Note on Reasons for International Business Expansion, Drivers of Market Globalization

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Reasons for International Business Expansion

International Business
International Business
Source:www.vinsonrealestategroup.com

International business is the phenomenon which is expanding in increasing ratio throughout the world. International business expansion refers to the extension of business activities from the domestic market to international market across the globe. There are certain motives of business firms because of which they are expanding their scope and coverage. These motivations include market motive, economic motives and strategic motives.

Market motives

It includes the motive of business firms to expand its market internationally throughout the year. The business firms need to internationalize their highly specialized product and hence they expand their business in an international arena. Especially those products which are specialized or unique and which have a competitive advantage in the international market are internationalized. Without internationalization, the expected profit could not be achieved and the big business firms seek to sell their products in international markets.

Similarly, the expansion of international business helps the business firms to make accessible the unique products to the entire customer no matter where they are. This will also be helpful to sell products all season long because the market of seasonal products varies as the season varies and internationalization makes possible to sell all season long as it varies country wise.

Economic motives

It is applicable when the business firms go internationally to increase their output by increasing revenue at a lower cost. Some business firms try to expand their business in international because to gain high profit through the concept of economies of scale. By economies of scale we mean, the higher output or production leads to lower manufacturing cost and higher profit.

Similarly, some organizations need a large number of diverse resources to meet their organizational goals. In such situation, they need to import the variety of resources from other countries which increases the cost of production. International trade and investments are the vehicle of international business which enables the firms to take profit from the inter-country difference in price of the cost of production. Internationalizing the business can lead to lower cost of production in such instance.

Additionally, the business firm requires a large number of resources for inventing new products and globalization helps them in obtaining the resources at most optimum cost. In this way, the firms can lower their cost in research and development activities.

Strategic motives

Some organizations are looking to grow their business area through market development which is the process of expanding new market in the new place. The strategic motive leads the business firms to capitalize the products of home country in international markets. By selling the products in international market the organizations may increase their cash inflows.

The firms also may go in international market as first moves before any other major competitor enters the market and increase their profit by gaining strategic benefits such as technological leadership, customer loyalty, brand image or competitive position. For example, Volkswagen, a leading auto business, was the second automaker to enter the china and the first to locate in all-important market of Shanghai gaining monopoly for years.

Drivers of Market Globalization

Market Globalization is the process where various diverse business firms participate in international business to expand their market internationally. The market globalization is affected and influenced by number of factors. Those factors which induce market globalization are called the drivers of market globalization. George Yip in his book “Total global strategy: Managing for worldwide competitive advantage” identifies four sets of globalization drivers which focus on the conditions based on which the industry can become more global. Those drivers of market globalization are explained below:

Market drivers

It deals with the needs and preference of customers around the world. The organizational goals are always converged towards meeting the wide range of customers’ needs. In this aspect, the organizations go globally. As the customers in the different parts of a world increasingly demand similar products and services, the organizations make a strategy to market their products worldwide through standardized offerings. How common needs, tastes and preferences vary and what affects these conditions is studied and the appropriate strategies are applied.

As a result, the global distribution channels are emerged in organizations to satisfy increasingly global customer needs. Finally, depending upon the consumption patterns global branding and marketing strategies are applied for global success of international business.

Cost globalization drivers

The economics of many industries and business firms is altered by the globalization of customer needs and the opportunities for standardization of their products. The cost of production of labor, technology, and resources differ from country to country and the organizations can take advantage of this varying cost. The optimum utilization of resources at minimum cost with maximum profit could be achieved due to globalization.

Similarly, global scale and scope economies do have very high impact on international business. The new economies of scale and scope shape the market strategy in such a way that it will be really hard for the new business to enter the market.

Competitive drivers

The degree to which the total volume of industry sells its product, competitor’s diversity in terms of national origin, the degree to which other major actors have globalized their operations and created an interdependence between their competitors in different parts of the world affect the globalization process of industry. High competitive diversity, international trade and interdependence boost the globalization of industry. In the products which do have a competitive advantage, the industry can take advantage of the global market and enhance their profit.

Government drivers

The government policies and rules such as international trade policy, open market or liberalized policy, policy of tariff reduction and trade barrier and subsidy affect the global market and are important in shaping the global competitive environment in an industry. The liberalized market policy and deregulated market lowered tariffs and allowed foreign direct investment in different countries in the world. The agendas of GATT in 1947 and WTO 1995 are some of the examples of such policies.

Domestic vs. International Business

In simpler words, international business is the expansion of domestic market at the international level. Almost all the leading business firms in today’s world are in this state of popularity because of its market expansion from domestic to international business. There are however differences as well as similarities between international and domestic business. No matter whether it is international or domestic business, both involve the transaction of goods and services in return for money.

The difference between domestic and international market can be explained in terms of interest rates, currency, inflation, government regulations, taxation system, language, and cultural and economic barriers.

In terms of currency, the exchange rate fluctuations during the import and export of products create problem in business. Similarly, in terms of international trade rules, when the commodities cross the border it becomes subject to different rules of tariffs, customs and trade barriers. The difference in language and culture also affect the market of commodities in an international arena.

The business operated domestically within the national boundary does not suffer from such problems of currency, trade barrier, cultural differences. Instead, they are affected by a change in interest rates, inflation within the country and alteration of government taxation system.

References

Aswathappa, K. (2010). International Business. New Delhi: Tata McGraw-Hill.

Shenkar, O., Luo, Y., & Chi, T. (2015). International Business. New York: Sage.

Yip, G. S. (n.d.). Total Global Strategy: Managing for Worldwide Competitive Advantage. 1995: Englewood Cliffs, NJ : Prentice-Hall.

  • International business expansion refers to the extension of business activities from domestic market to international market across the globe
  • There are certain motives of business firms because of which they are expanding their scope and coverage. These motivations include market motive, economic motives and strategic motives.
  • The market globalization is affected and influenced by a number of factors. Those factors which induce market globalization are called the drivers of market globalization.
  • The drivers of market globalization are Market drivers, cost globalization drivers, competitive drivers, government drivers .
  • The difference between domestic and international market can be explained in terms of interest rates, currency, inflation, government regulations, taxation system, language, and cultural and economic barriers.
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