The various factors
which motivates firm to go international may be broadly divided in to two
groups.
a.
Pull
factors
b.
Push
factors.
- 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.
- 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.
