Why Do Some Firms Become International Businesses - Coursework Example

Why do sоmе firms bесоmе intеrnаtiоnаl businesses? By [Student’s Name] [Code + Course Name] [Name of Tutor] [Name of University] [City, State] [Date of Submission] Why do some firms become international businesses? Introduction From the ancient times, running a business has been a challenging and a difficult affair. The cost of doing business has been going up and the number of competitors has also been on the rise. Yucel (2008) has observed that in order for a business to succeed and go global, there are certain things that they ought to carry out in order to be successful beyond the borders. According to him, in order to be successful, such businesses need to conduct to a campaign so that they can grow by an international expansion. This may be realized by coming up with an international business plan that will address the needs of the business and also set the goals of the enterprise being set up. Peria (2007) claims that a well-researched business plan is able to analyze the market trends in a given country and help the investors prepare for the dynamics involved in running a business. This means that for any organization wishing to go international, they must have prior knowledge of the market before they set up their business. Why do some firms become international businesses? The decision to invest in a foreign country is triggered by the desire to tap a larger share of the market and to make higher profits. Lick (2012), in his studies argued that investors willing to tap a larger market share in a foreign country must carry out a market analysis in order to determine the viability of such an investment. Various forces affect the decision and mode of entry to a given market. The forces include political trends and economic growth and stability (Lick, 2012). Fan (2009) says that the investor needs to be comfortable operating in such a country. This means that he needs to have a prior knowledge of the culture of such people. Wunker (2011) says that the infrastructure of a country is very important when decided on a country to invest. This helps the investor in cutting down the costs, including transport, water, and electricity. The lack of improper infrastructure increases the costs of doing business, and hence the products involved in the market may not be competitive enough with others. In addition, Stolley (2005) argues that companies become international by opening branches in other countries. According to him, branches are easier to open because the investor requires having enough capital, and then acquire licenses from relevant government authorities. The branch needs to be located in an area frequented by many people, especially the town centre, although such areas tend to charge higher rents compared to others. Additionally, organizations become international to compete effectively in the world market. According to Dawson (2009), the world has become a global village. Therefore, every company wants to market its products to as many people as possible. Globalization has been brought about by improvement in information, communication and technology. People from different corners of the earth are able to communicate with one another with ease. The improvements in transportation and communication systems have enabled the movement of people and goods from one place to another. As a result, goods are moved from one country to another faster and cheaper. Another reason why companies may decide to become international businesses is to diversify their operations. Ghosal (2007) has noted that as the company grows, its operations diversify. As a result, it is able to shift some of its operations for instance manufacturing in different countries. He has observed that different market has different needs, and therefore, each market may be supplied with a specific product. Coca Cola, for instance, has managed to set different manufacturing plants in the world as it tries to meet the demands of the clients. Perl (2011) suggests that companies like Coca Cola have decided to go international to reduce the costs of exporting finished products in the targeted market. According to him, some of the raw materials used in the manufacture of beverages are locally available, and therefore, in an attempt to reduce costs, such a company may decide to set manufacturing plants beyond the United States. The import duty previously charged on imported goods is stopped hence the need to open up businesses in other countries. Other firms become international businesses because they have managed to open up subsidiaries in other parts of the world. Palmer (2005) says that acquiring a local organization through either vertical or horizontal integration is critical on condition that the acquired company is left intact. Ninto (2012) says that making an acquired subsidiary part of the business has its own merits; including, immediate localization, name recognition, and having an experienced team in charge of learning such a subsidiary. In addition, organizations decide to go international so that they can form joint ventures with local companies. The reason behind forming a joint venture is to minimize the cost involved if a whole business unit is to be purchased. Currah (2009) has suggested that it is advantageous to go into a partnership with a local company as both the companies share all the costs involved in setting up such a business. Moreover, this move promotes brand recognition and localization. This means that even though the company is foreign, the locals can associate with it as it is in a joint venture with one of their locally owned company. As a result, promotion of products in the foreign land becomes an easy task for both companies. Internationalization of an organization can also be occasioned by the need to lower the costs of production. Dicken (2013) has noted that, in the United States of America, for instance, human labor is expensive compared to other countries. As a result, such organizations may decide to operate in countries where human labor is cheap. In addition, the products may be affordable because the company overheads are reduced, which leads to the affordability of such products. A good example of such a country is China, where numerous companies have invested heavily because of cheap labour and the availability of a ready market. In China, for instance, the population of over one billion people provides a ready market for products. Rigby (2005) has observed that the population in China is more than the population in the Sub-Saharan Africa. As a result, it becomes easier to invest in China and make exports to such countries rather than set up companies in such countries because of the capital injection required. Catoni (2003) has observed that a number of multinational corporations have developed to help with the exploration of minerals and resources in other countries. Such companies as British Petroleum, Shell, and Total have been involved in large scale exploration of oils in the developing countries. As a result, there has been heightened competition in order to control the market. Lack of adequate capital and expertise has hindered the indigenous companies from competing with such companies. In African countries, for instance, Pelligrini (2006) argues that there are many potential fields where these companies have been prospecting for oil and natural gas. Support from their governments has also motivated these companies to explore different parts of the world that have remained