Interdependence and Integration of National Economies - Essay Example

Internationalization of Firms Findings Companies throughout the world continue to engage in value addition activities on a global scale. Such activities include organizing, sourcing, manufacture and marketing. 2. The tendency of businesses to operate across their national borders is increasing. This implies that a large number of businesses are increasingly becoming multinational corporations. 3. The growing internationalization of many businesses enhances competition among the corporations. As such, as the businesses extend their operations across national borders, they intensify their marketing endeavors in their attempt to grow their market shares. 4. Countries throughout the world continue to engage in diplomatic relations with the view to making the world a global market. 5. Marketing endeavors such as marketing often claims the largest share of the budgets of the multinational corporations. 6. The subjects of international trade include products, services, knowhow, technology and labor among many others Analysis Interdependency and integration of national economies is the backbone of international trade. This understanding explains the development in diplomatic relations among countries. The peace and political stability in most countries throughout the world continue to create conducive environment for the development of economic activities. As such, corporations carry out extensive marketing researches with the view to understanding the regions and finding new markets for their various products and services among other subjects of international trade. As such, governments continue to integrate their economies. Integration of economies arises naturally with governments forming regional economic blocs. The European Union is one such regional economic bloc that covers the entire Europe. The bloc enables the European countries to share a single currency and permits free movement of both goods and people throughout the continent. This encourages corporations to expand rapidly throughout the region thereby enhancing the development of international trade among countries. The need to intensify integration among countries through the formation of regional trading blocs presents numerous advantages to the countries thereby enhancing the internationalization of trade. Key among such advantages is the elimination of tariffs a feature that reduces the cost of imports. As such, the cost of purchasing imports is low and the nationals can afford such. This creates a large market in the region thereby encouraging corporations to enhance their international operation throughout the region. Additionally, such blocs encourage foreign direct investments into a country as multination corporations take advantage of the minimal legislations among others that would otherwise slow the pace of setting up operations in a foreign country. Given such advantages, countries are always looking for ways of enhancing the diplomatic relations among them. The American government for examples has embassies in more than two hundred countries throughout the world. The objective of the embassies is to protect the interest of Americans in the countries. American companies in this context constitute the American interests in the countries. Rugman, (2002) explains that diplomatic relations enables the increased integration among countries thereby leading to fearer movements of capital, goods, services and knowledge among other subjects of international trade across the nations. Companies therefore engage in both export and import of goods and products thereby enhancing the growth of international trade. In some cases, companies set up firms in different nations in order to lower the cost of manufacture, transportation and marketing many other intricate costs of doing business. Engaging in value addition activities is a great motivator to the development of international trade. As explained earlier, business marketers carry out extensive marketing researches and analyses with the view to establishing the best regions to operate. In doing this, the managers must consider a number of factors key among which is the level of economic integration among the countries and the laws that guide the operation of foreign companies in the country. Additionally, the markets must consider the size of a market in the country. Among the value addition actives that companies engage are sourcing, marketing and manufacture among many others (Rugman, 2009). China and India are some of the major beneficiaries of such value addition activities as most multinational companies continue to create factories in the two countries. The cheap labor coupled with the low cost of productions in the two countries continue to entice European and American companies which in turn set up their factories in the region and outsource for cheap labor thereby enhancing their profitability. The desire to increase profitability is the greatest motivator for corporations to venture into international trade. Internationalization of trade offers companies the opportunities to grow their market shares. As such, companies continue to look for ways of growing their profits by engaging in international trade. The easiest way of achieving this is to outsource for labor in others countries. This informs the decision by various multinational corporations such as Apple and Samsung to that have manufacturing factories in such countries as India and China. This way, the companies reduce the cost of manufacture while maximizing profitability by selling such products in the leading markets including Europe and the United States. Internationalization of trade further develops, as competition exists in some existing markets. The developed countries for example provided reliable markets for most companies. However, as competition intensifies, companies have to venture into new markets thereby developing markets for their products. Such is a basic factor that has motivated most companies to expand their operations to the developing countries in Africa. Toyota, a Japanese car manufacturer for example carried out an effective marketing in Africa thereby winning over a substantial share of the market. The market has since enticed numerous other car manufacturers who continue to exploit the fact that Africans do not manufacture any reliable car brand. Such prestigious car models as Mercedes, Audi, Range Rover and Jaguar among many others have since moved to Africa and continue to carry out extensive marketing with the view to having a substantial share of the market. Banking and financial companies are among the fastest developing companies. As corporations expand their operations throughout the world, investors demand the convenience of singular system of banking. As such, banks continue to enhance their expansion into the international markets in order to tap the expanding markets throughout the world (Jones, 2009). Among the factors that continue to enhance the growth of banks and financial institutions, include the deregulation of capital markets globally coupled with the removal of investment barriers among many others. Such banks as Citibank, HSBC and Deutsche bank among many others have experienced a rapid growth and expansion thought Europe and the Americas as they strive to tap the growing market. Marketing is among the most important undertakings that multinational corporations undertake in order to grow their market shares. Marketing is a fundamental function of the management that ensures that the products and services enjoy a positive reception in a market thus increased profitability. Some of the most successful multinational companies such as Coca cola have large budgetary allocation for such basic marketing features as advertisement and promotion. Marketing develops concurrently with the investment activities of a company even as they venture into the international market. Foreign companies must for example carry out extensive advertising of the new products and services in order to create adequate awareness on the existence of the company within the target market. Fortunately, marketers currently enjoy cost effective means of advertisement and carrying out marketing research. The use of social media is responsible for the