Reasons for International Business Expansion, Drivers of Market Globalization

Reasons for International Business Expansion

International Business

The phenomena of international business is spreading globally at an ever-increasing rate. The extension of corporate operations from the home market to global markets is referred to as international business expansion. The reasons why corporate organizations are broadening their reach and breadth are varied. Market motives, economic motives, and strategic motives are some of these drivers.

• Market motives
  It involves business organizations' year-round motivation to broaden their market globally. The requirement for business enterprises to internationalize their highly specialized products drives them to grow their operations globally. Products that have a competitive edge on the global market, such as those that are specialized or one-of-a-kind, are particularly those that are internationalized. Without internationalization, the anticipated profit could not be realized, thus major corporations try to sell their goods in other countries.
  Similar to this, the growth of international trade enables companies to offer distinctive goods to all customers, wherever they may be. Because the market for seasonal goods fluctuates with the season and internationalization makes it feasible to sell all season long as it differs country-wise, this will also help with year-round sales.
• Economic motives
  It applies when businesses expand overseas in order to produce more goods and services at a lesser cost. Some businesses attempt to grow internationally in an effort to maximize profits by utilizing the principle of economies of scale. The larger output or production results in lower manufacturing costs and better profit, which is what we mean by economies of scale.
  Similar to this, some businesses require a considerable quantity of various resources to achieve their objectives. In such a circumstance, they are forced to import a range of resources from other nations, raising the price of production. International commerce and investments are the means by which international business is conducted and allows companies to benefit from pricing differences in the cost of manufacturing between different countries. In this situation, expanding internationally may result in lower production costs.
  Additionally, the business organization needs a lot of resources to come up with new items, and globalization enables them to get those resources for the best possible price. In this method, businesses can cut costs associated with their research and development efforts.
• Strategic motives
  Some businesses want to extend their firm through market development, which is the act of opening up new markets in new locations. Business organizations capitalize on domestic products in foreign markets for strategic reasons. The organizations may enhance their cash inflows by marketing their products on a global scale.
  The companies may also enter the global market as early moves before any other significant competitors do so. By gaining strategic advantages like technology leadership, customer loyalty, brand image, or competitive position, they will be able to raise their profit. For instance, Volkswagen, a well-known automaker, was the second automaker to enter China and the first to establish a location in Shanghai's crucial market, obtaining exclusivity for years.

Drivers of Market Globalization

Market globalization is the process through which numerous diverse commercial organizations engage in international trade in order to increase their market globally. Numerous factors have an impact on and influence market globalization. The drivers of market globalization are those elements that cause it to occur. Four groups of globalization drivers are identified by George Yip in his book Total Global Strategy: Managing for Worldwide Competitive Advantage. These drivers concentrate on the circumstances under which the industry might become more global. These factors that are driving market globalization are described below:

• Market drivers
  It addresses the requirements and preferences of clients from all around the world. Meeting the diverse demands of customers is constantly at the forefront of corporate aims. The organizations are global in this regard. Organizations develop a strategy to promote their products globally through uniform offers as clients in various regions of the world expect more and more comparable goods and services. The right tactics are used after a study of what influences these variables and how common needs, tastes, and preferences vary.
  In order to meet the needs of increasingly global customers, corporations have developed worldwide distribution networks. Finally, global branding and marketing techniques are used in accordance with consumption patterns to ensure the success of global business.
• Cost globalization drivers
  The prospects for product standardization and the globalization of consumer needs have changed the economics of many businesses and industries. The organizations can benefit from the fact that the cost of producing labor, technology, and resources varies from nation to nation. Due to globalization, the best possible resource use at the lowest possible cost and highest possible profit may be accomplished.
  Similar to this, global scale and scope economies do have a significant impact on global trade. It will be extremely difficult for new businesses to enter the market because of how the new economies of scale and breadth affect the market strategy.
• Competitive drivers
  The volume of sales made by the industry as a whole, competitor diversity in terms of national origin, the extent to which other significant players have globalized their operations, and the interdependence between their rivals in various regions of the world all have an impact on the globalization of industry. High levels of competition, international trade, and interdependence promote industry globalization. The market can be utilized by the industry to increase profit on products that do have a competitive advantage.
• Government drivers
  Government regulations and policies, such as those governing international trade, open markets or liberalized markets, tariff reduction policies, and trade barriers and subsidies, have an impact on the global market and play a significant role in determining the global competitive environment in an industry. The deregulated market and liberalized market policy have reduced tariffs and opened up the global economy to foreign direct investment. Some examples of such policies are included in the GATT agenda from 1947 and the WTO agenda from 1995.

Domestic vs. International Business

• International business, put another way, is the growth of the domestic market abroad. Almost all of the top corporations in today's society enjoy this level of popularity as a result of their market's expansion from domestic to global trade. International and domestic business, however, have both similarities and distinctions. Whether a firm is domestic or foreign, both entail the exchange of goods and services for cash.
• Interest rates, currency, inflation, governmental restrictions, the tax code, language hurdles, and cultural and economic obstacles are some of the factors that can be used to explain the differences between the domestic and international markets.
• Currency fluctuations that occur during the import and export of goods cause issues for companies. Similar to this, when goods cross borders, they are subject to various trade regulations, including tariffs, customs, and trade barriers. The international market for commodities is also impacted by linguistic and cultural differences.
• Businesses operating domestically within a country's borders do not encounter issues with currency, trade barriers, or cultural differences. Instead, they are impacted by changes in interest rates, domestic inflation, and the taxation structure of the government.

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.