Report on Internationalization business

Introduction of Internationalization of Business 

          Nowadays, internationalization is getting common. Many companies are establishing their business in foreign countries. There are many motives behind this internationalization. Basically, it is considered that companies most of the time get entrance in the international business to enhance their sales. But the reality is that sales are not the only goal or motive. There are many other factors that contribute to and encourages a company to get involved in the international market. With an increase in globalization and competition in the markets, working in a single country is becoming difficult for companies.

           Particularly, in the industrialized countries, companies face problems while working in the local market only because of high competition. Companies need to have an open market with wide range of opportunities to get success in the introduction stage if their products are not supported by the new innovative ideas that can change the fortune of all other competitors companies (Curci, LI, & Mackoy, 2014). In short, companies are trying to get involved in international business to earn benefits and advantages. In this assignment, we will critically discuss the motives of internationalization.       

Internationalization of Business

            Internalization refers to expanding the business into the international market through exporting, importing, foreign direct investment (FDI) and international contracts. Basically, most of the time companies follow up internationalization strategies with the purpose to increase profit and sales but not in all cases (Morschett, Schramm-Klein, & Zentes, 2015). Actually, the main purpose behind internalization is to always seek profit maximization opportunities through different ways such as through cutting the cost of operations, through expanding market sales, and through getting the advantage of currency rate difference. In short, each and every company has some specific motivate for internalization.  

Motives for Internationalization of Business

            Different motives for internationalization include seeking for new markets, efficiency, following the leaders, resource, and strategic assets. Basically, these motives are the basis and reason for investment in the international market. Somehow, we cannot say that there is always a single motive (one of the presented motives) behind internalization. In fact, sometimes management takes the decision of internalizations or foreign direct investment because of more than one motive (Dunning & Lundan, 2008). For instance, a company may think that by setting production plant in a low-cost labor country they can reduce labor cost (resources seeking motive) and further selling that products in this market they can expand their sales also (market seeking motive) (Ayden, Demirbag, & Tatoglu, 2017).  

         According to the research of Dunning, key motives for internalization are five that are presented below in the diagram (Morschett, Schramm-Klein, & Zentes, 2015).    

1.      Strategic Asset Motive of Business

            We can interpret strategic resources as intangible assets and resources that deal with the core competences and technologies of the companies. Such intangibles strategic resources includes strategic supplies, employee’s talent and skills, knowledge, trademarks, and patents (Curci, LI, & Mackoy, 2014). Companies achieve their long term goals and objectives by paying attention to the development of these strategic resources. Most of the time, it can be done just thought acquisition of intangible assets of foreign companies. Usually, companies take such decision with the purpose to weaken their competitors and enhance their own sustainability.

           According to the findings of Morschett, Schramm-Klein, and Zentes, (2015), Innovative knowledge or important knowledge having commercial value can turn the fortune of a company. Therefore, companies ever try to get such important knowledge at any cost. Furthermore, they also try to prevent their competitor companies from getting that knowledge as competitors can build advantage through the use of this knowledge. In the business world, the one and the only way to get access to such knowledge is to get legal ownership rights for such knowledge. For instance, the acquisition of such intangible assets can help a company to get the benefit of such knowledge in a legal way (Curci, LI, & Mackoy, 2014). Considering this factor, organizations sometimes acquire the strategic resources or intangible assets (e.g. trademarks and patents) of a foreign company and becomes international organizations.                    

2.      Market Seeking Motive of Business

           Demand is the key factor in this category of motives. In case managerial staff who is responsible to take the decision regarding expansion to find out that through entering in the new market and specifically in a foreign country can benefit them in achieving their goals and profitability aims then it relates to the market seeking motives (Ayden, Demirbag, & Tatoglu, 2017). In other words, companies expanding business in the foreign countries and international market with the aim of increase in sales and supply of their products are known as market seeker companies.

          Companies sometimes invest in foreign countries and new markets when they want to enlarge their targeted market and increase their potential audience (Morschett, Schramm-Klein, & Zentes, 2015). Furthermore, sheering size of the market and potential growth possibilities are the key reasons that are categorized as market seeking motives for internationalizes. Somehow, seeking a new market is not as simple as it seems (Dunning & Lundan, 2008).

