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Lesson#5
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ENGAGING IN INETRNATIONAL MARKETS
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ENGAGING IN INETRNATIONAL MARKETS
Why companies engage in international business:
Companies engage in international business for a variety of
reasons. Identifying these reasons for any
firm is important to understand the nature and direction of its
motivation to engage I international
marketing.
Some of the major reasons why companies engage in international
marketing are as follows:
– To expand sales
of the firm
– To acquire
resources / technology / skills from foreign countries
– To diversify
their sources of sales and supplies
– To capitalize on
incentives from governments, local and foreign
– To follow
existing customers who have moved overseas
Reasons for recent growth of business in international markets:
International business has increase on a rapid pace, especially
after the 2nd
world war of 1940’s. This
expansion in international business has been due to host of
reasons. Some of the key reasons for
expansion of international business are as follows;
–
Expansion of
technology
• Quicker and
cheaper transportation
• Communications
enable controls from afar
–
Liberalization
of cross-border movements of goods, services and factors of production, such
as labor, capital and technology etc
–
Development of
supporting institutional arrangements for international exchange of goods
and funds
–
Increase in
global competition forcing firms to expand in international markets
–
Convergence of
world markets in terms of tastes, distribution infrastructure, technologies
and trade regulations.
–
Support from
national governments for internationalization of local firms and for
attracting foreign direct investments.
–
Growth of
resources available to mnc’s and with large pool of funds ands and other
resources firms could easily expand businesses in world markets.
Benefits of doing business in international markets:
A country and its people benefit from selling to or even buying
from international markets.
–
Exports
• Propel country’s
economic growth as its firms increase sales and profits
• Exports of
quality products and services support or create better jobs (average
export-related
job pays more than average national job)
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• Selling to
international markets diversifies a country’s economy and hence hedges against
economic downturns
–
Imports
• Consumers gain
from lower costs, better quality and greater variety products on the shelves
• Also create
essential competition for local companies which then improve their products and
processes
• Keep levels of
prices and hence inflation low as with open imports prices of products in
domestic markets would depend on the lower prices of the
products in international markets
Means of engaging in international markets:
A company may engage in international markets in a number of
ways. These are categorized in the
following;
–
Merchandize
export and import
–
Services
export and import
• Travel, tourism
and transportation
• Performance of
services
– Fees in banking,
insurance, rentals etc., turnkey operations, management contracts etc.
• Use of assets for
royalties
– Licensing
• Use of assets
such as trademarks, patents, copyrights, or expertise under contracts
– Franchising
• Franchiser
sells/leases the use of assets and also assists the franchisee on a continuing
basis in operations
–
Investments
• Direct investment
- with controlling interest (at least 10% of voting or ownership control)
– Wholly owned
– Joint venture
– Mixed venture
(when a government joins as a partner)
• Portfolio
investment - non-controlling interest
– Equity investment
– Stock market
investment - funds
– Bonds & loans
– Money market
investment
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