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Internationalization of companies

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RafaSolid Oliveira

on 18 October 2017

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Transcript of Internationalization of companies

Internationalization
Internationalization is process by which a company enters a foreign market
Internationalization
Motives of internationalization
Expectation to make a profit from operations in foreign markets
Awareness dispose of a unique range of products
Technological advantage
Special knowledge about foreign market and customer
Expected by management of a company tax benefits
Expected economies of scale and experience effects
Personal engagement of members of the board
Proactive reasons
Competitive pressure and internationalization of competition
Overproduction of industry and company
Decline in sales of companies products on domestic market
Domestic market saturation
Excess production capacity in the industry and company
Nearness of foreign customers and international ports
Internationalization of domestic clients
Reactive reasons
Franchising
IKEA history
Expansion
Modern economy is characterized by extremely rapid growth of internationalization and globalization processes
Consequence of foreign expansion is formation of a single market for goods,services and factors of production covering all regions and continents
Reasons which cause that company decide to enter a foreign market
Market motives
Cost motives
Supply motives
Political motives
Market motives
The most important reasons of internationalization

Companies decide to enter international market when the domestic market reach saturation, stagnation or is during a recession or if competitors position is rising

Companies can then use competitive advantage abroad
Cost motives
Reducing production cost
Increasing profits
Supply motives
Shortage of resources and factors of production in domestic market
Higher prices of resources and factors of production
Political motives
Economic policy of a government :
Supporting export
International trade agreements
Loan guarantees
Promotion of domestic economy
Factors beneficial for internationalization
Expansion on a new markets enable to achieve these aims because lead to increase production
Companies very often decide to operate in a country with lower production costs
Access to cheaper credits and financial capital
Economic policy of foreign countries - government encourages foreign investors to invest in a country
Development of production technology and in consequence development of mass production
Development of information technology ( reduction of costs of acquisition and management of information )
Development of communication technology ( cheap and rapid flow of information )
Development of transport and logistics enables cheap and fast movement of people, products and services
Reduction the differences in preferences and consumer needs on international dimension
Export
The most popular form of internationalization
Requires the lowest amount of capital
Low level of risk
Allows firms to easy adjust to foreign markets and competition
Gives the possibility to easy changes and withdrawal from the foreign market
Direct and indirect export
Indirect export
An independent intermediary takes a responsibility of risk, costs of selling on foreign market and marketing competences, intermediary also deals with transport, insurance in foreign trading and documents.
Direct export
Selling products directly to customers or foreign companies
Operating without help of intermediaries
Requires small amount of capital
Gives more possibilities to control over a transaction in comparison to indirect export
Licensing
Franchising
Selling to abroad company limited rights to use a trademark. Franchisor gives a permission to commercial activities by a franchisee according to the established sales program (trade name of franchisor, advertising, price and established quality of a product).
Examples of international franchising networks: Hilton, Sheraton, McDonalds, Pizza Hut.
Franchisor is obliged to train a franchisee, support during a creation of a company, counsel, inclusion into advertising process and future development of a product.
Joint venture
Creation of a company with one or more foreign partners
Joint ventures are formed mainly when economic perspectives for entry into foreign market are satisfactory but because of local rights it is not possible to create an independent company
Contribution of foreign partner: capital, technology, research capacity, brand image and managers
Local partner may contribute buildings, ground, personnel, resources, conditions to make research, distribution channels, local contacts and knowledge about conditions on domestic market.
Foreign direct investment
Total or partial takeover of ownership of an existing business entity on a foreign market or creating new company in order to conduct business activities abroad.
Conclusions
Internationalization is process by which a company enters a foreign market
Consequence of foreign expansion is formation of a single market for goods, services and factors of production
Motives of internationalization: market, cost, supply and political
Forms of internationalization can be divided according to various criteria depending on capital involvement and management staff
The most important form: export - direct and indirect, licensing, franchising, joint venture, foreign direct investment.
Consists of the contract under which the foreign licensee acquires the right to manufacture and sell products based on the knowledge obtained from the licensor. Product is produced independently by the licensee and is sold under the brand name of licensor.
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