             For this purpose, companies have to identify the right country for their products and sales. Cultural barriers and differences can cause to influence expected sales therefore before steeping into the new market companies are required to study that market (Ayden, Demirbag, & Tatoglu, 2017). PESTLE analysis including political factors, economic factors, social factors, technological factors, legal factors, and ecological factors analysis can be a helpful tool for organizations while searching for the appropriate new market for a company. Furthermore, competitive strength analysis through Porter Five factor analysis is also supportive in identifying the competitive situation of that market (Morschett, Schramm-Klein, & Zentes, 2015). In short, while taking the decision of geographical expansion companies can use these measures and analysis to get a better understanding.     

            According to the research study conducted by (Curci, LI, & Mackoy, 2014), there are more than 308 Chinese firms that are engaged in the international business as market seekers and resources seekers. Research findings conclude that Chinese firms that are involved in the international business are now reached at the advanced stages while their competitor companies are still concerned with breakeven and positive net income. Furthermore, research also demonstrates that firms involved in the international business have more complex but realistic knowledge that even benefit them in understanding the local market (Ayden, Demirbag, & Tatoglu, 2017). Anyhow, researchers claim that market seeking companies of Chinese ever try to develop and deploy capabilities that permit them to deliver best and values-oriented services to their customers.

             Anyhow, there are many big names that are doing business in the international market because of the motive of market seeking. For instance, if we take the example of McDonalds and Burger Kings (big names in the fast food industry) we will definitely find out that market seeking was the key motive of these companies while taking the decision of internalization. In 1954, McDonald's was started near Chicago (a city of the United States) (Curci, LI, & Mackoy, 2014). Management of McDonald opened new branches in the different areas and cities of the United States to expand their business. According to an estimated total number of McDonald restaurant in the United States were more than 14146 in 2016. Continuous success encouraged McDonald administration to open new restaurants in other countries and new markets (Morschett, Schramm-Klein, & Zentes, 2015).           

3.      Follow-the-leader Motive / Network seeking motive of Business

            Following the leaders and network seeking motives are also important motives for internationalization. There are many companies working in the international market just because of this motive. It is also interpreted as the dimension of international entrepreneurial culture (Ayden, Demirbag, & Tatoglu, 2017). Basically, it represents that at what extent a company contributes in the corporative ventures and alliances. Companies try to build a strong network to get advantages business. Collaborations and network benefit them through different ways, therefore, organizations also seek to have network and relationship with the companies working in the international market or foreign market. some examples of network relations include suppler-customer relations, contractual cooperation, personal connections, and other similar relationships that result in the increase of trust and gains in the foreign market (Morschett, Schramm-Klein, & Zentes, 2015).

               According to the research study conducted by Chen, Chen, and Ku in 2004 to explain how scholars are recently working on relational capital and key importance of foreign relations. The relationship between a company government agencies, potential customers of this company, partners, suppliers, and research institutions can that results in the decrease or increase of goodwill and trust of the company (Ayden, Demirbag, & Tatoglu, 2017). Therefore, having an investment in the relational capital and local links makes an organization able to develop a competitive advantage in the competitive market.

            Network relationship can benefit and organization through various ways through sharing valuable knowledge and innovative information. For instance, Toyota Company is taking advantage in the market because of its strong relations with the suppliers. Management of Toyota is with the views that companies can get advantages through developing strong and long term relationship with their suppliers (Morschett, Schramm-Klein, & Zentes, 2015). For instance, because of the long term relationship and strong network Toyota Company purchases raw material at discounted prices (relatively lower prices than the actual market prices).    

