Essay Example on The Drivers of Internationalization of Business

Published: 2022-11-29
Essay Example on The Drivers of Internationalization of Business
Type of paper:  Essay
Categories:  Human resources International business Business management
Pages: 4
Wordcount: 927 words
8 min read

Internationalization of business can be explained as corporations operating in different countries. Multiple reasons both personal and commercial explain why entrepreneurs aim to push their companies into the global market. Like the macroeconomic factors that affect a business, the drivers to internationalization can be categorized into five. They include political, competitive, cost, market and technological drivers. These factors contribute to the internationalization of most companies. Also, different theories such as the factor-endowment theory, and mercantilism explain the internationalization of enterprises. This paper explores five drivers of the internationalization of business and provides relatable examples for each case.

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As noted, entrepreneurs choose to venture into the global market for personal and commercial reasons. However, since the individual factors are similar, the commercial and market reasons are the basic drivers of internationalization. In the global market, political drivers often cover the political climate of a country and the trade agreements between nations. For instance, the European Union is a trade agreement between over twenty countries. In this case, corporations in the member countries can internationalize since the trade agreements between the countries are less stringent. Also, other trade agreements such as WTO, NAFTA among others minimize trade barriers between countries allowing corporations to expand their market share (Lecture p.5).

Alternatively, political drivers such as stringent regulations in the local industry could result in companies exploring opportunities in other nations. Political drivers can be presented both as supporters or inhibitors of internationalization. For instance, the regulations in one country can increase the bureaucracies involved in starting a business in that state. However, another nation may provide better subsidies and opportunities to open a business. Political drivers have a significant impact on the internationalization of companies. Often, where countries have poor political relations, they do not trade together. As such, political drivers determine the ease of expanding a business's activities in another state.

Secondly, competitive drivers relate to the intensity of competition in the local and foreign markets. Businesses expand to other countries to take advantage of limited competition and escape the intensity of competition in the local market (Lecture p.5). Competition in the local market often reduces the market share and profitability of a country. Besides, where a nation has a limited number of sellers in the local market, it provides an opportunity for a business to take advantage of the unexploited market gaps. Competitive drivers support the sustainability strategy of firms in the global market. Corporations can take advantage of resources in other countries to minimize the cost of production and remain competitive in the market. It also provides an opportunity to increase brand recognition in the global market.

An example of a company expanding globally is the case of General Motors Company. Automobile companies opened different assembly plants in various countries to not only take advantage of the low cost of production but to also increase their market share (Lecture p.5). In the wake of emerging economies, the market share for GM and the purchasing power of consumers in these nations increased. It allowed GM to reduce its costs in shipping and enhances its accessibility to the global market while boosting the company's competitive edge. The competitive drivers thus lead to the internationalization of businesses as they seek increased profitability and sustainability in the market.

Thirdly, like competitive drivers, cost factors also encourage the internationalization of businesses. Cost drivers focus on the ability of a company to take advantage of subsidies offered in the local market, low wage rates and access to raw materials. The manufacturing industry has expanded globally due to such cost drivers. In the USA, the minimum wage rate is 7.25 dollars per hour. This wage rate is high in most of the developed nations compared to emerging and third world countries. It makes the cost of operations in developed nations higher that manufacturing in emerging nations. Also, due to high poverty and unemployment levels, emerging economies are more welcoming to foreign direct investment to enhance economic growth. It provides an opportunity for businesses to take advantage of the low cost of operations in such markets leading to internationalization (Lecture p.5).

Consecutively, market drivers support the global venture of companies. The local market often becomes saturated where it operates under automatic forces of demand and supply. Also, where resources are readily available to the businesses, the market is saturated with different sellers with similar products. Corporations expand to the global market to take advantage of untapped markets (Lecture p.5). For example, the tech industry in the USA has multiple companies providing different products. However, African countries have limited resources and expertise in the field. An American firm that expands to this market would take advantage of the diverse market and the opportunities it provides. Hence, market saturation and untapped opportunities are drivers of the internationalization of businesses.

Finally, the most significant driver of the internationalization of businesses is technological advancement. Technology development has provided different ways of marketing products, and reducing the cost of production through automated processes among other benefits. For instance, e-commerce is one of the approaches that corporations are using to expand to the global market (Lecture p.5). It increases consumer access to a variety of products and enhances ease of payment. For companies, it a chance to sell their products to a large market. Also, other platforms such as social media have improved marketing to other countries. Technology advancement in transportation has also enhanced the logistics of companies and minimizing shipping costs. It makes internationalization of businesses a viable opportunity.

Work Cited

Lecture. "The Internationalization of Human Resource Management." Power Point.

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