Essay: Internationalization and globalization

Internationalization and globalization among businesses has become increasingly popular over the past century and it’s no longer just the major firms who are doing so. Small multinational enterprises (SME’s) have also moved into the global markets due to the ease of accessing foreign counterparts through the increase in communicative technology. It has become apparent that no matter the businesses size, market or business sector Internationalization has become an important consideration for firms looking to cease the opportunities and benefits of going global. In this chapter we will focus on the concept of the Internationalization of business and the opportunities it presents.
1.1. International Business
Globalization is the modern term used to describe changes in society and world economy, resulting in highly increased international trade and cultural exchanges. The World Bank defined globalization as ‘the liberty and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries’. In the last twenty years, there have been major changes to the institutional framework governing international economic relations. Market integration is growing stronger, there has been a reduction of trade barriers between countries, relaxation of government policies has led to trade liberalization, more open international markets and broad strong trends of globalization, these and other developments, multiply the opportunities for internationalization of companies.
Some examples of the major changes occurring in the last 30 years of the international business environment include:
‘ Emerging markets have shown huge growth potential (e.g. China, Eastern Europe, Indonesia, India);
‘ Fundamental changes in the economic systems of countries (the collapse of the former communist bloc in Eastern Europe, EU enlargement to the east);
‘ Growth of new trading blocs and major changes to existing ones;
‘ Reduction of barriers to international trade therefore increasing competition across national borders;
‘ Development of multinational and transnational organizations;
‘ Development of communicative technologies such as the Internet/Smart phones which have paved the way for a globalized economy.
It has become clear that globalization is deepening and expanding the interdependence between firms from different countries. Some of the major contributors to the rapid expansion of globalization over the past few years include the increases in communicative technology, the gains from trade realized by going global and the reduction of government’s barriers to trade and production. The increases of technology such as the Internet/smart phones have presented huge opportunities for businesses where they can access foreign counterparts halfway around the world at the touch of their fingertips.
Also the gains from trade opportunities by going global can be huge especially for SME’s who before globalization didn’t have access to such population dense countries such as China or India. It has also been evident in recent years the relaxation of governments to foreign trade has increased thus opening up new markets for firms across the world. Governments have reduced these barriers, primarily due to growing demand from consumers to have access to a greater variety of products at a discounted price.
At a macroeconomic level there are several factors that can be considered relevant for the current period:
‘ The liberalization of international trade: agreements between states and the removal of barriers to international trade have helped increase international trade and the importance of international business.
‘ Consumer needs: today’s consumer has become more demanding and wants to receive the best value and most innovative products and services, regardless of the country of origin of these products.
‘ Improved communication: development of technologies, such as the Internet have influenced consumer preferences and increased the ease for businesses to globalize.
‘ Strategic alliances and international supply chains: nowadays not only consumer preferences have changed, but also organizations. For example, even very large companies such as Apple, can no longer afford to develop new products alone which have increased the need to form strategic alliances with potential competitors in order to meet the ever increasing demand for new and innovative products. It is known that Apple has partnered with some other companies in the past, such as: Sony, Motorola, Phillips, and AT&T.
‘ Increasing global companies ‘ multinational, transnational and global brands: global companies adapt their products to meet not only local preferences but also international ones. This was seen with McDonalds when they adapted their menu for India where they were not allowed to serve beef due to the mass Hindu populations regarding cows as sacred animals, thus they have to server vegetarian burgers and famous burgers like the Maharaja Mac.
‘By overcoming the local, national and regional boundaries, as well as addressing the environment in a global manner, the company is integrating in the general trend of Internationalization.’
Internationalization has been defined in the European Research Journal as ‘the series of changes that firms involved in international business go through’ and can be presented as ‘the business movements of a firm’s international operations.’
Internationalization is defined as ‘the process of increasing involvement in international operations that determine future developments and changes in the company on purpose, orientation and organizational principles.’ In other words, ‘the internationalization is the body of methods, techniques and tools put at the service’s strategic approach of the enterprise to work abroad.’
In the process of internationalization companies go through several stages which correspond to different forms of transactions. However, according to the resources and objectives of the company, she can engage more or less in international business. The companies that are engaging in more advanced forms of internationalization proceed through the following stages:
‘ Internationalization process of trading goods. This stage corresponds to the most basic forms of international transactions, and it refers to commercial transactions (export and import of goods);
‘ Internationalization of production. This can be achieved through various forms of alliances and international cooperation, focusing on the transfer of technology to produce the goods abroad (alliances and international cooperation, licensing, underproduction, joint ventures);
‘ Internationalization of the firm. In this case, the main way to achieve internationalization is through direct investment, this form is normally through foreign investment (FDI).
‘One model which highlights the complex nature of internationalization is the model proposed by Welch and Luostarinen (1988). This model focuses on the object of internationalization, target markets, entry modes, organizational structure and resources. These components could be completed with other such as motives, objectives, competitive advantages and degree of commitment.’ This model is illustrated in the Table 1.1.