untapped. With globalization in place, the world has become interconnected, and therefore, there is the need to spread a peoples’ culture from one corner of the world to the other. When the Second World War ended in 1945, cold war was born. The former allies; the United States of America and the Union of Soviet Socialist Republic (USSR) developed mistrust against each other. Coe, (2005) argues that in an attempt to spread their influence on other countries, they sponsored some of their biggest companies to set up institutions in the developing countries, especially in Africa in order to counter the influence being exerted by the rival firms. This move helped enhance the growth of numerous international companies in the world. This means that the need to spread their influence and culture on young nations made these companies open up branches in different parts of the world. How Stephen Hymer, Buckley and Casson approaches are useful for international business According to Stephen Hymer, Buckley and Casson, Foreign Direct Investment by international companies explains why the amount of money generated in the foreign countries can be used as capital in the country of origin. In addition, they have helped understand the fact that if foreign direct investment by the multinational corporations was interest driven, it would therefore mean that some of these companies would be found in specific countries. However, this is not the case as there are multinational corporations found in very many countries. A good example is the Coca Cola Company. The company has set up many bottling stations across the world. Their foreign direct investment in these countries runs into millions of dollars. Other companies in this category would include, British Petroleum, Pepsi and Shell. Their investment is found in many countries across the world. Moreover, their approach has shown why firms involve in diversification of products. According to them, diversification by a company may be done to increase the products produced, to increase the targeted market and also to increase the company’s production. Porter’s Five Forces Porter was determined to provide organizations with a framework through which they could analyze the competition and also determine their strategies. The Porter's five forces examine the power behind the five opposing competitive forces that usually determines the firm’s long-term successes as well as competition. Michael Porter thus suggested five forces that can shape the attractiveness of an industry. The five forces model by Michael Porter has such elements as conflicting firms, threat of product substitutes and new market entrants and finally is the ability of buyers and suppliers to exercise their bargaining power in the market. Porter’s Five Forces Michael Porter, in his five forces model, identified the rivalry among competing firms as one of the major competitive forces that affects the business strategy. Rivalry that occurs between firms is as a result of market competition. Thus, an investor who wishes to invest in a foreign country should employ various competition weapons such as lowering prices, technological innovations and researching on consumer needs in order to achieve a greater market share and profitability. The threats to new entrants, according to Porter, entail the obstacles that prohibit firms from joining an industry (Hanson et.al. 2011). The barriers include the following; the government can create obstacles to new entrants by granting the monopolies and also regulating the firms in an industry. An industry which highly deregulated plays a greater role in promoting international investment. The threat of substitute is another factor that was identified by Porter in his five forces model (Hanson et.al, 2011). Michael Porter identified that the substitutes have the effect of providing competition in the industry as well as limiting the profits of firms. The bargaining power of buyers is a competitive force that is capable of affecting the performance and the operations of the firms in the industry (Hanson et.al, 2011). A foreign investor must be able to prove that it offers the best price without compromising on customer satisfaction. The last competitive force as detailed in the Porter’s five forces model is the bargaining power of suppliers. A foreign investor has to look out for the market trends so that they may adjust their prices accordingly and offer the most reasonable prices for products while, at the same time, ensuring that they do not compromise the quality of their products and services (Hanson et.al, 2011). Conclusion Globalization has eased the movement of people and goods across the world. As a result, companies have been able to set up branches in different parts of the world because managing them is also easy. The improvement of ICT sector has enabled different branches across the world to be connected under one server. This helps the top management monitor the progress of different branches without physically being there. However, in deciding the country to set up such companies, the company ought to carry out a thorough market research to help them make informed decisions. This goes a long way in making sure that the company will not shut its doors in the future. Reference List Catoni, R., 2003. The effects of globalization. London: Prentice Hall. Coe, H., 2005. The internationalization of retailing: implications for supply network restructuring in Eat Asia and Easter Europe, Journal of Economic Geography. Vol 4, pp.45-46. Currah, H., 2009. Networks of Organizations learning and adaptation in retail TNCs. Journal of International Marketing. Vol 2, pp. 45-49. Dawson, G., 2009.Startegy and opportunism in European retail internationalization. British Journal of Management. Vol. 12, pp. 253-256. Dicken, B. 2013. Global shift: Transforming the World Economy. New York: Routledge Fan, Y., 2009. Internationalization of Spanish Fashion Brand Zara. Journal of Fashion Marketing and Management. Vol. 13, pp. 279-296. Ghosal, H., 2007. The multinational corporation as an international network. Academy of Management Review. Vol. 2, pp. 5-7. Hanson, D., Hitt, M., Ireland, R. D., & Hoskisson, R. E. 2011. Strategic management: Competitiveness and globalisation (Asia-Pacific 4th Edition). South Melbourne: Cengage Learning Australia. Linck, C., 2012. Building Bridges to Success. European Business Journal. Vol. 2. pp. 3-4. Ninto, J., 2012. Dell Computer: Organization of a Global Production Network. Journal of Business Studies. Vol. 5, pp. 3-6. Palmer, W., 2005. Retal multination learning: a case study of Tesco. International Journal of Retail Distribution Management. Vol. 6, pp. 9-13. Pelligrini, C., 2006. The internationalization of retailing and 1992 Europe. Journal of Marketing Channels. Vol 4, PP.67. Peria, M., 2007. How Banks go abroad: Branches or Subisidiaries. Journal of Banking and Finance. Vol. 9, pp. 3-8. Perl, K., 2011. The tortuous evolution of Multinational corporations. Colombia Journal of World Business. Vol. 8, pp. 8-10. Rigby, G., 2005. Tesco and Carrefour confirm their store swap. International Journal of Retail Distribution Management. Vol. 6, pp. 9-13. Stolley, A. 2005. Despite Globalization, Lawyers Find New Barriers to Practicing Abroad. Journal of Law and Ethics. Vol.pp. 1- 5. Wunker, S., 2011. Achieving growth by setting new strategies for new markets. IVEY Business Journal. Vol. 3,pp. 1-3. Yucel, R., 2008. Gobalization of markets, marketing ethics and social responsibility. European Business Journal. Vol. 3, pp. 34-36. Read More