There are several factors or motivators that induce business firms to enter in global markets. The motivators can be divided into two groups: (a) Firm-Specific Factors (b) External Environment Factors:
I. Firm-Specific Factors
1. Rate of Profit:
The rate of profit that can be earned from export business may be higher than from domestic market. This is possible in case of certain products such as handicrafts, pharmaceuticals, software services, etc. At times, export marketing may help to increase the rate of profits from the domestic market due to increase in goodwill.
2. Product Development Costs:
Some companies such as pharmaceutical firms, biotechnology firms, etc., spend heavily on research and development to develop new and improved products. However, the shelf life of some products may be shorter. Also, competition may enter in the new product line. Therefore, firms may be motivated to enter in export markets to recover R&D expenses.
3. Product Life Considerations:
A firm may enter in overseas markets to prolong product life cycle. Products may be at a decline stage in the home market, but may have growing demand in overseas markets, especially in the least developed countries. For instance, old technology products may have low or no demand in the home market (especially in developed countries), but such products may have demand in the least developed countries.
4. Strategic Vision:
Some firms have a strategic vision to enter in export markets. The business strategy of such firms includes systematic international. growth. Therefore, the stimulus for export marketing comes from:
• Desire to grow and expand.
• Need to become more competitive.
5. Sales and Production Stability:
Export marketing may enable a firm to maintain sales and production stability. For instance, in the case of seasonal products, exporting may help to achieve sales stability, because the seasons may be opposite in certain export markets. Example: Winter (woolen) clothing.
6. Monopoly Power:
In some cases, international business is a corollary of the monopoly power which a firm enjoys internationally. Monopoly power may arise due to factors such as:
• Patent rights
• Technological advantages
• Product differentiation, etc.
For instance, under the TRIPs Agreement of WTO, patented products like medicines have exclusive marketing rights for certain number of years.
II. External Environment Factors
7. Competition in Domestic Market:
Competition in the domestic market may drive a firm to enter in the overseas market. Since 1991 (post-reform period), several Indian firms are systematically planning to go international in a big way.
Some of Indian firms have adopted offensive international competition strategy by way of counter competition. The counter competition strategy enables Indian firms to penetrate the home market of the foreign competition so as to diminish its competitive strength, and thereby, protecting the domestic market share from foreign competitors.
8. Domestic Market Constraints: The domestic market constraints drive the companies to international marketing. These constraints include :
(i) Saturation of Domestic Market: The market for a number of products tend to saturate or decline in the advanced countries. This often happens when the market potential has been almost fully tapped. For instance, in the U.S. the stock of consumer durables like cars, T.V. sets, etc. exceed the total number of households.
(ii) Economies of Scale: The technological advancement has helped to increase the size of the optimum scale of operation substantially in many industries. So. in order to take the advantage of large scale economies, the companies sell their products not only in the domestic market but also in the international markets.
(iii) Domestic Recession: Domestic recession also motivates several companies to explore foreign markets. The recession in the automobile industry in the early 1990s, encouraged several Indian auto-component manufactures to explore foreign markets.
9. Economic Growth: Growth is another major reason for internationalisation. The growth potential of many foreign markets is a very strong attraction for foreign companies. Several developing countries, like, China and India, have been growing at a much faster rate than the developed countries. Many multinational companies are eager to establish their foothold in such countries, considering future potential.
10. Free Trade Agreements: A number of countries including India are active in signing free trade agreements with other countries to increase trade. For instance, India has signed a free trade agreement with ASEAN countries, which came into force with effect from 1″ January, 2010. India has also signed such agreements with other countries like South Korea. Such agreements provide an opportunity for business firms to enter in export markets to take advantage of market potential.
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