Internationalization of Businesses
Abstract
This paper is aimed at explaining business internationalization, establishing its barriers, and the requirements for company expansion. Evidence suggests that even as many companies continue to venture globally, most remain uninformed about the necessary aspects to be successful. The advantages that follow business internationalization are only achieved after the requirements are met. The research findings indicate that companies should conduct research and thorough evaluation of their capacity to avoid unnecessary loss of finances and time. The study uses literature texts from various authors and articles to create a connection between business expansion and the requirements.
Annotated Bibliography
Fox, M. (2018, August 16). 3 tips for moving your business internationally. Forbes. https://www.forbes.com/sites/meimeifox/2018/08/16/3-tips-for-moving-your-business-internationally/#91f4d3e72fff
Fox offers important tips that business owners can adopt to expand their businesses. I believe her intention was not only to provide information but also to provide motivation for potential investors. Fox is a Forbes contributor and a New York Times bestseller. Her work gave me a broader perspective on internationalization.
Gibbons, S. (2020, March 17). How to expand a business internationally without compromising your core model. Forbes. https://www.forbes.com/sites/serenitygibbons/2020/03/24/how-to-expand-a-business-internationally-without-compromising-your-core-model/#13bebd2c741d
Gibbons is an entrepreneur and a writer for Forbes. Her work focuses on business expansion and strategy. She offers detailed information on how to internationalize businesses without straining the local strategic plan.
Hall, J. (2019, September 13). How to do more business internationally. Forbes. https://www.forbes.com/sites/johnhall/2019/09/15/how-to-do-more-business-internationally/#412ef968532e
Hall is a senior contributor and entrepreneur, and his work is aimed at educating business persons. His work helped me understand how businesses can grow internationally by using the current resources.
Masum, M., & Fernandez, A. (2008). Internationalization Process of SMEs: Strategies and Methods.
Masum and Fernandez are renowned scholars and writers whose work focuses on small and medium-sized enterprises. They offer a valid perspective on how to expand small businesses with cost-efficiency.
O’Sullivan, A., & Sheffrin, S. M. (2007). Economics: Principles in action. Pearson Prentice Hall.
The authors are economists and scholars of economic theories. Their work provided information about the importance of business internationalization. Through their book, I understood the concept of economies of scale and its relevance to firms.
Young, S. (1987). Business strategy and the internationalization of business: Recent approaches. Managerial and Decision Economics, 8(1), 31-40. https://doi.org/10.1002/mde.4090080107
Young is an author and journal writer on management and economics. His work focused on various business strategies aimed at promoting revenues and productivity. The author gave me a concrete understanding of internationalization, methods of business expansion, and its benefits.
Internationalization of businesses
Problem Statement
The 21st century has seen a surge in the globalization of people, multiculturalism, and international diversity. The world has become more interconnected and linked by various common grounds such as peace, music, social media, and politics. However, the most prominent global connection in the current years is business. Gibbons 2020 argues that firms have arguably grown to concur with the local markets and are expanding to the international regions to cover more ground, make more money, and expand their global market share. Businesses are continuously investing in products to sell and attract international consumers. Hall,2019 comments that as telecommunication, innovation, and technology advancement continue to rise, more businesses are simultaneously digitizing and expanding their operations to accommodate the growing demands.
It is true that many company managers, directors, and business owners are advised to internationalize their business, but are they informed about the requirements to venture globally? There is arguably a gap in the information available for prospect businesses on the necessities of investing globally. Therefore, this research paper aims at establishing the benefits of going global and the cost, requirements, and planning it takes to internationalize business operations successfully. The paper will gather information from various pieces of literature and ultimately make recommendations for potential international investors.
Background Information
Internalization Methods
Young 1987 describes the internationalization of businesses as the process of expanding business operations into other countries. Companies can use a variety of means to expand their operations. He contends that internalization can be done using joint ventures, merging, and acquisitions. A joint venture is where two companies, in this case from different countries, come together to form one entity. Each of the member firms is involved in business planning, strategy formation, and decision making. They both share profits, technology, skills, and incur liability together. Mergers, on the other hand, require foreign direct investments where a local company buys shares of an international company and gains control through equity. Lastly, acquisition involves the purchase of a company, mostly one that is underperforming or undervalued and improving it to generate revenues.
Masum 2008 argues that firms can also internationalize through exportation and importation of products and raw materials. Furthermore, many firms in the 21st century have developed more sophisticated internalization techniques such as franchising and licensing. Masum argues that franchising is where a business sells its rights to a foreign company that allows the franchisee to undertake business operations, produce and trade under the name of the franchising firm. Licensing, on the other hand, is there a proprietor grants the foreign company permission and access to products and processes. In return, the company gains control of the licensee’s connections and distribution channels.
Benefits of Internationalization
Internationalization offers a wide array of benefits for businesses. One of the most primary advantages is economies of scale. This is arguably the most sort after merit of internationalization. O’Sullivan and Sheffrin 2007 argue that economics of scale is a concept which claims that the cost of productions of a company reduces as its size increases. In this case, production costs are inversely proportional to the business extensiveness. A large company can purchase in bulk, produce in quantity, and invest in technologically efficient methods of production. Ultimately, this guarantees higher profit margins as compared to smaller companies. Bulk production also allows the company to have cost leadership competitive advantage since it can sell at lower prices. The second benefits of internationalization are the increased number of customers or market size. Investing in a foreign country allows a firm to learn new demands, consumer tastes, preferences, and ultimately produce customized products to exploit the market. Moreover, expanding businesses may improve learning, innovation, and the adoption of newer technologies that would otherwise be unfamiliar if the company remained local.
