Question

What drives firms to “go” international? We know there can be internal events (i.e., situations or happenings within the firm) and external events (i.e., something occurring or stimulating the firm from the outside). Tell me what events (any mix of internal and external examples), might stimulate a firm to “go” international. Your answer may be bullets, but clearly identify five (5) selected events.

Answer 1

Going international is a strategy that is influenced that is influenced by a variety of factors and is typically implemented over time. Sometimes, a government will incentivise companies to enter their country;'s market in an effort to build their economies.

In general, companies go international because they want to grow or expand operations. The benfits of entering international markets include generating more revenue, competing for new sales, investment, oppotunities, diversifying, reducing costs and recruiting new talent.

• Improving Profit Margins - Improving profit margins is one of the common reasons for entering international markets. When growth strategies are used up on the national level, the next path is often to seek out international growth. Distributing your products in additional countries increases your customer base. As you offer compelling solutions and build loyalty across international markets, revenue strengthens and escalates as well. There are also significant cost savings that can be associated with going international. A company may want to reduce costs by relocating closer to a supplier or benefit from lower production costs by expanding operations to another country. Further, a lower cost of acquiring customers may be another compelling reason to expand internationally.

• Competing for New Sales - Closely connected to the goal of improved profit margins is the desire to increase sales. Even if company operators generally are satisfied with revenue levels, international expansion can further improve overall revenues. The race to expand internationally is often about gaining a presemce in foreign markets. Being the first to arrive in a new market can provide significant advantages. If you do not enter a ripe market with your solution, competitors do. Not only do you miss the revenue source, but you lose out on other valuable assets that you could use to promote your company at home and abroad. In some cases, a strong domestic country gets overrun by a esser player that suceeds globally and grows big through global synergy. Bear in mind that in the modern economy, many companies are already global, thanks to technology. Companies develop specific international strategies in order to gain competitive advantages in the new global market.

• Diversifying the Business - The international expansion allows a company to diversify its business in a couple of key ways. First, you spread the risk of slowing demand across multiple countries. If one market never gains or loses interest in your offerings, you can pick up the slack with sucess in other countries. In addition, you can connect with suppliers in international markets and take advantage of raw materials and resources unavilable in domestic markets. Also, comapnies often enhance innnovation and develop additional variations of their solutions when they operate in multiple countries. Product diversification similarly insulates you from the risks of declining interest in a particular item.

• Recruiting New Talent - Operating in international markets also gives businesses access to alarger and more diversified talent pool. Employees who speak different languages and understand different cultures enhance conncetions with a broader customer base. Having an international brnad that is well reputed will invite top talent to the company. Businesses can also structure global work teams in a way that allows for synergy in building a global brand.

The Reasons that stimulate a firm to International ( examples from Indian context)

Domestic Market Constraints

Domestic market constraints motivate many companies to go interanational. Following are the main constraints in the domestic market.

• Small size of Domestic Market - In ,many cases comapnies go global because of the small size of domestic market which does not allow them to have economies of scale.
• Recession in the Domestic Market - Recession in the domestic market often provokes companies to explore foreign markets. Recession in the domestic market does not allow the comapnies to utilise full production capacity. For example Hindustan Machine Tools and Automobile industry in the early 1990s explored foreign markets due recession in Indian Market
• Technology - The technolofical advances have increased the size of the optimum scale of operation substantially in many industries making it necessary to have global market so that economies of scale may be availed.
• Growth in International Markets- Many Indian companies entered the international markets in response to growth in international markets. The enormous growth potential of many foreign markets has been a very strong attraction for Indian software companies to go international. Similarly, an Indian pharmaceutical company CIPLA entered Africa with its HIV treatment drugs as there exists a vast market.
• Competition - Competition may became a driving force behind international marketing. Competitors are as important factor which stimulates international marketing. Tata Motors became international in response to other automobile companies becoming international. Many companies also take an offensive international competitive strategy by way of counter competition.

Government Policies and Regulations

Government policies and regulations attract the manufacturers to internationalise. The governments of many countries including India give a number of incentives and other positive support to domestic forms to go international. For example Indian government provides a number of concessions to the firms engaged in exports to and in manufacturing in foreign countries.

Similarly, several countries encourage imports and foreign investment. After the economic reforms launched in 1991, Indian government has given a lot of incentives to attract foreign investment. Sometimes, as was the case in India, companies may be obliged to earn foreign exchange to finance their imports and to meet certain other foreign exchange requirements like payment of royalty, divident etc.

Further in India, companies were allowed to enter certain industries subject to specific export obligation. Some comapnies move to foreign companies move to foreign countries because of environmentak laws and other laws. Government policies which limit the scope of business in the domestic market may drive companies to move to other counrties.

Growth of Overseas market

The enormous grwoth potential of many overseas markets drive many companies to expand the market globally. economic growth of many developing countries has created opportunities that provide a major incentive for companies to expand globally. In a number of developing countries,both the population and income are growing fast.

Growth arte of India has been good and economic reforms have accelerated the growth. Further, economic growth has reduced resistance that might otherwise have develped in response to the entry of foreign firms into doemstic economies. It is convenient for a foreign compant to enter a domestic economy without taking business away from local firms.

Even if the market for several goods in these countries is not very substantial at present, many companies are eager to establish a foothold here, considering their future potential.

Increased Productivity

increased Productivity is necessary for the ultimate survival of a firm. This itself may lead a comapny to increase production. Increase in production facilitates a company to seek export markets. The pressure for global markets is inetnse when new products require major investments and long periods of development time. The cost of research and development must be recovered in the global market place, as no single national market is likely to be large enough to support investments of this size.

Relative Profitability

One of the most important objectives of internationalisation of business is the profit advanatge. International business may be more profitable than the domestic because of export price being higher than the domestic price. International business can increase the total profit even if it is less profitable than the domestic. It could increase the total profit. In some cases, international business can help in increase the profitability of the domestic business

One of the important motivations for international business is to reduce costs. Many international firms establish their production facilities in the countries where the manufacturing costs are cheaper.

Strategic Vision

The systematic and growing internationalisation of many counrties is essential a part of their business policy of strategic management. The stimulus for internationalisation comes from the urge to grow, the need to became more competitive, the need to diversify and to gain strategic advantages of industrialsation. For example many Indian pharmaceuticals firms have realised that they have very good growth prospects in the foreign markets. There are a number of corporations which are trulu global. Their policies have been framed considering the entire world as its and a single market a border-less world.