4.      Efficiency Seeking Motive of Business

            Other than all these another important motive of internalization is the search for efficiency. According to the Dunning, efficiency seeking is the motive that has the purpose for rationalizing structures of investment in regards to earn from common governance. Such motives not only deal with the potential benefits but also concerns with the risk factors (Ayden, Demirbag, & Tatoglu, 2017). Somehow, efficiency seeking motive is considered as earning from the variance of different factors including institutional arrangements, endowments, economic system, and culture. It will deal with the concentration of production in the limited areas and geographical regions. Dunning and Lundan, (2008) conclude that companies that are highly diversified, experienced and big search for maximum efficiency opportunities. Basically, efficiency is another way to control cost factor and enlarge profit margin (Morschett, Schramm-Klein, & Zentes, 2015). Lean management approaches and six sigma approaches implemented by the Toyota motor corporation are the fine examples of efforts done to ensure efficiency in the business operations.    

             Economies of scale and scope are the key challenges that require attention and focus of managerial staff while taking a decision related to foreign investment or internationalization. Furthermore, we all believe that sometimes companies become international just with the objective to decrease the total tax amount paid to the state (Curci, LI, & Mackoy, 2014). Working in international countries can cause to decrease tax rates. for instance, if a company is manufacturing their products in China and selling those products in France while the local country (home town of the company) is the United States then we can say that income generated from the operations is foreign sourced income (Ayden, Demirbag, & Tatoglu, 2017). Therefore, owners will obviously have different tax liabilities in these countries. In case the tax rate of the Chinese government is lower than the United States then owners will get the financial benefit as it will lower their tax expense.                        

5.      Resources Seeking of Business

           Now the last but most important motive of internationalization is resources seeking. Dunning presented five motives for internationalization of organizations (in some books authors stated four motives for internationalization) (Morschett, Schramm-Klein, & Zentes, 2015). Resources seeking motive is the most common reason for internationalization as it relates to the main requirement (resources) of the companies upon which all business operations depend.

           According to the research findings of Morschett, Schramm Klein, and Zentes, (2015), presented in their book written on internationalization, companies invest in the foreign countries in search of the resources unavailable in their own country. Somehow, sometimes companies also invest in the countries to find their required resources at a lower rate than the actual market rates (Ayden, Demirbag, & Tatoglu, 2017). Anyhow, it does not mean that companies ever seek for the countries that can provide resources at a lower rate.

         In fact, many time big companies invest in  foreign countries to get high-quality resources such as raw materials. Each geographical area has some specification. Weather changes, climate changes, and temperature that also makes a country suitable for some food items while in other countries (having opposite weather, climate or temperature) that food items are not available. For instance, in the United States,, many companies sell rice imported from India, Bangladesh, and Pakistan as in these countries weather conditions and climate are highly suitable for the better growth of rice. While on the other hand, Middle East countries are best to purchase oil and petroleum. For instance, companies seeking for best quality of petroleum (raw condition or refined condition) can purchase petroleum from Saudi companies such as Saudi ARAMCO Company.

              In this assignment, we will also discuss the example of Nokia Company to present a realistic view of the whole discussion (Ayden, Demirbag, & Tatoglu, 2017). We will discuss why Nokia Company took the decision of internationalization.                          

Nokia Company: Internationalization of Business

Nokia Company is one of the most famous telecommunication company. According to the history of Nokia, it was established in Finland in 1865. Currently, Company has headquartered in Espoo a metropolitan area of the United States (Morschett, Schramm-Klein, & Zentes, 2015). Annual reports of Nokia Company represent that during last year (2018) Nokia company earned annual revenue of EUR 22.56 billion from its operations of selling electronic devices. The major product line of Nokia Company are tablets, mobile phones, and smart phones. (Ayden, Demirbag, & Tatoglu, 2017) Basically, Nokia is a multinational company that operates in many countries including Finland, Poland, Japan, India, China, United States, Canada, Germany, Pakistan, and France (Nokia.com, 2019).

