Why do business internationalise free essay sample

The business internationalise means a company’s production and business activity are not only confined to one country, but also integrate the different countries’ raw material and labour and technologies to produce products and sold to multi country. The primary purpose of business internationalise is seek a wider range of competitive advantages and integrate resource in order to profits maximization. The Internationalization motives include three points: to find the new customers and market for existing products and services; looking for low-cost resources and labour; build the core competitiveness. Next, the mainstream and alternative international business theory will be compare and contrast to answer why do business internationalise. Companies have many different ways to enter the international market. The new trade theory indicates that early into new market than theirs competitors will get more market share that establishes the entry barriers (Krugman, 1985). This is the advantage about economies of scale. In addition, economies of scale could reduce the marginal cost of produce unit goods as output expands. The lower cost will support the price advantages than competitors. Cooperation with foreign companies has many uncertainty factors, and the transaction cost will increase when the frequency of transaction increased. (coase, 1937) Consequently, internationalization will reduce the uncertainty, complexity, information asymmetric, and opportunism (Williamson, 1981). Because business internationalise transform the multinational business act from external to internal behaviours, it reduce bargaining and contractual cost through reduce the unexpected factors in environment (porter, 1985). Moreover, is reduce the policing and enforcement cost when the business act become internal act. The internalization theory was established in 1976, the writer thinks that the firms prefer to transfer of intermediate or knowledge products within the enterprise and let internal market instead of the external market in incomplete market (Hymer,1976). In the internal market, both of buyer and seller have the accurate understanding about the quality of products. The information, technology, and knowledge were full exploited, thus reducing trade risk and maximize profits. The other advantage of business internalization is to increase effective of economies via rational allocation of global resources. Finally, the company use transfer pricing strategy to adjust the global strategies and transfer technology for subsidiary to obtain profits maximization for head office. The products also have the life cycle through a process form development to decline (Vernon, 1966). However, the same products in the different position at different country which has the different level of technology at same times, such as US and CHINA. Even the firms is more difficult to introduce the product to foreign market than home market competitors, but the firms still insist on introducing product to new market. Because product will be back to launch stages in developing country after this product stay in maturity stages in developed country. This strategy can extend the product life cycle and get more benefits. Eventually, the firms get more competitive advantage after production of product will be standardized in low-cost country. The structures of transnational companies are complex; moreover the act and strategies cannot easy to figure out by single theoretical approaches. Consequently, the firms have to consider depth factor of Transnational of production. The stages theory indicated that the one disadvantage of sales to abroad is psychic distance. The customers prefer to buy the domestic products than foreign products (Bullough, 1912). However, if the firms transform to TNC, the high level of industry similarity will decrease this disadvantage. In addition, the internationalisation is the strategy to occupy the foreign market step by step. Also, the porter’s competitive advantages theory is to analysis the strategies of global business. They could divide to three strategies: over cost leading, diversity, and market focus strategy (Passemard Calantone, 2000). The cost leading strategy focus on establish efficient scale production facility and minimize the research and advertising cost. The diversity strategy focus on introduce some unique product in whole industry. But, this strategy will with a high cost price. The focus strategy is attack of a particular customer group or specialist regional market, its purpose to design the service for a particular target. Consequently, the companies need to consider the internal and external factor condition, such as: factor condition, demand condition, related and supporting industries condition, and firm strategy and rivalry. They are called diamond system. This dynamic system gives the company a standard to measure theirs advantage and disadvantage before they enter foreign market. Moreover, the specific advantage in Internationalisation of Production is give companies a new choose for exhausted market (Strange,S. 1992). In an international environment, the companies will face more uncertain and unequal condition than home market, therefore the companies need keep the attention of more factors: labour, culture, resource, and political factors. Especially, the firms must pay enough money and rest time for employees when they hire the lower labour resource, it is could strengthen employee’s enthusiasm and enhance the brand image (christopherson, 2005). Both of mainstreams and alternative strategy are focusing on efficiency and get competition advantages through reduce various costs. The mainstreams theory also concerned with the advantage of internationalise. For example, internationalise could reduce transaction cost and investment risk. In addition, internationalise can get scale of economic through expand the market share and extend the product life cycle. The alternative theory prefer to consider what factor will impact the business internationalise and impact the companies to make decision. Moreover, alternative theory purpose to design the global strategy and analysis what is the disadvantages and weakness of business internationalise. In conclusion, the globalization of business could expand the market share. In addition, the first enter advantage; reduce expenses through bought the resource from the supplier who given lowest price in global, and product diversification to gain the Competitiveness to over theirs competitors or potential competitors. Moreover, globalization of business could increase company’s awareness and spreading business risk. Globalization of business also could attract the outstanding employees from different countries and supporting for multi-country’s customers. Those benefits are the reason why business internationalises.