International business is not new – businesses and nations have conducted trade across national boundaries for centuries.
Lured by the prospects of large markets and/or sources of raw materials, businesses have traded with other parts of the world.
But as we will see later global business and global industry is different.
Overseas trade and Ansoff’s matrix
Thinking about international business in the context of Ansoff’s matrix:
- Entry into overseas markets represents market development.
- Existing products are sold in new markets.
- It is appealing because:
- market penetration is difficult in saturated markets.
- product development is costly.
- diversification is risky
Why enter overseas markets?
The reasons for entering overseas markets can be categorised into “push” and “pull” factors:
Push factors
- Saturation in domestic markets
- Economic difficulty in domestic markets
- Near the end of the product life cycle at home
- Excess capacity
- Risk diversification
Pull factors
- The attraction of overseas markets
- Increase sales
- Enjoy greater economies of scale
- Extend the product life cycle
- Exploit a competitive advantage
- Personal ambition
Factors in the choice of which overseas market(s) to enter:
- Size of the market (population, income)
- Economic factors (state of the economy)
- Cultural linguistic factors (e.g. preference for countries with similar cultural background)
- Political stability (there is usually a preference for stable areas)
- Technological factors (these affect demand and the ease of trading)
Constraints and difficulties in entering overseas markets:
- Resources
- Time
- Market uncertainty
- Marketing costs
- Cultural differences
- Linguistic differences
- Trade barriers
- Regulations and administrative procedures.
- Political uncertainties
- Exchange rates (transactions costs & risks)
- Problems of financing
- Working capital problems
- Cost of insurance
- Distribution networks
Exporting is only one method of doing business internationally
- We normally think of overseas trade in terms of exporting and importing goods and services
- This involves transporting goods and selling them across national boundaries.
- Direct exporting implies that the domestic firm is actively involved in selling the goods abroad
- Indirect exporting means that the marketing of goods is delegated to export agents and the UK manufacturer concentrates on production
- But exporting involving the movement of goods is only one method of engaging in international business
Other methods of market entry
- Overseas product an/or assembly (producing goods abroad)
- International alliances and joint ventures (working with foreign companies)
- International M&A (mergers and acquisitions across frontiers)
- International franchising and licensing allowing foreign based firms to produce, market and distribute goods in specified areas abroad)
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