How Do Firms Internationalize?

The simple facts remains that firm internationalize for many reasons or the other; be it, profit motive, the expansion to new horizon, exploring and tapping new markets or for reasons less known, that is to say for competitive advantage or labor mobilization and last but not the least, the cost factors.

Moreover, by going international, firm can also take center stage to reaps the benefits of global exposure, and the opportunity cost that can be reaped from international business is also rather more in a sense that diversity is also exemplified, plus the means that internationalization provides towards new markets beyond national boundaries is also what’s excites and interest organizations in going international. Add to it, supply chain and its management is also more broadened when firm indulge themselves in international business. Thus, the above mentioned facts in brief list some of the factors and the notion as to why firm internationalize.

Participants in International Business

International business and its arena is a bundle of flourishing economic activities and the cycle of its repeats day in and day out. The simple facts are that without corporations and business houses, plus participants, economic activities are rather on the back foot or to say, it makes no sense at all. It is common knowledge that global economic process today defines the notion as to what constitutes participants in international business. Thus, the different participants are the following:

  1. Focal Firm: What defines focal firm as one participants is the fact that, focal firm itself is looked upon as an initiator to international business in real sense of the term. It means that focal firms constitute Multinational Enterprise, Small and Medium Enterprise, where the actual economic and production process take shapes. Thus focal firms are looked upon as the center and stage of international business and its cycle at the primary level.
  2. Distribution Channel: Distribution channel intermediaries and their roles are consumed in facilitating the distribution cycle common to international trade and businesses. In simple sense and meaning of term, distribution channel intermediaries defines organization that specializes in the distribution channel, that is to say, logistic support, marketing etc, which are the sole constituent of distribution channel intermediaries.
  3. Facilitators: Third is the facilitators, and includes firms and individuals, where the object of their roles and functions as participants in international business is broadened and exemplified to facilitating legal advice, financing and in between the interrelated business transaction is made possible. Furthermore, participants also can includes, licensor, joint venture partners and the likes of foreign distributors, foreign agents and all in between.

Thus, these participants in international business forms the cycle of economic activities carried out in the background of each one participants dependent upon one another in international business scenario.

Types of International Business

  • Multinational Enterprise: Multinational Enterprise defines organizations that have set shop in more than one particular market, where its business expose is international, with a global aspirations and goals. Add to it, Multinational Enterprise also details the object of its ownership, which means that that part of the ownership is either owned by parties or more than single ownership take course. Moreover, Multinational Enterprise also posits special characteristics that mirror forms of nationality mix among its staff and managers. Hence, very often Multinational Enterprise is also known as MNC (Multinational companies). The best example can be looked to subsidiaries firms or American firms with their bases in foreign nations where operations and organizational control are decentralized, and the marketing strategy also is rather different from parent company or the likes.
  • Small and Medium Enterprise: As the term denotes to, small and medium enterprise are organization with a business object and turn over that is rather small. And most importantly, employee counts are also small in numbers and counts, let say 20-30 employees for the starts. Add to it, company assets are also small in comparison to global firms or MNE’s. But that does not mean that such organization cannot go global, given that globalization and notion of free trade provides a formidable leverage for small and medium sized enterprise to go global and can be looked upon as a competitor.
  • Born Global Firm: Born global forms and its concepts is a rather mostly used term in the contemporary adage to mean the process of internationalization and its influence that is taking shape in local or national organizations with a potentialities to go international in due course. Such organization can be looked upon as startups, with lesser assets and turn over. The idea of born global firm and in characteristic in particular can be laid emphasis to the object that internationalization and its impact is a favorable foreground for born global firms. That is to say, born global firms are very likely to make way and expand its business scope beyond the national boundaries, as and when it senses the opportunities knocking its doorway. Hence, born global firms defines regional organization that have set up shop in foreign shape simply by assimilating the idea of acquisition, partnership and creating subsidiaries, etc, in foreign location, however, are headquartered in regional market, or in location where they originated. Thus, the trends in the face of globalization initiates Small and Medium sized corporation to explore such domains that open up new horizon to do business in the international arena to tap the potentialities of international business.

Risks of International Business

Business as we know is bounded by risks, given the nature of international business environment itself. One peculiar face of business risks is the uncertainty factor, and when it comes to international business it is rather looked upon as the primary risks elements in general. Apart from uncertainty, there are other things as well that seems risky. And the more prevalent risks elements to international or the primary factor of it can be laid emphasis to the following:

  1. Political risks: There is no denying the fact that international business in any circumstance is bounded by political risks. Political risks can be understood as the factor that makes up the political features of a country. Thus, political climate at times have a greater force to play a part in international business. Take for instance, political uncertainty itself. That means when political climate is rather stable, international business also take the same course. However, most of the times political stability is rather an exaggerated term; given that there can be no sure shot method to predict nation’s political makeup, or to say the nature of its stability that hangs in the edge. As a matter of fact, with lesser political stability, the impact it have on business is also paramount, which in due course can change the direction and strategic makeup of business. Thus, political risks are one primary factor of international business.
  2. Technological risks: As we are aware, technology and the marvel of it have brought along a bundle of benefits, which have took the societal developmental phase one notch above the ground. Add to it, technology and its advancement is also ever increasing, which means each day and in the cycle of economic process, technological domination and its impact in international business is felt with greater force. International business are thus faced with the abject notion that less of technological awareness or outdated technological application in international business can hamper the way things work or are predicted. Thus, the risky elements can be looked to depreciating cost factor that technology posed or the security to international business.
  3. Economic risks: What define economic risks are the financial elements that may its way to it. In simple sense, it can be broadened to the changing face of international business itself, which also defines the investment factors or nations inability to meet its own financial obligations. With the idea of international business and increasing trade barrier or free market trade can have a dominant role to play its part in international business cycle and thus, it comes as a risk.
  4. Socio-cultural risks: Civilization is always in a stage of development, and one factor that socio-cultural forms take its course can be laid emphasis to the notion that no particular nation and its culture are dormant. That is to say, cultural difference is wide spread, and when that element is accounted to international business, the marketing process also is posed with the uncertainty factors. Thus, organizational operational and strategic process is also challenged in such environment. Thus, marketer needs to be way ahead in understanding culture and society itself, which we can bracketed as socio-cultural risks.