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Theories Of Internationalization In Foreign Markets

883 Words4 Pages

Nowadays, the terms “internationalization“ tends to reflect to the strategy development of a company outside the national market. According to Jane Knight (2005), Internationalization is the process of integrating an international, intercultural and/or global dimension into the goals, functions and deliver of higher education. Many companies take the step to establish themslves abroad with many internationalization motives. Therefore, analyze them is more than relevant in this thesis in order to explain how a company can enter a foreign market.
1. Internationalization’s motives
Today, most companies operate outside their home markets. Internationalization is the term used for a firm’s expansion from its domestic market into foreign markets. Several possible motives can be described to explain the decision to enter into foreign markets by both macroeconomics and microeconomics approaches.
1.1. Macroeconomics approaches
The classical theories are used to explain the macroeconomics factors for a firm to internationalize its assets.
1.1.1. Absolute cost advantages
The theory of absolute cost advantages is based on Adam Smith 's (1776) new theory of international trade. He believed that goods should be produced where the cost of labor is the lowest. Therefore, a company should produce when it cost less in order to export in an economy where labor costs are expensive. The division of labor is the key word to this theory. A company should focus on a product with the absolute cost

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