketing 
to a much shorter time, less capital and fixed assets, the development of faster and 
earn more lucrative industrial profit chain link. After you understand this principle to 
know, who will be their core strengths of non-chain outsourcing industry, and focus 
on their core strengths of the operating mode are called asset light business. 
As  the  industry  division  of  labor  in-depth  and  non-tariff  barriers  increasingly 
weakened the flow of assets, also has become increasingly frequent and more closely 
inter-firm division of labor, business to their respective advantage of the area to pool 
resources, industry restructuring continued to deepen. The relationship between business 
parties to the transaction is no longer confined to trade relations between ordinary sense 
                                                 
  Georgiana  Surdu  is  assistant  lecturer  in  International  Business  Management  at  the  Romanian-
American University in Bucharest. E-mail: srdgeorgiana@yahoo.com Romanian Economic and Business Review – Vol. 6, No. 1  185 
of the way or by linking a series of investor relations, and more is included strategic 
alliances and other forms of technical cooperation, and OEM relationships, including 
diversity, which is directly it has generated a new business model - asset-light business 
model. 
The so-called asset-light, as opposed to the re-occupy a lot of money in terms of 
assets, including the experiences of enterprises, standardize the process management, 
corporate branding, customer relations, human resources, and equipment, plant, and 
raw  materials  than  the  occupation  of  these  assets  costs  less  but  seem  light  and 
flexible, so called asset light. The asset-light operations can be understood as follows: 
under conditions of limited resources, leverage the use of other resources to the 
lowest input to achieve the Strategic Management of maximizing shareholder value.  
The core idea of asset-light operations is to leverage the full use of external 
resources,  to  reduce  their  own  investment,  focus  their  resources  on  the  most 
profitable stage of the industrial chain to improve corporate profitability. Asset-light 
business model to compete with the traditional theory, the major difference is that: 
the traditional competition theory is based on low-cost or differentiation to gain 
market share and volume growth in a competitive fundamental, while the asset-light 
business model is based on customers and profits to think about competitive strategy 
as the central, most concerned about the client's values, high-profit industrial chain 
stages and leverage the use of other resources, maximize shareholder value.  
To asset-light model of expansion, and self-compared to the slow accumulation 
can  get  more  profitability  and  a  faster  pace  of  development.  In  fact,  it  was 
determined to give up because of the need to spend a lot of money and the low 
value-added of heavy asset management links, companies such as Nike were able to 
move forward with ease and rapid development, and become the world's leaders. 
 
2.  Examples of companies implementing the asset-light approach in their 
internationalization process 
Almost  two  years  ago,  Motorola  said  it  would  outsource  50%  of  its  CMOS 
semiconductor manufacturing, a strategy the company dubbed "asset light." As the 
first phase of its asset-light strategy, Motorola announced a major manufacturing 
consolidation and the elimination of many internal manufacturing  jobs. 
Execution of this strategy has resulted in SPS today operating only 10 of its 
original  28  manufacturing  facilities.  Motorola  reinforced  this  strategy  by  cutting 
capital expenditures for SPS dramatically in 2002.  
Recognizing the need for advanced technology, Motorola in March 2002 entered 
into  the  Crolles2  Alliance  with  STMicroelectronics,  Philips,  and  Taiwan 
Semiconductor  Manufacturing  Co.  Ltd.  (TSMC)  for  the  development  of  next-
generation  technology  at  90nm  and  smaller  geometries.  This  alliance  augmented 
Motorola's internal manufacturing capability at its MOS-13 fab in Austin, Texas.  
These moves successfully slowed the bleeding from SPS's bottom line. After 
losing $1.3 billion in the first half of 2002, SPS only reported a loss of $125 million 
during the first six months of 2003 on a 5% decrease in sales. The Internationalization Process and the Asset-Light Approach  186 
iSuppli believes that if SPS is to become a successful spin-out that can profitably 
manufacture and sell high-value semiconductor products, it must continue down the 
road  of  manufacturing  consolidation.  The  present  trend  among  semiconductor 
Integrated Device Manufacturers (IDMs) is to consolidate older facilities and relocate 
them to lower-cost manufacturing regions. 
Dow Chemicals Company was keen to implement the asset-light strategy for its 
chlorine business after completing ethylene and styrene. 
On implementing the asset-light strategy for basic chemicals, Andrew Liveris, 
company‘s CEO, stressed that he was "not in a hurry to get it done at the wrong 
valuation" especially as the business generated an EBITDA of 1.7 last year.  
"That is in a trough, demand led trough and great recession of all time. So we 
know we have a very high performing asset. The partners we are talking to are all 
strategic. There is three of them," he said. 
Dow Chemical is  continuing its series of  divestitures as part of  its effort to 
become a more asset light business. This will limit the company's reliance on raw 
materials and aid in paying the debt from its acquisition of Rohm & Haas. Dow has 
achieved US$118 mln in savings by leveraging supplier contracts between Rohm & 
Haas and Dow.  
Dow's Union Carbide Corporation subsidiary will sell its ownership stake in the 
Optimal Group of Companies to Petronas for US$660 mln. 
Dow agreed to sell an acrylic acid and esters plant and the North American unit 
of  its  UCAR  Emulsion  Systems  specialty  latex  business  to  Arkema  for  US$50 
million.  The  sale  was  required  to  comply  with  Federal  Trade  Commission 
requirements following its purchase of Rohm & Haas.  
Dow has announced the US$1.7 bln sale of Morton Salt, expected to close in the 
second half, sold its calcium chloride business to Occidental Petroleum for US$210 
mln,  and  signed  a  deal  to  sell  its  stake  in  Total  Raffinaderij  Nederland  for  an 
expected $725 million, also expected to close in the second half of 2009. Dow also 
recently announced it was closing three ethylene-related plants in Louisiana to cut 
costs and focus on specialty chemicals production. 
In  China,  the  company  is  collaborating  with  Shenhua  Group  (the  country's 
largest  coal  mining  company)  to  improve  catalyst  efficiency  to  allow  viable 
conversion of coal to olefins. Dow is also seeking to expand its R&D presence in 
Asia, adding 600 jobs in Shanghai by the end of 2007, and the company may open up 
a large R&D center in India. 
The joint ventures planned for Asia are typical of Dow's "asset-light" approach, 
which  works  by  offering  a  combination  of  intellectual  property  and  money  in 
exchange  for  a  share  in  a  world-scale  production  facility.  At  the  same  time,  the 
company is considering selling a share of some of its existing assets in order to free 
up cash. 
Maintaining  a  low  debt-equity  ratio  helps  these  companies  preserve  their 
investment-grade credit ratings and increases their debt capacity in order to finance 
future  projects,  thereby  strengthening  their  financial  flexibility.  Furthermore,  to Romanian Economic and Business Review – Vol. 6, No. 1  187 
finance their growth, hotel companies prefer to use internally generated funds rather 
than debt. In this respect, major asset-light companies do not really need the public 
equity  markets  to  grow.  Their  capital  requirements  are  usually  low,  even  if  they 
occasionally  require  minority  equity  investments  to  ―purchase‖  management 
contracts. This means that the logic for being public with regular access to the equity 
markets is less compelling. 
In Europe, the asset-light strategy has been a popular way to unlock capital by 
selling the asset while ensuring control with long-term leaseback and management 
agreements. During 2005, a number of both single-asset and portfolio transactions 
involved the use of management contracts. 
 
