International Business

Establishment of Business in International Market


International Business

Essay on International Business

International business is comprised of all the commercial transactions that occur between two regions, countries and nations beyond their political boundaries. It is generally undertaken by private firms for the purpose of attaining profit. Further, the government performs it because of the reason to make profits and for political reasons (What is International Business? Meaning, Features, 2015). In the present essay, reasons because of which firms become international business have been presented. The essay entails to understand the theories that have been developed in relation to establishment of business in international market place. In addition to this it also includes the manner in which life cycle of products affects its performance of business.

National business system is referred as the structure within which the company operates in the nation. There is greater influence on the national business system on the performance of the organization to a significant level (Czinkota and, 2009). It has been determined that with the assistance of such proper direction can be offered to the companies in carrying their performance in an effective manner. There is huge significance of national business system in providing the necessary resources such as labour and capital to the business in carrying out its operations. With the assistance of such they can effectively develop the market for their products.

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Multinational business is the firm that possesses worldwide approach towards markets and production or with operations in several nations. International business used to trade by importing and exporting of goods. It makes production in another country but with the strategic partnership with local businesses (Dunning, 2012). There are several reasons behind the development of international business and shift towards a global economy. The initial one relates to division of labor. Further, it also includes communication, codification of tacit knowledge, containerization, new information and communication technologies as well as differential in factor inputs. There is a greater influence of such drivers in making promotion of business in international market.

The process of the process of production that have been carried out is no longer confined to a particular nation or state. There is huge development of multinational companies in order to develop production associations that gets linked with the different parts of the world. In order to reduce the cost of labour the business is making search regarding selection of the countries that are cheapest in terms of providing suitable labour (Peng, Wang and Jiang, 2008). While making decision regarding the location of the production plant the factors such as cost of labour, operations of tariff barriers, kind of production process, access to resources, availability of government incentives as well as tax and environmental reasons. Major driver that compels the companies to operate internationally in in relation to communication. In order to carry out the activities of the business in effective manner several tools have been introduced in international market that drives the company's towards it (Leung and, 2005). Another factor that forces the company's to operate in international market is in relation with codification of tacit knowledge. This is related with the division of labour. Another driver is related to containerization which reflects development of containerization in relation with the infrastructure. One of the major driver is in relation to new information as well as communication technologies (Stock and Watson, 2005). This includes Email, Web as well as teleconferences etc. These technologies assists in making coordination among the production process in an effective manner. The major issues arises in relation to the ability to communicate. This has resulted in increasing greater role of business in enhancing it market position in international place. Lastly the factor that driver to business to establish in international market is differentials in factor input (Doh, 2005). It includes factors such as differentials in labour costs between locations. In addition to this it also involves tariff and non tariff barriers, differentials in energy costs, and gaps in the legislations. Factor inputs also includes different level of corporate taxation that affects the profitability of the business to a significant level.

An important factor that makes the firm to carry out operations in international market is in order to make the profit. Another important factor is competition. This implies that every firm is competing in market for the purpose of increasing its market share. Saturation within home market determines that the company's ability to enhance its profitability in the market has reduced (Beamish, 2013). Thus, these factors compel the business to expand its market internationally. Therefore, the firm can effectively show its existence worldwide and can enhance its market share and profitability greatly.

Another reason behind internationalization is in relation with development of international economy. It has been determined that for many organizations, national competition has been replaced with international competition (Johnson, Lenartowicz and Apud, 2006). With the assistance of internationalization, products can be sold in other nations or states. Through internationalization of production, the cost of products as well as services that are produced in home market gets reduced. There is huge motivation for firms to get internationalized. This includes market, assets as well as the existing clients. The role of foreign direct investment is targeted for the purpose of developing capabilities regarding making supply to particular geographical location. The products that are manufactured in international market are similar to those that are being produced within home country. In international market, the company can make modifications in the existing product so that need of customers can be satisfied in an effective manner (Radebaugh, Gray and Black, 2006). Another key driver is in relation with asset that includes technological developments. This has removed location constraints that are related with various factors of inputs. The assets also include labor and geographical variations. This is in relation to knowledge, skills, wage costs, labor controllability as well as labor productivity. The cost of labor differs from one place to another. The level of education also differs from place to place. Thus, these are is essential factors that drive the company towards international market.

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The product life cycle theory presents that there are different stages of the products of the company. This includes introduction, growth, maturity and declining. It states the initially the business has to start its operations with the new product and in the new market. At this stage the company is required to create brand awareness. This is essential in order to attract large number of customers towards the product (Rugman and Collinson, 2008). At this step it is essential for the firm to make use of advertisement in order to promote the products and services in the market in an effective manner. The another stage is in relation with growth this implies that the company has created the awareness and such has resulted it in gaining huge amount of profitability as well as sales. The MNC has to make less use of advertisement at this stage as it has gained huge recognition in the market at the introduction of the product. Later stage is maturity (Hodgetts, Luthans and Doh, 2006). Due to saturation of product and services within the home market company's ability to enhance its profitability in the market gets reduced. Thus this factors compels the business to expand its market internationally. The last stage in the product life cycle is declining. In this the the use of product gets decline. There is less number of new customers who are arriving within the firm. At this stage it is essential for the company to develop products and services for the target market so that it is able to gain its reputation with effectiveness.