 Nevertheless, in the beginning, the company was used to serve their local market only. But continuous success in the local market gave confidence to the administration and top-level management of the Nokia Company to expand its business in other countries and geographical regions also. Actually, at that time the United States was very advanced in technology (Dunning & Lundan, 2008). Therefore, other companies were also working there. In such situation competition was quite high. Nokia was seeking opportunity or gap for rapid enhancement in their business and profitability (Morschett, Schramm-Klein, & Zentes, 2015). Working in the market full of competition can posse's risk of a decrease in sales as a huge variety of options available to the customers increase customer expectations that makes it hard for the companies to satisfy their customer (Nokia.com, 2019). Other than customer satisfaction high competition is itself a situation of market threat. Therefore, at growth stage company took the decision of internationalization. Nokia entered the international market with the aim to deliver the best quality products to its customers in this market.  

The main reason behind the internalization of Nokia Company was to seek new markets to expand business after a successful experience in Finland and seek resources to get products manufactured with the best quality materials. According to the (Robbins & Judge, 2010) Nokia company is outsourcing its manufacturing process to get financial leverage. Currently, a large size manufacturing plan of Nokia Company is working in Romania. The key motive that encouraged Nokia Company to start up its manufacturing plan in Romania rather than the local country is resources seeking motive (Robbins & Judge, 2010). The company requires resources that are highly expensive in developed countries, therefore, the company took the decision to establish their plant in the geographical areas where resources are easily available at relatively lower prices than the local country.

In the past, manufacturing plan was working in Germany and local areas that later converted into the industrial area of Romania (Robbins & Judge, 2010). According to the representatives of the company, the decision was taken to cut the cost of production. Even shifting of manufacturing plant caused loss of 2300 jobs in Germany. Somehow, the company also suffered the loss of experienced and talented employees but they preferred the cost advantage. Actually, in Romania labor cost is relatively low. It is really difficult to work in a country where labor wages are high. Of course, high labor wages causes to increase the cost of production and results in a reduction of overall profit margin, therefore, most of the time companies seek for the opportunities to cut labor cost. Investing in foreign markets having low labor cost seems the best option in such circumstances. Nokia also supported internationalization to get this cost advantage (Ayden, Demirbag, & Tatoglu, 2017). Somehow, other than labor cost, other resources such as raw material of plastic, metal, and glass are also available at cheap rates in Romania and other neighboring countries. Currency rate difference also supports such decisions and increase profitability of the company.           

Thus we can say that resource seeking motive encourage Nokia company to enhance its involvement in the international business operations (Ayden, Demirbag, & Tatoglu, 2017). Basically, resources seeking motive is not only limited labor or material only in fact it deals with all kind of resources that are central for the survival of a company. Skills and talent also fall in this category. Companies that are involved in outsourcing to get services of highly talented and skilled labor of a foreign country are also resources seeker companies (Curci, LI, & Mackoy, 2014). However, resources seeking can also help companies build competitive advantages and a better reputation in the market.                

Conclusion on Internationalization of Business

           The whole discussion concludes that internationalization is not fully depended upon the aim of increase in sales. In fact, most of the time companies take the decision of internationalization to get benefits and advantages other than the increase in sales. Findings present that there are five main motives that encourage or motivate a company to get involved in the internationalization. Key motives are seeking resources, efficiency, strategic assets, network relations, and new market. In accordance with the analysis of Nokia Company, we can say that search for new market and resources are the key motives for the internationalization of the Nokia Company.   

References of Internationalization of Business

Ayden, Y., Demirbag, M., & Tatoglu, E. (2017). Turkish Multinationals: Market Entry and Post-Acquisition Strategy. Springer.

Curci, R., LI, L.-Y. (., & Mackoy, R. (2014). Stages and Patterns of Internationalization of the Chinese-Owned Firms: Market-Seeking versus Resource-Seeking Firms. Journal of Comparative International Management, 17(2), 38-61.

Dunning, J. H., & Lundan, S. M. (2008). Multinational Enterprises and the Global Economy. Edward Elgar Publishing.

Morschett, D., Schramm-Klein, H., & Zentes, J. (2015). Strategic International Management: Text and Cases. Springer.

Nokia.com. (2019). We create the technology to connect the world. Retrieved from www.nokia.com: https://www.nokia.com/about-us/who-we-are/

Robbins, S. P., & Judge, T. A. (2010). Organizational Behavior. Prentice Hall.