Factors to Consider When Internationalizing a Business - Essay Example

Operating a business in small scale has numerous advantages such as low operation costs, cheap labour from friends and relatives, low capital requirements, the flexibility regarding goods sold and the quick processes of making decisions that relate to the business (Pil, & Holweg, 2002, p. 34). However, despite all these advantages, entrepreneurs prefer enlarging their markets, and some go global a process known as internationalization. Contractors may choose to internationalize their business through motivation by factors like, low duties that are imposed by the government on exports, the existence of wider and promising markets in the international market, and the need to improve their products following international competition (Williams, 1992, p. 270). However, before the decision of making a business global is made, the owner has to make some considerations. This is because the risk involved in international trade is greater than that of local business; therefore, failure to make cautious decisions may end up in losses and frustrations. This paper looks into the factors that the owner of business should consider when making internationalization decisions and the academic theories that have been developed to explain this.

It is important to analyse the place that they want to locate their business. This will form the external business environment. In analysing this factor, he must consider the population that is in that geographical location. The business person should answer questions like will the community provide enough market for their goods or services. The culture of the people is also important to know whether it favours the consumption of the products that are offered by the business. This is to ensure that the firm does not face opposition in the market (Bjorklund, 2011, p. 13). Some people are reluctant to conduct business with foreigners, and this might be a hindrance to the expanding business. The business should also analyse the existing potential competitors in the environment they are planning to go to. They should seek to know their strength and also weaknesses so that they can capitalize on them to get a market share. The entrepreneur should also strive to know whether the business environment requires an additional business of the same kind. Some markets are too small, and they are best served by fewer organizations. This will, therefore, mean that when a new business move into that place, it might end up being a waste of time and resources (Bjorklund, 2011, p. 15). The company also must consider the government regulations in the area that they are planning to move to. Some business may be unlawful in some states and legal in others, therefore; the business should move to a place where it will operate freely. The taxes that are imposed by the authorities vary from one nation to another. The business that is globalizing should seek to move to places of small levies so as to reduce the costs of operations. This is because when the expenses of operating in the area that the business is moving to are so high, the profit margins might end up being low and therefore demeaning the need for globalizing.

Before a business should settle on where to move to, it should put in mind the resources that are necessary for running the business in that particular nation. International business will require a lot of resources regarding human resources and other economic resources (Fui, Lee and, Khang, 2001, p. 288). It is always the aim of the business to leave its customers satisfied and with all its questions answered. Having this in mind the entrepreneur should think of whether there is a common language that can be used in communication between the business and its customers. If the is, a barrier in language the business should, therefore, be able to employ someone who understands both the customer's and the business language as this will help in bridging the communication gap (Williams, 1992, p. 284). The person who carries out communication role in such cases should therefore be trustworthy and should have full knowledge of the business and the product that is being offered so as to ensure that they respond to customer's needs efficiently. Getting such people will require money. Also in international business, the transporting of goods oversea times takes long and may go for weeks or a month. This doesn't mean that the customers will need the products when they arrive at the place convenient for them to access. The business must ensure that there is a constant supply of goods in the firm so that to enable the business to be relied upon in the new environment. So as to ensure a steady supply of commodities, the new business may be forced to set up warehouses in the foreign land this will mean an extra cost for setting up and for the workers in these stores (Williams, 1992, p. 285). The business should think whether they are in a position to meet all the costs that are required to conduct the business in the foreign land. If the entrepreneur underestimates the costs, they might end up in frustrations and even be forced out of the markets by other business that is well adapted and can use the economies of scale as an advantage for operations.

The business should set out reasons for internationalizing before they do it. Some business globalizes so that they are in a position to serve their customers who have been abroad better. Other internationalizes so that they can adventure new markets and get a share so as to improve their sales and profit. Others globalize so as to get to new markets that have gaps (Williams, 1992, p. 270). In the case where a business is taking a new product to the international market, then it will have to come up with advertising strategy and product awareness campaigns that will be useful in popularizing their product. If the business wants to bridge an existing market gap, it will have to ensure that it can be relied upon in the international market. Business should, therefore, ensure that its reason for internationalizing is clear, and the objectives are made known to the workers. This will help the business get ready and establish the best method that will be suitable for the entry into the markets abroad, and also, it will assist in avoiding confusion that is usually caused by employees in the same corporation pursuing different objectives.

the business should also seek to establish the other lines of support that will work well for it in the foreign market. In this, the business will have to look at the technological advancement in the international market (Dunning, 2013). This will be substantial so as to allow electronic booking of the products and services and also allow the prospective customers view the products online. This will help the business reduce the time that is wasted between the period of physically moving to the business premises and then ordering for goods and wait for them to be delivered. This will also help in publicizing the business.