There is development of theory by Hymer which is in relation with firms that engaged in international production. Hymer has carried out studies on international production as earlier there were no theories in relation to this. While carrying Phd Hymer got engaged in making development of first modern theory on international operations by big business giants. Before the development of theory by Hymer foreign direct investments was regarded as another variant of international capital theory. This approach provides that the company is required to produce and explore the products in which it possess comparative as well as relative cost. Moreover it has some advantages in relation to other places (Henisz and Swaminathan, 2008). Hymer has developed his own approach which defines the theory related to industrial organization. This was developed in a specific literature that related within the barrier to entry. In accordance with the theory provided by Hymer it has been assumed that while serving a specific market the domestic firms would have greater advantage over foreign firms. The theory provides that local firm will have better insight to the local business environment. It is consists of nature of customer demand. Politics as well as regulations. Hymer has began to explore financial investments made by the firms as well as neo classical theory. This has been provided with the neo classical approach that the different in the rate of interest is because of movements of capital across the borders. In accordance with the views of Hymer it has been argued that FDI has greater role in enabling the business to keep control over the investments as well as financial investments. Further portfolio comes with no such control. The theory explains the major role of FDI. It states that FDI does not involve movement of finance from home country to abroad as the purchase of investment can be made in host country. Further it can be borrowed from the retained earning from the activities that resides in that place.

There is greater contribution of Hymer. He argued that direct production within international market comes with additional costs as well as risk. It includes cost of communication, regulation and accessing of information. Further it also covers costs as the foreign firm that would be treated less favorable in contrast to local business. It also includes fluctuations in the exchange rates. Hymer has investigated the primary drivers of FDI and the key assumptions to this. It includes market imperfections, motivation of company to increase benefits in the market place. This is in relation to enhancing the market share as well as profits of the organization.

There is greater advantage for the business that operates in the international market. This is in relation to size, economies of scale, market power, technological expertise, access to finance, improper distribution of skills among the people as well as marketing skills. The major benefit is in relation with trans-nationality (Zahra, 2005). This involves increasing of bargaining power over states and labour. Moreover it exploits the differences between the several tax rates.

Another theory has been developed in relation to internalization of MNC's. This includes three basic ideas. This is with respect to the firms trying to maximize the profits in the world of imperfect markets. Further it includes the markets for intermediate products . With the assistance of this strong incentive can be created within internal markets. This can be bought by the activities that are under common ownership as well as control. The procedure regarding internalization emerges across national boundaries. It results in creation of multinational corporations. There is key assumption made in the theory which states that transaction costs are high in case of trans-border activities (Oviatt and McDougall, 2005). Such results in increasing the incentive to internalize actions with the assistance of direct production abroad through market transaction as well as licensing. There was another theory which was given by John Dunnings. It provides theoretical approaches that includes ownership specific advantages, location specific advantage as well as internalizers. There is benefit from arising size as well as established position of the company. This can involve market power, economies of scale as well as favored access to inputs. With the assistance of such theories the company can effectively examine internalization of firms (Hill, 2008). With the increase in the business in the international market the role of theories related to MNC has emerged significantly. This assists in gaining deeper insight to the ways the company can built effective position the market with effectiveness. These is greater importance in considering three variables which includes place, space as well as time. Place defines the locations where the business resides. Various places possess different assets, histories, skills as well as infrastructure. This has been determined that context matters the manner in which the organization carry out business at varied places. Space defines spatial relationship between the various places. Varied places possess different linkages to the the regional, national as well as international economy. These difference in matter is regarded as part of strategic assets. There is varied role of places that plays different role in international as well as national economy. In addition to this the role of time is or very important.

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In addition to benefits of making sales in international market there are several issues in relation to carrying out the international business. The major barrier is in relation to the culture of the country where the company wants to makes sales of the products. The language that is used for the communication in the international market has huge impact on the business performance (Peng, Wang and Jiang, 2008). This requires the company to make recruitment of the local individuals so that satisfaction can be offered to the customers in an effective manner. It has been examined that with the assistance of such quality services can be offered with effectiveness. This would assist the business in creating awareness in the market. Thus the business can gain an edge over the competitors that would result in increasing its sales as well as profitability to a significant level.

It can be concluded from the essay that there is existence of several reasons that forces the company to operate in international market. It has been inferred that there is greater role of increasing technology in enhancing the operations of the low business. With this they can effectively manage their business activities. Further it has greater role in increasing the sales as well as profitability of the business. This is because it assist the company in providing greater level of satisfaction to the customers in an effective manner. From the study it has been inferred there are several theories in relation to internationalization of MNC's. With the assistance of this the company can gain insight to the benefits of carrying out business operations in international market. From the essay it is has been determined there there are several stages in the life cycle of product. At the stage of saturation the firm is not able to increase it sales and profitability. Thus by expansion in international market the business can defectively increase its market share. This would act as an aid in enhancing its market position to a significant level. It is essential to take into account the differences between the countries that are key drivers besides the rise of international business. Further there is greater role in considering technology development as key enabler of international business. This is because technology makes it easier to exploit the deviation that occurs between the nations.


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