Five Drivers Of The Internationalization Of Business Essay

The term internalization has entered the modern world especially in the business sphere. Usually it is used to define the process of the increased involvement of companies in international markets. All international activities are studied with the help of internalization theories.

The main focus of internalization theory is upon intermediate product markets. There are generally two kinds of intermediate products differentiated – relations between research and development and relations between components and raw materials. “The theory claims the internalization leads to larger, more multinational enterprises, because knowledge is a public good.Development of a new technology is concentrated within the firm and the knowledge then transferred to other facilities.” (Ingham 2004). Usually there are five driving forces for internalization of business are outlined, they include: internalization of markets, understanding of the different names, which were given to the companies, operating in several countries, understanding of the drivers of globalization, building a concrete picture of the differences between global and domestic businesses, consideration of domestic, foreign and international environments, in which an international organization is to work.

Appreciating of the internalization of markets is related to global competition. Nowadays any kind of business is to coexist with the fact of great import penetration. For example opening a chain of fast food restaurants could be difficult, because there is already McDonalds. In addition the international investments are constantly growing, which has direct impact upon both small and big businesses and organizations, which need to be able to be competitive for the companies not only in their domestic markets, but also in the international area. This fact forces companies take care of finding such managers, who have enough experience and education in the sphere of internalization. Here the issues of the diversity could not be ignored, as human resource management should be built in such a way that there is no any kind of suppression of employees on the basis of their race, color, gender, age or state of health.

Any global company builds the chance in the whole world and creates a system of standardized operations in any of functional spheres. Talking about a multidomestic company, it is necessary to mention that its structure is built in a different way, namely consisting of multicountry affiliates. Each of these affiliates works out unique business strategy, which is adjusted to the peculiarities of local markets. For example placing an affiliate in the India, if you are selling fur coats might be risky. Both global and multidomestic companies could be named international. Correct understanding of the differences between these names of the companies, operating in different countries is one of the driving forces of internalization.

Globalization has also its drivers and they are based upon the current changes, faced by international companies. Generally these drivers are: political, technological, market, cost, competitive. Political drivers are related to various trading agreements, technological are influenced by the changes in the communication technologies, which is one of the main features of the modern business environment. Market drivers root from the transition of most companies to global customers’ system. Reduction of cost is one of general targets for business development, globalization could be used as one of the ways of improvements of operating of production lines. The increase of competition could be explained by entering of other international competitions the foreign markets. For example there are world famous brand of footwear and in order to reach certain level, it is necessary to consider their competitive force.

At any rate there are certain differences between domestic and international businesses, understanding of these differences is one of the driving forces for internalization. The main difference lies in the fact that any international business should be developed with consideration of three key environments – domestic, international and foreign. “The international environment is defined as the interactions (1) between the domestic environmental forces and the foreign environmental forces and (2) between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another. An international business model helps explain this relationship.” (Ingham 2004). For example any advertising campaign should be maid with consideration of local peculiarities, otherwise, it might be of little success.

The fifth driver of internalization is related to more detailed understanding of the above- mentioned environments. The domestic environment consists of different forces, appearing in the home country, which are able to impact the company. The foreign environment is made up of the factors, which arrive outside of the home country and still have impact upon the business development. Finally, the international environment presents the coordination between foreign and domestic environments.  For example all import and export operation should be properly regulated on the basis of foreign and domestic situations.

Overall, modern business are to develop with consideration of the various factors, such processes as globalization and internalization have direct and indirect impacts upon any company or organization, this is the reason, why it is so important to be aware of the major drivers of them.

Works cited:

Ingham, B. International economics: a European focus. Pearson Education, 2004

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"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: June 1, 2020]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: June 1, 2020]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: June 1, 2020]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: June 1, 2020]