Findings
Arguably, as Hall 201 argues, there are significant barriers to investing globally. First, there are different political and legal restrictions in many countries. For instance, protectionism measures instilled in some countries might bar foreign investors from succeeding. Secondly, many companies fail to invest globally due to financial restrictions. It requires substantial amounts of money and funding to invest in other countries. The legal requirements, fixed costs, research and development, strategy formulation, the establishment of premises, and distribution channels are very costly.
Moreover, for a business to excel globally, a significant amount of time is required to study the regions, understand the cultures, tastes, and customs of the potential market. Besides, establishing a particular advertisement and marketing plan is also cost-intensive in international businesses. Also, there is the factor of language barrier primarily when the potential country uses different languages, verbal cues, and communication criteria. Therefore, even as businesses attempt to expand operations, there are a variety of factors to consider. There is a need for each potential investor to weigh their capability to perform well in the chosen country to save on costs and time.
How to Internationalize Businesses Effectively
Before venturing into a foreign country, a business should first generate an adequate amount of financing, which is relative to the size of the enterprise. As indicated earlier internationalization of companies is an expensive affair, and there are a lot of necessary activities that require money. For instance, introducing a new product into a foreign company will need extensive and vigorous advertisement to create awareness and generate brand loyalty. The costs of setting up premises and installing necessary equipment are also significantly costly. These costs can be reduced by adopting different forms of internationalization. As described, licensing and franchising are cheaper as compared to when a company begins to set up operations from scratch—licensing a foreign company with reducing fixed costs of production for the prospective investor.
Secondly, there is a need for a strategic reconnaissance to the chosen country. The pre-visit benefits a company significantly. First, the business can analyze the location, examine the strengths and weaknesses. Through this, the firm can investigate the potential legal constraints to engaging in the activity and find ways to counter them. For instance, the firm will identify protectionist measures such as tariffs, entry barriers, duties, and corporate taxes. This will assist in making informed decisions.
Furthermore, the visit allows the company to analyses the market, a business nuance of the foreign country, consumer behavior, religious and social restrictions that may affect the business plan. Businesses have to understand their potential clients and engage with them to learn their preferences. Besides, the surveillance also provides the firm with the opportunity to scan for competitive threats. The business can research on the prices of similar goods, the distribution channels, market share, brand loyalty, and also identify the weaknesses of the major competitors.
Finally, a company planning to invest abroad must invest in local talent and create connections. Business connections are a significant key to any prospective foreign investor. The links provide companies with information, tactics, and ideas to compete effectively in the unfamiliar market. A company can create business connections from the pre-visit, or by acting as local connections for foreign investors. Hall, 2019 argues that a business should serve as an intermediary to multinational corporations in their home nations. In return, the company will gain a good relationship which it can exploit in a foreign country. Furthermore, companies should hire local talent from the prospective foreign country. Fox 2018 argues that the locals will provide invaluable input to speed up legal processes and reduce errors.
Conclusion
There is an increasing trend in the internationalization of businesses in the world today. Business expansion creates economies of scale for businesses, enhance productivity, and increase profits. Moreover, companies learn about newer, efficient, and more sophisticated technologies for conducting operations. Also, internationalization provides a broader market opportunity and more diverse customers, as well as improving brand loyalty. The significant barriers to internationalization are finances, language barriers, competition, protectionism, and other legalities. For this reason, potential investors must investigate their strengths and weaknesses before venturing abroad. This will save them time and money that could be easily lost by uninformed strategies. First, businesses should conduct pre-visits to research the potential market, political climate, legalities, consumer behavior, competitors, and the products available in the foreign country. Secondly, firms should ensure they have adequate funding to cover all the necessary costs. Finally, investors should continually build business connections which provide invaluable insight and guidance on the business nuance of the foreign country.
References
Fox, M. (2018, August 16). 3 tips for moving your business internationally. Forbes. https://www.forbes.com/sites/meimeifox/2018/08/16/3-tips-for-moving-your-business-internationally/#91f4d3e72fff
Gibbons, S. (2020, March 17). How to expand a business internationally without compromising your core model. Forbes. https://www.forbes.com/sites/serenitygibbons/2020/03/24/how-to-expand-a-business-internationally-without-compromising-your-core-model/#13bebd2c741d
Hall, J. (2019, September 13). How to do more business internationally. Forbes. https://www.forbes.com/sites/johnhall/2019/09/15/how-to-do-more-business-internationally/#412ef968532e
Masum, M., & Fernandez, A. (2008). Internationalization Process of SMEs: Strategies and Methods.
O’Sullivan, A., & Sheffrin, S. M. (2007). Economics: Principles in action. Pearson Prentice Hall.
Young, S. (1987). Business strategy and the internationalization of business: Recent approaches. Managerial and Decision Economics, 8(1), 31-40. https://doi.org/10.1002/mde.4090080107