The company should ensure that it follows the necessary steps in the correct order. This will help avoid the future mistakes that might occur as a result of a rush that was made when the business was being established (Williams, 1992, p. 280). The business should consider all the formalities and inclusive of the place that they want the premises of the business to be situated. The entrepreneur should also evaluate his personal position whether he is in a position to keep up with the challenges that are tied to the international business. These challenges include working from a new environment that one is not used to. This may comprise of the new rules that are not in her domestic market. The high costs involved and the export duty that the business has to pay to its country in addition to the import tax that it must pay to the state that it has set up the enterprise.

The theories that have been developed to explain the international trade include, One the classical trade theory, it had its emphasis on how nations would maximize their wealth. The economists looked at it in different dimensions that included the division of labour where people were made to do various tasks and specialization where the workers were left to do what they could do best. It was seen that these strategies of division and specialization of labour would work best in large markets. Those big markets had already been provided by the international business. However, any nation selling any product to the outside market was not a guarantee that they would maximize the wealth. The theory, therefore, established that for any nation to reap maximum benefits from the international exchange of goods, it had to produce what its environment suited best. This was regarding the weather conditions, the availability of the required resources and the small costs incurred in producing the commodity. The economist also established that the ratio of exchange for such commodities would be about the labour employed to produce them. This was justified by the fact that labour is homogenous, it is open to all in that anyone who is willing to work can create, and there is a free competition of workers (Gomes,1987, p. 130).

Two is the theory of proportion factor theory. It develops its argument on the Ricardo’s theory of comparative advantage, which states that a country should produce and export goods that they are in a position of building at a possible low cost, and it should import goods that it will import at relatively high costs. Ricardo’s theory has however been based that the producing countries should have different technologies. He considered only one factor of production which is labour. In Heckscher-Ohlin theory of factor proportion, they removed the varying technological know-how and instead introduced variation in the endowment of capital, for example, the available infrastructures. They also explained that goods will require a different proportion of the money to be produced. They, therefore, established that a country will get into producing goods that use a large percentage of their abundant resources. This will help reduce the unemployment of the resources and also wastage (Morgan and Katsikeas, 1997, p. 69).

Three is the product life cycle theory for international trade (Wells, 1968, 2). It was developed after the failure of the proportion product theory by Heckscher-Ohlin. It attempted to explain the pattern that occurred in international trade. Product in its early stage was demonstrated to be associated with the point that it is produced in. All the parts and the labour that results in the product is sourced in the place that it is first developed. In the later stages of its life, after the product has been bought and used in the world market, its production moves from the point of origin. This may in extreme cases happen that the first country that had come up with the product may end up importing it from other people (Wells, 1968, p. 5). Vernon divided products into a new, developing and a standardized product with regards to the stage they are in the product cycle and their behaviour in the international market. The theory also established the stages that a product goes through as the introduction, the stage of growth, maturity and finally the declining stage. Where a particular product will be produced, the theory stated that it will depend on the stage of development that it is in. In the product introduction stage, the product is not widely known in the market and therefore the producer makes a lot of expenses in the promoting and publicizing the product. This is done in a bid to raise demand for a product as sales in this stage are usually low, and therefore, low-profit margins are made through the competition at this juncture is usually small. At this juncture, the producers keep the production local as they need to bear in touch with their customers so that they can get the necessary feedback, and also they opt to stay close to where the demand for the commodity is located. The stage that follows is the growth stage where high demand for the product in the market results in the high volumes of sales. This consequently, leads to an increase in the costs that are incurred in the production process.

In this stage, the product also starts experiencing some competition from other producers who come up with their version of the product. In this case, the initial manufacturer must respond by promoting its products widely so that they ensure that their product remains the best seller in the market. When good sales are made in this stage, the product moves to the third stage, which is the maturity stage. In this stage, the product is popular and is used by many consumers. At this stage the demand levels and the volume of sales increases but a very low rate. By the time the product gets to this stage, there are some competitors, and this may force the initial producer to lower the selling price of her goods so as to maintain a good share of the market. Though the profit margins at this stage are declining, the business is still encouraging to conduct because of the high volumes. Also, the demand for the product rises internationally, but this typically happens in the developed countries because of the high-income demand that the producing country has for this product. This may also raise the need for the firm to produce in the market abroad, and this leads to the development of international trade in the market. The product moves to its final stage which is the declining stage. In this stage, all the details of the products are known in the market. Consumers know about how to use and the advantages, and the disadvantages of the product compared to the competitor's product. The producers have full knowledge on how to make this product. The incomes at this stage declines and in extreme cases, the former producing companies may sell the producing firm or even discontinue the production. The developed countries in this stage leave the production of the product in the arms of the developing nations, and they start buying from them.

In conclusion, governments in different countries should encourage firms in globalizing their operations. This is because the international trade will be of benefit in ways such as reducing the levels of unemployment of both resources and also human resources. It also helps to reduce disparity in the balance of payment where a nation imports more than it exports. International trade will also contribute to a country improve the quality of product that it produces because of the competition that is posed in the global market (Yarbrough, 2014).