Globalization vs. Internationalization: Motives, Barriers, and Triggers

Posted on Jun 2, 2024 in Economy

Globalization vs. Internationalization

– Globalization reflects the trend of firms and people of buying, producing, and selling products and services in most countries and regions of the world. – Internationalization means doing business in many countries of the world, often limited to a certain region (e.g., Europe).


Proactive Motives

Represent stimuli to attempt strategy change, based on the firm’s interest in exploiting unique competences (e.g., a special technological knowledge) or market possibilities.

1. Profit and Growth Goals

  • Attitude towards growth will be influenced by past efforts’ feedback.
  • Gaps between planned and actual profitability determine management’s willingness to invest in globalizing.


2. Managerial Urge

  • Urge is a motivation that reflects the desire, drive, and enthusiasm of management towards global marketing activities.
  • Explanations for this desire: managers wish to be a part of a globalized firm / a reason for international travel / general entrepreneurial motivation.


3. Technology Competence / Unique Product

  • A firm may produce goods or services that are not widely available from international competitors (which may not be the case in the international market).
  • If products / technology are unique, they can provide a sustainable competitive edge and result in major business success abroad (the firm must assess how long can it be sustainable).
  • Competitive advantages may arise at different points through the value chain.
  • Companies that have developed unique competences in their domestic market are more likely to succeed overseas, due to the low costs of exploiting these assets in other markets.


4. Foreign Market Opportunities / Market Information

  • Regions with high levels of economic growth (in general or for concrete sectors) become especially attractive for firms with a suitable product.
  • Specialized marketing knowledge or access to information can distinguish an exporting firm from its competitors: foreign customers, marketplaces, or market situations, not known by other firms.
  • Competence in one or more of the major marketing activities will often be a sufficient catalyst for a company to begin or expand exports.


5. Economies of Scale (Learning Curve)

  • Becoming a participant in global market activities may enable the firm to increase its output and therefore climb more rapidly on the learning curve.
  • Increased production for the international market can help in reducing the cost of production in domestic sales and make the firm more competitive domestically as well.
  • It results in seeking market share as a primary objective of the firm.
  • Some companies require standardizing the marketing mix internationally. Others do not need to standardize to achieve scale economies.


6. Tax Benefits

  • Such benefits allow the firm either to offer their products at a lower cost in foreign markets or to accumulate a higher profit.
  • Anti-dumping laws enforced by WTO punish the selling overseas at lower prices than in their domestic markets.


Reactive Motives

The firm reacts to pressures or threats in its home market or in foreign markets and adjusts passively to them by changing its activities over time.

1. Competitive Pressures

  • A firm may fear losing domestic market share to competitors that have benefited from economies of scale gained by global activities.
  • Fear losing foreign markets permanently to domestic competitors that are the first that decide to focus on these markets.


2. Domestic Market Small and Saturated

  • Domestic markets may be unable to sustain sufficient economies of scale and scope.
  • Likely for industrial products that have few, easily identified customers throughout the world, or producers of consumer goods with small national segments in many countries.
  • Products may be at the declining stage of the PLC, and the firm may prolong the cycle by expanding to new markets.


3. Overproduction / Excess of Capacity

  • May result of a low demanding domestic market, that increases inventory. If the firm considers export markets as opportunistic, customers may not be much interested in such business relationships.
  • Excess capacity can be a powerful motivation for globalizing, in order to achieve a broader distribution of fixed costs. If this expansion is performed with lower prices abroad, grey markets may bring the product back to the domestic market with a lower profit for the firm.


4. Unsolicited Foreign Orders

  • Small companies may receive inquiries from overseas, resulting from advertising in trade journals, exhibitions, web pages…
  • Considering such orders without any specific promotion, managers assess the market potential with specific expansion campaigns.


5. Extended Sales of Seasonal Products

  • Seasonality in demand conditions may differ between domestic and international markets. A stable presence in both markets will become a stimulus to export, having a more stable demand over the year (e.g.: the demand for agricultural machinery changes over the year on each hemisphere).


6. Proximity to International Customers / Psychological Distance

  • Some European countries notice some abroad sales as domestic (e.g., German firms with Austria).
  • Some countries find multi-country relevant customers in a very short distance (e.g.: Belgium with Netherlands, Luxembourg, France, Germany, UK).
  • However, for nearby markets, managers are exposed to “shock effects”: when they realize that they do not know enough about a local market, especially when they perceive it as having a close psychic distance.
  • Geographically close foreign markets may seem psychologically distant because of cultural variables, legal factors, or other norms (e.g.: US firms perceive Canada psychologically much closer than Mexico).


Internationalization Barriers

:

 Barriers hidering internationalization initiation: • Insuficcient finances. • Insufficent knowledge. • Lack of foreign market connections. • Lack of export commitment. • Lack of capital to finance expansion. • lack of productive capacity. • Lack of foreign channels of distribution. • Management emphasis on developing domestic markets. • Cost escalation due to high export manufacturing, distribution and financing expeditures.


 Barriers hidering the further process of internationalization:


 • General market risks: • Comparative market distance. • Competition from other firms abroad. • Differences of product usage across markets. • Language and cultural differences. • Difficulties of finding the right distributor. • Differences in product specifications. • Complexities of shipping services to overseas.


 • Commercial risks: • Exchange rate fluctuations. • Failure of export customers to pay. • Delays or damages in the export shipping. • Difficulties on obtaining export financing.


Barriers hidering the further process of internationalization:


 • Political risks: • Foreign government restrictions. • National export policy / lack of governmental assistance. • Foreign exchange controls. • Lack of tax incentives for exporters. • High value of domestic currency. • High foreign tariffs. • Confusing foreign import regulations and procedures. • Complexity of trade documentation. • Civil revolutions or wars.


Internationalization triggers: someone or something within or outside the firm (“change agent”) must initiate the process and carry it to implementation. In many cases, it is a combination of several factors.


 1 Perceptive management / personal networks:  Perceptive managers maintain a sense of open-mindness about where and when their companies should expand overseas. In this case, a trigger factor is frequently foreign travel, during which new opportunities are discovered.  Managers who have lived abroad, have learned foreign languages, or are interested in foreign cultures.  Often managers enter a firm having already had global experience and personal networks from previous jobs, and use them in the new firm.


2 Specific internal event:  A new employee who presses to expand the firm globally.  Receiving new information about current product uses.


3 Inward/outward internationalization:  Inward (imports) activities to gain knowledge, may preced those for the later outward (export) activities:
 •The inward activity may be initiated either by the buyer, or the seller. •Through interaction with the foreign supplier, the buyer gets access to the network of the supplier, and may become a sller to that network. •Inward operations can include finances,technology and other activities, different of raw materials or goods’ buying.