Thelast two decades has seen a growing trend across the globe ofinternational businesses. Most goods now have a global customer basewhile companies continue to provide services that are not countryspecific but rather can be applied to any location across the world.The environment of operation for international businesses is highlyuncertain involving ambiguous activities which may be considered tobe contradictory and subject to frequent changes. For competitiveadvantage to be acquired, these firms have to adapt to the shiftingpriorities of the country of operation. Therefore, companies musthave a global perspective as their guiding principle of functioningin the world stage (Cavusgiletal.,2014).The primary objectives of this paper are to discuss the major factorsthat make companies engage in international operations, andadditionally elaborate on how certain markets can be madeinaccessible to affirm as a result of government or competitoractions.
Thereare certain drivers which firms have to take into considerationbefore venturing in other countries. They have to evaluate and havein-depth knowledge of the target country effectively. Penetrationinto new environments is one of the fundamental challengesencountered by firms which are keen to globalize. As such, theirsuccess will be determined by the development of efficient systems inthe host country, familiarize with regulatory bodies, customers’needs and ultimately make revenue from their operations (Cavusgiletal.,2014).One of the driving factors is the urge to make profits. For theprofit margin to be improved, firms increase the target market fordistributing their products. leads to the growthof the customer base, thereby increasing their sales and revenue.However, the first profits may be elusive, especially if the firm hasno experience in the international market. Even though marketevaluations may have been conducted, they may be altered by drasticshifts in exchange rates.
Secondly,firms may need to achieve economies of scale which result from theexpansion regarding the scope and size of the markets. Differentmarkets provide an avenue for sharing the costs and risks. Theincrease in production volume and a decrease in unit cost of aproduct lead to the occurrence of economies of scale.
Thirdly,firms internationalize so as to ensure risk diversification. Thepossibility to diversify can only be attained by having a globalpresence (Wildetal.,2014).Countries are likely to encounter political as well as economicinstability, hence when firms internationalize, they reduce suchrisks given that not all countries may be unstable at the same time.
Thefourth driver is the spreading of the research and development costswhich are significantly reduced as a result of marketdiversification. Such costs are speedily recovered due to theenlarged market, in addition to the coverage of the appropriatemarket segments on the global setting (Mane,2015).
Thereare certain firm-specific drivers which lead to theinternationalization. For instance, technology advantage may give thefirm core competency over competing companies, hence justifying theirreason to internationalize (Dunning,2013).Additionally, the uniqueness of the product or service provides thecompany with a competitive edge in the global markets.
Governmentpolicies have specific controls which can hinder businesses frompenetrating a particular country. These include licensingrequirements which might involve tedious acquisition processes, inaddition to the high fees to be paid. Additionally, the governmentmay also control access to raw materials which might be a hindrancewhen a firm tries to gain entrance into a particular market.Governments may also give exclusive market rights to individualcompanies, thereby preventing the entry of new businesses. Competitors, especially incumbents might prevent new entrants fromgaining access to the new market. Due to their substantial resources,established firms might retaliate using their productive capacities,leveraging their distribution channels and also injecting additionalcash into the business (Rahman,Uddin and Lodorfos, 2016).Competitors may patent the product thus prohibiting new entrants fromselling the product in the particular market. For example, recently,Uber had to depart from the Chinese market due to the inability toeffectively compete with Chinese startup Didi, which has eightypercent commanding power in the Chinese market. The uneven playingfield in the Chinese market has been established by the Chinesegovernment which immensely supports enterprises owned by the stateand other designated oligopolies. The ability of both domestic andforeign firms to operate in the market have been restricted by thepreferential treatment accorded to state-owned companies (Lopez,2016).
Inconclusion, it notable that internationalization has led to thediversification of different firms in response to the target market.Before the internationalization of a company, there are certaindrivers which necessitate this action, for instance, the urge toincrease profitability, risk diversification, a reduction of researchand development costs, and finally technology advantage. However, theability to penetrate foreign markets may encounter hindrances fromgovernments and competitors.
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