Motives For Going International Case Study

6 FACTORS AFFECTING THE DECISION TO “GO INTERNATIONAL” FOR BUSINESSES

Motives for Going International

Businesses consider expanding globally for multiple reasons as internationalization has been a prospective goal nearly every business is aiming for. In fact, there is a large international interest in this subject among researchers and practitioners in international business and executive management. In this article I focus on the main factors which are likely to influence business decision makers in practice and help to offer a broad overview of the topic. I consider the main theoretical explanations, which offer a more comprehensive rationale for the decision to go international. First, I distinguish between the main factors and the

The opportunity to make profit by selling products in a foreign market is attractive, especially if expansion in the home market is difficult because of slow market growth, market saturation, or regulatory obstacles. In many cases business growth would be possible only through “stretching” the business globally and enter in new markets. International exposure also enables a company to build its international reputation, which is important for the company especially if it is an industry leader. Profitability also depends on competitiveness, so international expansion is a way of reducing costs in a competitive international market. Access to international markets allows increased scale of production, leading to lower cost per unit. Economies of scale is particularly important for a company like “Novartis” whose home market in Switzerland is relatively small. Economies of scale applies, not only at the level of the production plant, but more especially at the level of the organization altogether. Access to international production allows international procurement of components and supplies, international re-housing of production operations or outsourcing of business functions that could be undertaken at lower cost abroad (known as ‘offshoring’); these include not only operations such as call-center operations, but also many labor-intensive data-input tasks which are increasingly

Companies like Microsoft, Amazon or Coca Cola could not have achieved global leadership positions in their respective industries without selling their products in most of the world’s markets. The opening up of China has attracted firms seeking low-cost production, but this advantage will in the longer term be dwarfed by the country’s market potential as the wealth of China’s massive population rises. Establishing production facilities within a regional economic grouping also allows access to the region’s entire market. Thus, for instance, Nissan’s Brazil investment allowed the company to export part of its production to other Latin American countries. Similar examples for foreign investment in Latin America are present in recent years. In some cases, early entry into an emerging economy brings first-mover advantages and the likelihood of market dominance before rivals get the chance to prove themselves. “Tesco” has achieved this status in some of the former communist countries of Central and Eastern Europe. Paradoxically, however, PepsiCo’s early advantage in the same region before the end of communism was swiftly displaced by Coca Cola’s aggressive expansion into the region after 1989. Sometimes, it is simply necessary to follow the competition so as not to be