Good Morning Ladies and Gentlemen, and thank you for coming here today to listen to my presentation. Let me introduce myself. My name is a and it’s a pleasure being with you today.
My purpose today is to consider reasons for a company to go international and the ways a firm can do it.
I’ve divided my presentation into three sections (slide 2). Firstly I’d like to look at international trade as a way of increasing welfare for all. Secondly I’d like to analyze reasons for businesses to go international and finally we’ll deal with entry strategies that companies use.
I’ll take 10 minutes of your time. If you have any questions, I’ll be glad to answer them at the end of my talk.
Let’s start. I’ll begin by looking at the international trade in general (Slide 3).
International trade can be defined as exchange of goods and services between different countries, which can either import or export. The idea is simple: each country produces the goods and services that can be either consumed at home or exported to other countries depending on the advantages different countries have.
As you can see on this slide (slide 4) absolute advantages include favorable climate, rich natural resources and other advantages that country initially possesses, while comparative advantage is anything that makes production cheaper than in other countries. Economists tend to include qualified and experienced labor force and modern technologies because they make production process shorter and less costly.
Though different countries have different absolute and comparative advantages in producing goods and services, whenever an exchange takes place, both parties are better off as a result. If this were not the case, trade would be impossible since neither party would agree to the terms.
If you take a look at slide 5 you’ll see that International trade provides a lot of opportunities for its participants: It provides more jobs, a wider choice of goods for consumers, wider markets for businesses, economic growth and improved living standards, closer political links, etc.
To sum up: International trade brings a variety of benefits to all countries that participate in it disregarding the advantages they have. That’s why international trade may be regarded as a way of increasing welfare for all.
Now let’s turn our attention to the reasons why companies go international. Decision to go international is based on different approaches (slide 6).
Some companies anticipate changes on home and foreign markets and decide in a proactive way, that they should start trading in order to be more competitive. Some firms do not have a specific corporate direction and they are forced into going international just reacting to some competitive of economic situation.
For example political climate may change and government may impose new tax, so the cost of production at home increases forcing the country to find a cheaper place to produce.
However reactive approach is more dangerous as it can cause mistakes because the firm may be stressed for manpower, money and other resources. That is why companies who are proactive in international business are in most cases better positioned than companies that simply react.
Slide 7 shows various factors that induce firms to begin operating internationally.
The most important reasons that can make a company decide to operate internationally include
- existence of lucrative markets and clients with higher payment capacity in other countries that are not available on the local market; and
- saturated home market filled with similar products, so there is no chance to expand and increase share market.
As the number of companies producing similar products increases competition becomes fierce making firm respond to increasing competitive activity by marketing abroad.
It’s also worth mentioning such factors as
- economies of scale i.e. the decrease of the unit production cost due to increased output, and
- ‘experience curve’ effects which means the more experience the firm gets the higher its efficiency is.
(Slide 8) Contacts and experience acquired by operating internationally can give a company a competitive edge over rivals and make it more competitive on the home market. This also makes it more competitive on the internal market. Operating in several countries involves less risk as a sudden collapse in demand in one country may be offset by expansion in others.
Moreover doing business in foreign markets exposes a firm’s management to fresh ideas and different approaches to solving problems. Individual executives develop their general management skills and personal effectiveness, get innovative and adopt broader horizons.
To sum, company may use active and proactive approaches to engage in international market being influenced by different factors. There are a lot of reasons for the increasing internationalization of business which also influence the choice of entry strategy.
This leads me to the next point of my presentation – entry strategies a company may use.
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