Internationalization Process - Essay Example

Title: INTERNATIONALIZATION By: Institution: Course: Instructor: Date Internationalization is the process of increasing the firm’s investment in international markets. It arguably true to claim that, in consideration of the economic and political factors, the characteristics of this process determines the pace at which internationalization occurs (Froot 1993, pg13). Most firms opt to go international as a way of seeking prospects for growth through market broadening. In addition, internationalization by firms enables them to gain new ideas about products, services, and business methods; earn higher margins and profits; or benefit from global sourcing advantages; and better serve key customers that are located abroad (PUBLISHING 2014, PG56). By appreciating and understanding different values, beliefs, behaviors and business strategies of different companies within other countries, firms will be able to successfully go international (Froot 1993, pg16). Therefore, internationalization is a sure way for a firm to acquire better value for factors of production in addition to lower cost factors of production. Firms that venture into international market is definitely expanding its network hence might benefit from a theoretically worthwhile association with a foreign partner. Several firms in the contemporary business environment take the steps to establish themselves abroad. Exporting Indian is among the fastest growing economies in the world today. The high population offers a great demand for the products such as new personal computer. One of the advantages of New personal computer is that the production costs are lower than the older PCs. This is a good deal for an International company like ours. However, the competition is getting stiffer and stiffer hence it is appropriate to venture into more advanced international markets that will offer our company the much needed competitive advantage in the PCs manufacturing industry. European Union offers this kind of opportunity because of its high population demand and technological advances that will complement our products if we venture in the market (Dana 2008, pg71). The EU aimed at developing a common market and a custom union between its members states (Cherunilam 2010, pg56). The development of EU to the single market is mainly characterized by free circulation of goods, people, capital and services within the European Union (Dana 2008, pg121). The EU market is a free to custom duties, discriminatory taxes or import quotas, as the goods travel internally. In this regard, the EU market offers a great opportunity to venture in. In relation to the Free Trade Agreement launched in 2007, the European Union and India are focused in trade in investment, goods and services. This trade relationship was strongly enhanced as a result of the European Union-India Summit in February 2012. Considering the fact that it’s an emerging global economic power, India is an important trade partner with the EU (WORLD BANK 2013, PG19). It is characterized with a sizeable and growing market of at least 1 billion people. The trade value between India and EU grew from €28.6 billion in 2003 to €79.9 billion in 2011. In addition, EU investment in India more than tripled with the figures standing at €759million and €3 billion in 2003 and 2010 respectively. During the same period, commercial services tripled rising from €5.2billion in 2002 to €17.9 billion in 2010 (Cherunilam 2010, pg77). Indian exports to EU include Organic chemicals, Vehicles, apparels, carpets, aircraft parts, furnishing articles, textiles, optical & medical equipment, electronic equipment and much more. From the list above, it is clear that PCs form part of Indian exports to EU (WORLD BANK 2013, PG15). India’s exports to EU contribute to 21% to total goods and services exported worldwide. The most important export market for India is the EU followed by US, China and UAE (WORLD BANK 2013, PG17). The following is a summary of the trade between India and the EU for the period between 2010 and 2012. Trade in goods 2010-2012, € billions Year EU imports EU exports Balance 2010 33.3 34.9 1.6 2011 39.6 40.6 0.9 2012 37.3 38.5 1.1 Trade in services 2010-2012, € billions 2010 9.1 10.8 1.7 2011 10.8 11.3 0.5 2012 11.0 11.5 0.5 (ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT 2013, PG6) The tables above clearly show that Indian has a positive balance of trade in relation to EU. This means, exporting our products to EU is a viable option. Before making any conclusions, the focus is on the benefits and challenges that come with exporting. Advantages of exporting For any company-including our-the reason to consider exporting is quite persuasive; the following are some of the benefits that our firm will realize as a result of exporting to EU: Enhance Domestic Competitiveness and profitability: venturing into the EU market will make our company become competitive in the domestic market because the company will have a broad market. Selling our New Generation PC to EU will enhance revenues through increased sales. In addition, foreign sales will increase the company’s profitability especially after export development coats have been covered (Griffin 2007, pg61). Gain Global market shares: By exporting our PCs to EU, the company will have the advantage to partake in the global market share. Through this, our company will gain