Origin Of Internationalization Analysis

1. The origin of internationalization

With the fast increasing of globalization in the post- Second World War, barriers to international trade began to lower and they continue to lower nowadays; moreover this process is accompanied by a strong internationalization of production and marketing. In this developing environment, firms realize that competing globally is an economic imperative in order to survive and increase the company’s esteem. The word used to describe the increasing involvement of enterprises in international market is “internationalization”.

But what is concretely internationalization? Internationalization is a wide concept with many interpretations. The common feature of all these definitions is the interdependence between

This fact led to a faster increase of world trade compared to output growth. Since 1985 world trade has grown nearly twice as faster as aoutput.

Moreover, the composition of international trade changes, since before the Second World War agricultural products and raw materials were prominent in international trade, but after the main component of international trade has been the international exchange of manufactured good, as it is observable from Chart 1.2.

A characteristic element of the second globalisation is the rise of multinational corporations accompanied by the increasing of foreign direct investment (FDI). In fact, multinational corporations use FDI with the aim of own and manage assets in more than one country with the purpose of production of good or services. Nowadays more than two-thirds of world trade takes place within multinational companies or their supplier, underling the growing importance of global supply chain.

Chart 1.2: Product share in world merchandising exports since

Dunning in 1979. This model identifies three main factors that leads a company to internationalize:

1) Factor O of ownership, that is the advantages link to the factor’s property, for example production skills or managerial or entrepreneurial specific skills. Ceteris paribus the greater the competitive advantages of the investing firms, relative to those of other firms the more they are likely to be able to engage in their foreign production.

2) Factor L of location, that define the advantages link to the localization that is the advantages link to the characteristics of the host country, as for example natural resources, the infrastructures or the availability of workforce. The more the immobile, natural or created endowments, which firms need to use jointly with their own competitive advantages, are located in foreign market, the more firms will choose to augment or exploit their O specific