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Why Companies Internationalize Their Products?BY: Anuja Bhardwaj | Category: Management | Submitted: 2013-08-12 01:55:54
Article Summary: "In the generation of modernization and globalization, it has become a fad to wear imported clothes. But have we ever thought that why do companies internationalize their products, what are the factors that force or attracts them to take such a big step? Well, there are two factors which are provocative for industrialists to tak.."
Up till now there has been several such questions that pops up in our heads which actually either has loads of answers or sometimes it just remains a big question. Just like the above heading suggests that why do companies go abroad?? Well, there are two factors which propels the company to go abroad and they are PULL factors and PUSH factors.
As the name suggests PULL, so this factor mainly includes Proactive reasons like forces of attraction pulls the biz to foreign markets for higher profit and more growth.
Whereas, the PUSH factor includes Reactive reasons like compulsion of domestic market which prompts companies to internationalize.
Other major factors that can led a company to go international are Profit motive, Growth opportunity, Domestic market constraints, Competition, Government policies and regulations.If we talk about the profit motive, then obviously the scope of gaining more profit in abroad is wider. In every way international market is profitable than domestic market, as a businessman can invest in low cost locations.
Growth opportunity in international market is very high as they provide infinite amount of opportunities provided if the businessman is an opportunist. Likewise, in Canada there are plenty of Indians who have their own business there. They own salons, restaurants and many such businesses as they find huge amount of opportunity there. Canada has large number of tourists visiting every year, so opening there a regional restaurant leads to higher profit margins. Hence, its all about finding opportunities in international market.
Moreover, the economic growth of many countries attracts businessman to go international and launch their products. In domestic market sometimes there are constraints that propels a business man to abstain working in his country, and as I mentioned earlier about the push factors one of it is government regulations. In some countries the rules and regulations of government are so strict and awful that a layman cannot work there and apparently takes his business abroad. The government levies hefty taxes, sometimes the investment in local areas becomes so tough due to such reasons. Also, the incentives offered by government to export and invest in foreign countries matters a lot.
Although, entering a foreign market itself has many benefits as it may help in gaining a good reputation, setting a brand image in consumer's mind, earning profit etc. Also, foreign exchange may enable company to import capital goods, technology etc.
Besides the above stated reasons, a company may have other reasons for entering the international market. Like, spreading R&D cost, uniqueness of product or service, economies of scale, strategic vision, spin-off benefits.
The export procedure has many steps which are to be followed once the businessman is mentally prepared to take his business abroad. Entering an international market basically has three different methods which are as follows:-
• Export entry
• Contractual entry
• Investment entry
The above mentioned entries are further categorized depending upon the decision of the businessman.
EXPORT ENTRY- this includes Direct and Indirect entry. Indirect entry is further divided in to two different sub-headings which are export houses and agents. If the businessman is interested in exporting indirectly then he may choose one of the modes to internationalize his product.
CONTRACTUAL ENTRY- this includes various such options through which an exporter can opt to internationalize his product on the basis of mutual agreement and a contract signed by two parties. Entries like, Assembly, Contract Manufacturing, Licensing, Franchising, Co-production agreement, and Management contract.
INVESTMENT ENTRY- this is further categorized into Joint venture and Wholly owned subsidiary. Joint venture includes Major venture, Minor venture, and 50:50, whereas, wholly owned subsidiary includes Acquisition and Establishment of own unit.
About Author / Additional Info:
An MBA and a Diploma holder in DNHE.
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