Exhibit 1. Opperating companies value drivers affecting asset disposition 
 
 
In  the  hospitaliry  industry,  hotels  such  as  Hilton‘s  or  Merriott  are  appling 
succesfully asset-light business model. As the markets are getting more and more 
comfortable  with  the  hotel  industry,  we  can  wonder  how  long  hotel  operating 
companies will be listed on major exchanges and if privatization is likely to continue 
since  ―size‖  doesn‘t  seems  to  matter  anymore.  The  question  is  whether  hotel 
companies, given the asset-light strategy, are good businesses to be owned by the 
public markets. 
According to Mark Abramson, if companies take the asset-light approach to its 
furthest logic, they would find (in most cases) that the remaining hotel management 
businesses do not have sufficient scale to be fully valued as public companies. A hotel 
operating company that is completely asset-light needs to have such a large number of 
hotels under management in order to have the cash flow and valuation sufficient to be 
listed in a major exchange (e.g., NYSE) that this is unachievable in all but a small number The Internationalization Process and the Asset-Light Approach  188 
of cases. So a pure asset-light company will never be valued to its fullest as a public 
company. ―For private equity firms, this means increased interest rates and less-favorable 
repayment terms, which strikes at the heart of the deal in leveraged buyouts. If nothing 
else, private equity firms will have to reach deeper into their pockets or face a slowdown 
in deal velocity. 
Thus, the near future of the debt markets will be a major determinant in whether 
private equity firms will continue to seek out new investment opportunities in the 
hospitality industry as the major hotel companies continue their asset-light poker 
play. 
 
3. Conclusions 
Regardless of the internationalization method, we see whithin the analysis made 
on  the  basis  of  examples  of  large  companies,  that  the  asset-light  approach  is  a 
business model that can be applied in the maturity stage of the internationalization 
process.  Companies  which  apply  this  business  model  must  have  capital,  market 
awareness, negotiation skills and possess  know-how. 
The  theories  of  industrial  organization  and  strategic  management  describe 
necessary conditions for firms to obtain a sustainable competitive advantage, and 
suggest  appropriate  strategies  for  corporations  to  obtain  superior  financial 
performance 
The  fundamental  question  of  such  theories  is  the  utility  in  developing 
meaningful management tools and actionable strategies for their practitioners. 
Although asset-light business model is not new, it has not been defined properly 
in  the  literature  and  at  a  brief  analysis  it  seems  multisectoral,  applying  to  big 
companies, regardless of sector. 
In a dynamic environment, where companies seek competitive advantage, asset-
light approach becomes increasingly used, especially by companies that invest in Asia 
or the Middle East. 
 
References 
Barney,  J.B.  1991,  ―Firm  resources  and  sustained  competitive  advantage‖,  Journal  of 
Management, vol. 17, no. 1 
Day, G.S. and Fahey, L. 1988, “Valuing market strategies‖, Journal of Marketing, vol. 
52, no. 3 
Grant, R. 1991. Contemporary Strategy Analysis. Blackwell Publishing: Malden, MA. 
Porter, M.E. 1991, ―Towards a dynamic theory of strategy.‖ Strategic Management Journal, 
vol. 12, no. 8 
Jones Lang, LaSalle Hotels (2006), The Hotel Ownership Pendulum in Motion 
Potecea  Valeriu,  Surdu  Georgiana,  “The  importance  if  innovation  in  international 
business”, The Annals of The Stefan cel Mare University of Suceava, vol 10, special 
number, 2010 
www.dowchemicals.com 
www.nike.com

Firm resources and sustained competitive advantage‖,

Towards a dynamic theory of strategy.‖

THE INTERNATIONALIZATION PROCESS AND THE ASSET-LIGHT APPROACH

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