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Internationalization Lecture 4

Internationalization is the process where a firm expands business outside its domestic market. Firms internationalize to enter new markets, reduce costs, exploit competencies in new markets, and share risks. They typically start with exporting and later establish foreign operations. Internationalization brings challenges like managing cultural differences, exchange rate fluctuations, and unwelcoming policies. Chambers of Commerce Abroad support internationalization by influencing foreign markets, managing political risks, and engaging stakeholders to create opportunities for their members.

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204 views12 pages

Internationalization Lecture 4

Internationalization is the process where a firm expands business outside its domestic market. Firms internationalize to enter new markets, reduce costs, exploit competencies in new markets, and share risks. They typically start with exporting and later establish foreign operations. Internationalization brings challenges like managing cultural differences, exchange rate fluctuations, and unwelcoming policies. Chambers of Commerce Abroad support internationalization by influencing foreign markets, managing political risks, and engaging stakeholders to create opportunities for their members.

Uploaded by

sumantsmriti
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© © All Rights Reserved
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INTERNATIONALIZATION STRATEGY

Introduction

1. What is internationalisation?
2. Where do firms go international? The global shift
3. How do firms go international?
4. What issues do international firms face?
5. What kind of institutions do support internationalisation?
6. Summary

1. What is internationalisation?
Internationalisation is the process through which a firm expands its
business outside the national (domestic) market
Firms go international:
to enter new output markets
to reduce costs and enhance competitiveness
to exploit their own core competences in new markets
to share risks over a larger market
to take advantage of lower labour cost, lower taxation, cheaper
natural resources
(sometimes, because the domestic market is just too small for
company growth)

1. What is internationalisation?
Firms generally go international by exporting their products first, then
by establishing sale representatives in the foreign countries, and then
possibly setting up production facilities
Eventually, international firms may develop into:
Multinational corporations (MNC): a firm that carries out its value
chains in more than one country. It is generally headquartered in one
home country while it also operates in one or more host countries.
Trans-national corporations (TNC): a MNC that does not identify
itself with any specific nation, but acquires truly international (i.e., not
country-dependent) features and high local responsiveness

1. What is internationalisation?
Example: Cobra beer

Subsidiaries
Licensed and brewed
in the UK by
Wells & Young's

First brewed in
Bangalore, India,
by Mysore Breweries

Majority of the firm


acquired by a
US-Canada brewer

Exported to the UK
Est. Fulham, London
1989

1990

1997

Exported to
about 45 countries

2009

2. Where do firms go international? The global shift


Theories about international trade and localisation:
Absolute cost advantage (Smith, 1776)
Comparative cost advantage (Ricardo, 1817)
Size of economic activity and distance (gravity model of trade)
Market imperfections to exploit (e.g., proprietary technology,
exclusive control of inputs, scale economies, control of distribution
channels, etc.)
Higher returns to scale and network effects that (possibly in
conjunction with favourable government policies) shield industries from
international competition (new trade theory)

3. How do firms go international?


Entry strategies into foreign markets include:
Merely exporting a firm's products into a foreign market, possibly with
the support of trade brokers
Licensing a firm's production and marketing process, or asking for
royalties to be paid for the use of firm's assets and resources
Franchising a firm's business
Directly undertaking production and selling in a foreign country
a) through a 'multinational approach' by adapting to local markets
b) through a 'global approach' by mass-marketing the same product
Strategic alliances and joint ventures with foreign firms

3. How do firms go international?


Entry strategies into foreign markets include:
Merely exporting
Licensing or asking for royalties
Franchising a firm's business
Multinational approach
Global approach

4. What issues do international firms face?


Internationalisation strategy brings about some issues, for example:
Managing cultural differences

Facing risk of exchange rate fluctuation


(e.g., /US$)

Coping with unwelcoming host government policies

5. What kind of institutions do support internationalisation?

Among various institutions that support internationalisation, an


important role is played by the
Chambers of Commerce Abroad
They generally originate from the spontaneous gathering of
businessmen and/or business company executives based in the
same local area within foreign countries, that later apply for
recognition of CCA status from home country public authorities or
home national association of CC.
The CCA play a silent albeit substantive role in trying to shape
institutions and regulations of foreign markets (e.g., Amcham
Belgium; Cowles, 1996, 2001, and Peterson and Cowles, 1998),
although they have not been largely researched so far.

5. What kind of institutions do support internationalisation?


The CCA perform various activities:
influencing economic and social actors for creating and seizing new
business opportunities,
working with rule-making organisations that affect international trade
and foreign investments,
preventing potential conflicts with stakeholders and minimising
political risk,
and actively engaging the media and other public arenas for
safeguarding image and reputation of their members.
The meaning of what they do sometimes labelled business
diplomacy can be better defined by drawing some conceptual
boundaries between their activities and those of other related concepts
(Lakoff, 1987).

6. Summary
Main points
Internationalisation - the process through which a firm expands its
business outside the national (domestic) market is pursued because
of several reasons
The rapid growth of Asian economies triggers a 'global shift' of
traditional established patterns of international trade and FDI
Successful internationalisation calls for a careful entry strategy and
capacity to cope with various issues
Internationalisation of firms may be supported by various public and
private organisations including Chambers of Commerce Abroad

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