International business helps in introducing their culture and helps the customers in becoming habituated to the familiar trends, by this the firms can also gain huge market share and provides a scope for global communication. The factors like currency fluctuations make the firms distribute its operations in various countries which help in minimizing the risk involved in devaluation in one country. Operations in abroad still facing a problem with culture, politics, traditions etc, but it has the ability to carry out its operations abroad and its government facilitates foreign direct investment so that it can have a strong relationship with other countries.
International expansion is achieved by exporting products, participating in licensing arrangement, forming strategic alliances, making acquisitions and establishing new wholly subsidiaries. Five modes of international expansion are exporting, licensing, strategic alliances, acquisitions and new wholly owned subsidiary.
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The size of an international market has a significant influence on firms as they can invest in research and development to gain competitive advantage. Organizations usually prefer to invest in those countries which have scientific knowledge so that the firms can make optimum utilization of research and development activities to gain competitive advantage. Firms belonging to domestic markets having low growth opportunities always prefer international strategy to expand their operations and to earn profits across the world.
Expanding firms operations reduce the total cost of the product and integration of critical resource functions results in optimal economies of scale. Organisations can gain core competencies with the help of resources and knowledge sharing with other countries through international markets. Knowledge sharing helps in expand its operations and to produce efficient products and services at cost effectiveness.
Huge markets are crucial in acquiring returns especially for capital-intensive investments like plant and capital equipment or research and development. The new technological changes and new products sometimes cannot fulfill the customer’s need so the firm’s role is to maintain investments in such a way to attract the prospective customers. Organisations always strive to develop new technology and products but at the same time, they should adopt the strategies to protect their intellectual property rights from their competitors. The international expansion provides the scope for larger markets and enables the firms to enhance its operations efficiently in terms of capital investments and large-scale research and development expenditures.
The process of producing goods in the home country or third country and transporting those produced goods to other countries is termed as Exporting. It is a very popular mode used to enter into the foreign markets because; it is an easy, economical and less risky mode of entry. Apart from this exports are used as strategic methods to overcome excess production. Exporting is not only applicable for big companies; even small companies also gained advantages from exporting. The numbers of companies involving themselves in the exporting activity across the world are increasing due to the ease of this business. The number of export opportunities has increased with the reduction in trade barriers and increase in regional economic agreements like the European Union, North American free trade agreement. The logistical problems concerning exporting are sorted out with new communication and transportation technologies. Use of technology in exporting has minimized the cost of exporting.
Licensing is a method of market entry; a company can gain market presence without any equity investment. A company assigns the right to a patent or a trademark to another company for a fee or royalty is termed as licensing. Licenses are signed for a variety of time periods. Depending on the investment needed to enter the market, the foreign licenses may insist on a longer licensing period to recover the initial investment. The license will make all necessary, capital investments such as machinery, inventory and so on.
Strategic alliance refers to cooperation between two or more companies. These alliance partners have the common goal and shared control to attain mutual benefits. A strategic alliance can be defined as a cooperative strategy because; companies integrate few of their resources, skills and capabilities with an intention to build competitive advantage. The International strategic alliance is an alliance form by a domestic company with the foreign company.