rapid expansion of companies throughout the world as markets use such social media sites as Facebook and Twitter to market their products and services. The different social media websites offer a desired interactivity that permits marketers to carry out extensive market researchers and analyses thereby formulating their marketing plans appropriately (Prashantham, 2007). The use of social media coupled with other features of the new media provides marketers with cost effective ways of not only marketing but also carry out their operations in foreign countries as they expand their operations. Besides the intensifying integration among countries, international trade continues to develop throughout the world owing to the effective telecommunication and transportation technologies. The globalization of the world occurred successfully because of the effective communication and transportation techniques and business people continue to exploit the same technologies to grow their businesses throughout the world. The internationalization of firms occurs rapidly since marketers and investors can access every part of the world. The use of oil tankers capable of carrying millions of liters of crude oil enhances the international trade of oil, which is among the multibillion-dollar industry internationally. The use of airplanes on the other hand provides effect ways of accessing different parts of the world efficiently and in time thereby enhancing the international trade of flowers among other perishable goods. The use of trucks and cars enhance the movement of people thus intensifying economic activities within countries. The same is the case with telecommunication technologies. The development of mobile phones and the internet provide a way of maintaining effective communication among people in different parts of the world. The advent of smart phones further increased internet access by guaranteeing accessibility of the internet even while mobile. As such, different investors have developed appropriate applications that enable mobile telephony and mobile access of the internet. Video conferences among other similar applications have enhanced spontaneous and real time communication with electronic mails offering an equally reliable way of maintaining real time communication with people across the world. Multinational companies exploit such technologies to manage their affairs. The technologies provide effective and equally reliable ways of managing a company despite the distance. Companies employ different strategies when entering the international market such strategies including collaborating with others already established in the markets. Such mergers provides the existing companies with adequate financial resources thus revamping their operations in the region while providing the new company with increased market. This way, both companies benefit. Others creative franchises thereby opening branches in the new countries while maintaining central management at their headquarters. Irrespective of the strategies that a company employs, internationalization of firms provides increased market thereby enhancing the chances of profitability and longevity of the business. Additionally, the businesses provide immense benefits to their new countries by creating employment thereby enhancing economic growth of the countries. Despite the numerous benefits, internationalization of firms presents a number of risks to the companies. Such challenges include cross-cultural risks. The difference in cultures in a community requires the management of a company to employ appropriate management strategies in order to overcome the challenges. Cross-cultural challenges require new negotiation patterns, new decision-making patterns and ethical practices among many others. The firm must also encounter currency risks. Currency, which is the medium of business transactions, has different values. The differences in the values of currencies in different countries require business managers. The risks arising from the currency are asset evaluation, which responds based on the value of the local currency. Foreign taxation coupled with foreign exchange are some of the factors that may always affect the profits of a foreign company. The predicament of foreign companies heightens with the immense competition that may exist in the market thereby making an increase in the cost of either the products or services risky. The same is the case with inflationary and transfer pricing and currency exposure both of which may affect the profitability of foreign firms as they compete against local firms that remain resistant to such factors (Cady & Edward, 2001). Commercial risks on the other hand refer to the shocks a foreign firm may face as it sets its operations in a new market. Timing of entry for example may present a challenge. A firm entering a particular market when the economy faces inflation or any other crisis is likely to incur loses owing to the escalation in the cost of resources needed to set up operations. Additionally, such crises affects the purchasing power of the locals thus the potential of the market. Weak partners present substantial risks since such partners require a foreign company to invest heavily in order to overcome the weaknesses of the weak partner. Other types of commercial risks include poor execution of strategies, intensity of the competition in a particular industry and operational problems all of which will affect productivity of the new firms. Internationalization of firms exposes firms to yet another substantial number of country risks. A country is a both a political and social institution that has unique set of legislations that govern the economic among other activities. Such country risks include government intervention. Government intervention or protectionism refers to a tendency by some governments to protect the local markets for local investors. This creates a hostile environment for the existence and operation of foreign firms. Bureaucracy further presents challenges since a bureaucratic system makes it difficult for a company to set up in a region and operate. Social and political unrest is yet another major risk that foreign firms experience. Political instability and social unrest disrupts the market thereby making it unprofitable both for local and foreign firms. Other country risks are lack of effective legal safeguards and legislations that discriminate against foreign firms among many others (Jones, 2009). Conclusion In retrospect internationalization of firms in a modern concept in business management that refers to the increased involvement of companies in international markets. Companies of varied sizes and capacities including Small and Medium Size Enterprises (SMEs) continue to carry out extensive marketing most of which often compel them to invest in foreign countries. The increased economic integration of countries through the formation of economic blocs coupled with the diplomatic relations among countries provides firms with an effective opportunity to invest and operate across their borders. Internationalization of firms is a desirable feature that presents a number of benefits both to the international firms and to the local economies. Despite the numerous benefits the trend presents, it presents yet a substantial number of risks that require the companies to employ effective and cautions investment strategies coupled with effective marketing strategies in order to overcome. References Cady,Lyle & Edward,,Jr. (2001). The internationalization process of small firms: A study of the interaction of the manager, firm and environmental characteristics (Order No. 9993917). Available from ABI/INFORM Complete. (304785755). Retrieved from http://0- search.proquest.com.opac.sfsu.edu/docview/304785755?accountid=13802 Rugman, M. A. (2002). International Business: Strategic management of multinationals. New York: Taylor & Francis. Rugman, A. M. (2009). The Oxford Handbook of International Business. Oxford: Oxford University Press. Prashantham, S. (2007). The Internationalization of Small Firms: A Strategic Entrepreneurship Perspective. New York: Routledge. Jones, M. V. (2009).  Internationalization, Entrepreneurship and the Smaller Firm: Evidence from Around the World. Cheltenham, UK: Edward Elgar. Read More