a piece of their share from the large international marketplace. Lower per Unit Costs: there is always an increased production whenever a firm captures an additional foreign market. This is necessary to meet the increased demand. In this regard, increased production will enable the firm to lower it’s per unit costs thereby fully exploiting its capacity. Create potential for company expansion: exportation to EU demands that our company should be either present or have a representation in the European Union market. As a result additional personnel is inevitable hence an expansion. Expand life cycle of the PCs product: Because the production of the New Generation PCs is characterized by various cycles such as introduction, growth, maturity and declining stage; it is appropriate that the product is introduced in a new market that ithas never been before (Griffin 2007, pg78). Gain new Knowledge and Experience: exporting our products to EU can yield prized concepts and information about new PC technologies, about our foreign competitors and most importantly marketing methods. This might be helpful in gaining domestic as well as foreign businesses. Diversification: by venturing into the EU market through exports is one way that our company will diversify its business activities hence spreading the business risk. The company will not be tied to the changes of the business cycle of Indian market. Challenges Despite the numerous advantages highlighted above, there are some challenges that come with exporting to foreign market. These include: Extra costs: developing an extra market takes time and the payback period is longer. Additionally, administration costs, the cost of new promotional tools and allocating personnel to travel to EU will train the financial resource of the company (Griffin 2007, pg63). Financial risk: collection of payments via methods such as prepayment, consignment and letter of credit, open-account; are not only complicated but also time-consuming as compared to domestic sales. Therefore, it is appropriate for our firm to weigh the financial risk involved in exporting the products to EU (OXELHEIM 2012, PG45). Product modification: Exporting our products to EU may require the modification of the products to meet EU’s safety and security codes, and other import restrictions. This can be costly at times (Griffin 2007, pg71). Export licenses and documentation: Even though the EU-India trade ties is working towards less export licensing requirements, the fact that our company still has to acquire some export license to export its products limits its competition in the EU market. In a nutshell, the documentation necessary for exportation is more involving as compared to domestic sales (Griffin 2007, pg45). There are several motives that underlie the process of internationalization (Froot 1993, pg57). Maybe the home market is characterized by saturation, presence in a certain country grants access to strategic resources or to some extent the firm has identified some opportunities to be exploited (Dana 2008, pg45). Internationalization is a complex process that requires decision makers to have relevant experience in different situations and consider different motives before venturing into the international market. Most firms start operations domestically with value adding activities conducted within the borders of the home country only (Froot 1993, pg71). With its 28 member states and the likelihood of expansion, the EU offers a big trading exporting opportunity for Indian firms. It is a single market developed to make trade between member states as easy as possible. It is no doubt that exporting to EU will expand our market share in the global market-in regards to PC industry. The benefits highlighted above are viable and can be reached with proper planning and strategy. However, it is worth noting that advantages highlighted above do not mean that finding a market and selling products with the EU is an easy task. Exporting to EU market requires a detailed market research, product positioning, pricing and sales. The EU market offers huge opportunities, but preparation remains crucial to export success. Therefore, before pressing ahead with an export deal, it is vital to have enough finances in place to cover upfront costs and cash flow problems linked with exports. References CHERUNILAM, F. (2010). International business: text and cases. New Delhi, PHI Learning Private Limited. DANA, L. P. (2008). Handbook of research on European business and entrepreneurship towards a theory of internationalization. Cheltenham, UK, Edward Elgar. http://site.ebrary.com/id/10310505. Froot, Kenneth. 1993. Foreign direct investment. Chicago: University of Chicago Press. Griffin, R. W. (2007). Fundamentals of management: core concepts and applications. Boston, Mass, Houghton Mifflin. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT. (2013). Interconnected Economies Benefiting from Global Value Chains (Preliminary version). Paris, OECD Publishing. OXELHEIM, L. (2012). EU-Asia and the re-polarization of the global economic arena. Singapore, World Scientific Publishing Co. PUBLISHING, O. (2014). OECD Review of Fisheries. Paris, OECD Publishing. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=1611773. WORLD BANK. (2013). South Asia Economic Focus, Fall 2013 A Wake-Up Call. [S.l.], [s.n.]. http://elibrary.worldbank.org/content/book/9781464801181. Read More