Motivation for going international

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Motivation for going international

There are many advantages for a company to market their products overseas. The chief reason is for growth and expansion. The allure of international markets cannot be ignored by many companies who have established strong foundations within their mother countries. In the infant stage, most companies focus on the conquering of domestic markets. Their goals, strategies and investments are geared towards domestic markets. However, in the mature stages, a company tends to exhaust their presence in the country of origin and most seek other markets abroad. A good example would be Coca Cola that initially operated in the US market.

After a while, they expanded their operations to other continents. Currently, Coca Cola products are consumed in almost all countries in the world. In terms of growth, expanding to overseas market up new premises, employ new administrators and create new networks with new suppliers. Furthermore, the company has to come up with new approaches to target the new market segment that they will experience. All of these prerequisites cause the company to experience. Therefore, for Dunning, “all of these prerequisites cause the company to grow in size, scope of operations and income revenue” (Dunning & Lundan, 2008).

The origins of most multinational companies are highly developed especially in trade and commerce. Therefore, the services are relatively higher than in other less developed markets. The spur of competition from foreign companies also creates unnecessary pressure to survive as a company, even at the domestic level. This acts as motivation for companies to expand their business to overseas markets. The concept of economies of scale is highly relevant at this point. Pursuing foreign markets gives a company the benefit of economies of scale that is important in achieving brand recognition.

Increased number of consumers is another motivator for companies making the choice to go overseas. Typically, the basic objective for most companies is to make a profit. The high competition that exists at the domestic levels discourages many companies by lowering the profit margins. By going international, companies seek to reach out to the untapped markets having consumers with significant purchasing power that will see their profits increase exponentially. Most of the products and services brought by these multinational companies revolve on the basic needs. As a result, the company gains increased revenue from domestic as well as foreign customers.

Most companies that engage in the manufacturing of goods have a problem of acquiring raw materials. The ease of acquiring supplies became a motivator for most firms to go overseas. This is because companies have realized that it is cheaper to site their offices nearer to the source of the raw materials than importing raw materials for processing. Firms in the industrial sector have been influenced the most by this benefit. Exxon Mobil and Royal Dutch Shell are examples of companies that have sought greater access to crude oil by expanding their operations into overseas markets. The other main reason why raw materials motivate most companies to go overseas is the scarcity. The industrial development in most countries has depleted the raw materials for domestic companies. According to Hill, “Such industrial firms have no option but to seek foreign sources of materials “(Hill, 2009).

The motivation to go international is also caused by the availability if alternative sources of cheaper labor. Within business, employees or labour takes up quite a significant percentage of company’s revenues. Salaries, pensions and other costs like health cover make companies spend huge amounts of their money on labor. The existence of unskilled labour in other less developed countries attracts many companies as they can afford to charge these workers far much less than the standard rate and still get the same output, if not more. Exploitation of this kind of cheap labour has been mentioned in cases like the Nike sweatshops in Asia where underage children were employed on small wages and poor working conditions.

Challenges

While multinational companies conduct their operations in other countries, the home country branch usually experiences limited chances to profit from the market. This is because domestic markets, especially in developed countries, are saturated with small and medium enterprises that claim a share of the market. Thus, it is not surprising to note that foreign markets are much less cumbersome to operate in compared to home markets. A focus on investment abroad can only mean a partial neglect of the home affairs. Furthermore, domestic markets have adverse trading environments that deter most companies.

The difference in cultural backgrounds poses a real hurdle to companies that are going international. While expanding into new territories, firms encounter different lifestyles and attitudes that may make it difficult for firms to thrive. Different nations have different cultural backgrounds, which forces many companies to restructure and retrain their employees to match these new situations. For instance, most less developed countries have poor financial infrastructure. Companies that engage in financial activities that plan to establish branches need to allocate more funds for sensitization on savings, mortgage and other services they offer. Hill also claims, “Other indigenous cultures may have negative values that may discourage capitalistic tendencies” (Hill, 2009).

Different barriers exist for companies that want to set up in foreign countries. These barriers can be political. The local political elite can be very uncooperative in the sense that they engage in personal businesses and may intentionally thwart the progress of any foreign company. Apart from direct resistance by local elite, a firm may also have problems with operating in politically unstable regions. Political disarray is a common feature for most countries in Africa and Asia as well as the Middle East. According to Moran, “the government barriers like “high tariffs, bureaucracy in the registration of foreign companies and other hidden costs and levies can also pose a huge challenge to companies seeking overseas markets” (Moran, Braaten & Walsh, 1994).

Other factors that may be regarded as challenges for companies that are planning to make a move into international markets or firms currently operating abroad are as follows. The domestic policies concerning economic activity by foreign companies have recently been taking a protectionist approach. More countries have realized the need to protect their own infant industries. Consequently, firms operating in foreign countries face stiff taxes and other regulations that lower their profit margins significantly. The threat of terrorism is another emerging phenomenon that poses a major challenge to expanding companies.

Terrorists nowadays opt to use corporate landmarks as targets of their terror activities. Bombing disasters involving terror groups that target establishment with foreign roots is a feature on the rise in the Middle East. In conclusion, the benefits of going international generally translate into increased customer base and a rise in profit margins. However, the challenges facing any company planning to do so, also spell trouble. Adaptive strategies for the business should be formulated if a company wishes to overcome these and other hurdles, in a bid to make profits in foreign markets.

References

Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy. Cheltenham, UK: Edward Elgar.

Hill, C. W. L. (2009). International business: Competing in the global marketplace. Boston: McGraw-Hill/Irwin.

Moran, R. T., Braaten, D. O., & Walsh, J. E. (1994). International business case studies for the multicultural marketplace. Houston: Gulf Pub. Co.