17.12.13

Why firm go international?



The various factors which motivates firm to go international may be broadly divided in to two groups.
a.      Pull factors
b.      Push factors.
  1. The Pull factors:  These are the forces of attraction which pulls the firm to foreign markets.  In other words, companies are motivated to internationalise because of the attractiveness of foreign markets.  These attractive factors can be profitability and growth prospects.  The availability of cheap labour can also attracts firm to foreign markets.
  2. The push factors:  These are factors which compels a firm to go global.  Saturation of domestic market may compel a firm to internationalise.
The most important reasons for going international are described as follows.

1.  Profit advantage:
An important advantage of international business is profit.  International business can be more profitable than domestic.
2.  The lure of cheap labour:
The best example in this category in China.  Many MNC’s are attracted towards china because of the availability of cheap labour force.  The labour force in china is not only cheap but also very efficient.  These factors have made multinational companies like Philips to have their factories and Rx D units set up in china.  Philips now has 23 factories in china- either wholly owned or in joint ventures.  The main aim for Phillips is to turn china in to their global supply base from which the company’s products will be exported around the world.  In 2001, 20% of everything Phillips made world – wide came from china.  China is now making more than 50% of the cameras sold world - wide,
30% of the air conditioners and televisions,
25% of washing machines and nearly
20% of refrigerators.
3.  Growth Opportunities:
An important reason for going international is to take advantage of the opportunities in other countries.  More opportunities means more scope for growth of business in these countries.

4.  Domestic Market Constraints:
Domestic demand constraints drive many companies to expand the market beyond the national border.  The best example in this category is the saturation of market for consumer durable items like cars, T.V. sets, washing machines in western markets like United States.  In some extreme cases, the market for consumer durable item has even started to decline.  This has made many multinational companies like whirlpool, Samsung, LG and Electoral EX to switch gears to countries where there is lot of scope for consumer durable items.  In simple terms, local demand constraints have driven off these companies to go and tap global markets.
Infact, these companies have turned towards India and China.  Both these countries have abundant supply of cheap, and efficient labour force. Low manufacturing costs in India as a result of cheap abour force and lot of untapped market for consumer durable items are the two key points which has driven these MNCS to have their base in India.
            Whirlpool has gone a step further.  Whirlpool in conducting a worldwide study to locate the most cost-effective manufacturing and R x D facilities.  The company has identified Mexico, Brazil, India and china as important hubs to carry out the above said activities in future.  It is firmly believed that they may close some of its units in Europe and North America.  Whirlpool has already invested around 5million us dollars into Asian R and D centre in Pune, India.

5.  Competition:
            Competition may become a driving force behind internationalization.  The market conditions in India in completely different before 1991.  Indian Market in highly protected against foreign investments and companies.  But by the year 1991, trade Liberalization took place in India.  The Indian market was thrown open to foreign companies.  Many foreign multinational companies started to establish their offices in India.  This led to a tough competition for Indian companies from companies abroad. (For eg.)

            Nirma is a domestic detergent company.  After liberalisation, the company started as global competition from MNCs such as P & G, Colgate Palmolive, Unilever, Henkal etc.

            Thus many firms in their own home market face the technological, financial, organisational and marketing problems from the multi-nationals.  This made many Indian companies to adopt a counter - competition strategy.  By this stregedy they became global.


6.  Government policies and regulations:
            Government policies and regulations may also motivate internationalsation.  Many government offer a number of incentives and other positive support to domestic companies to export and to invest in foreign countries.

            Some companies becomes global because of government rules and regulations.  The best example for this is Birla group of companies in India.  The government of India did not give permission to start a fible plant in India.  This made Birla group of companies to start fibre plant in Thailand.  They started to process fibre in their Thailand plant and started exporting the same to India from Thailand.

7.  Monopoly power:
            Some companies like IBM – the software giant formed by Bill Gates may totally enjoy Monopoly power in their field.  This act as a driving force and propells the company forward to start its office in various countries and go global.

  8.  Spin – off (Incidental benefit) of international business:
            A company going global may get a spin off too.  It may help the company to improve its domestic business and the image of the company may get a face lift as it runs business on multinational scale.

            The consumers may prefer to buy products from a company which exports its majority of its products to foreign countries and this factor adds to the good will of the company.

9.  Strategic vision:
            Some companies may keep globalisation of its products as part of their business policy or strategic management.

Chapter II CORPORATE STRATEGY

Our principles: We recognize that we must integrate our business values and operations to meet the expectations of our stakeholders. They ...