REASONS FOR ENTERING INTERNATIONAL MARKETS.

The reasons for entering international markets vary from firm to firm and country to country
depending upon the market characteristics. However, firms often decide to enter into
international market due to the following reasons:

Achieving economies of Profitability

scale Risk spread

Why should a firm enter

Spreading R&D international market? Access to imported
cost inputs

Marketing opportunities due

to life cycle
Growth
Uniqueness of product or
services

GROWTH

Firms enter international market when the domestic market potential saturates and they are
forced to explore alternative marketing opportunities overseas.

It may be observed that countries with smaller market size such as Singapore, Hong Kong etc.
had no other option but to internationalize.

PROFITABILITY

The price differential among markets also serves as an important incentive to internationalize.
Exporters benefit from the higher profit margins in the foreign markets. Sometimes ,strong
competition in domestic market limits a firm’s profitability in that market. Price differentials and
enhanced profits in the international markets are some of the fundamentals motives of exporting.

ACHIEVING ECONOMIES OF SCALE

Large scale production capacities necessitate domestic firms dispose of their goods in
international markets once the domestic market become saturated.

RISK SPREAD

A company operating in domestic markets is highly vulnerable to economic upheavals in the

home market. Overseas markets provide an opportunity to reduce their dependence on one
market and spread the market risks.

ACCESS TO IMPORTED INPUTS

The national trade policies provide for import of inputs used for export production, which are
otherwise restricted. Besides, there are a number of incentive schemes which provide duty
exemption or remission on import of inputs for export production. It helps the companies in
accessing imported inputs and technical know-how to upgrade their operations and increase their
competitiveness.

UNIQUENESS OF PRODUCT OR SERVICE

The products with unique attributes are unlikely to meet any competition in the overseas markets
and enjoy enormous opportunities in international markets. E.g. herbal and medicinal plants,
handicrafts, value added BPO services and software development at competitive prices provide
Indian firms an edge over other countries and smoothen their entry into international market.

MARKETING OPPORTUNITIES DUE TO LIFE CYCLES

Each market shows a different stage of life cycle for different products, which varies widely
across country markets. When product or service get saturated in the domestic or an international
market, a firm may make use of such challenges and convert them into marketing opportunities
by operating into international markets.

SPREADING R&D COST

By way of spreading the potential market size, a firm recovers quickly the cost incurred on
research and development. It is especially true for products involving higher cost of R&D.
International markets facilitate speedy recovery of such costs because of the large market size
and also due to larger coverage of the right market segments in international markets

DRIVING FORCES/ PUSH FACTORS

Driving Forces: - Driving forces are the forces that help in achieving greater globalization.
They are also known as the push factors. The main driving forces can be explained under the
following headings.
  Technology.
 Saturated Markets.
 Improvement of Communication/Transport.
 Removal of trade Barriers.
 Profitability
 Growth/Expansion
 Cost Consideration
 Image of the Company
The driving forces or the push forces are described briefly below:-

1. Technology: - Perhaps the single most important innovation has been the development of
the micro processors, yet enabled the explosive growth of high power, low cost
computing, vastly increasing the amount of information that can be processed by
individuals and firms. The cost of micro processors continues to fall, while their power
continues to increase. The rapid growth of the internet and the associated World Wide
Web is the latest expression of this development. In 1990 fewer than 1 million users were
connected to the internet. By the year 2005 about 1.12 billion or 18% of the world’s
population were found to be using internet. The increasing use of better technology is
resulting in better trade and business between different countries thus leading to
globalization.
2. Saturated Markets: - When the companies face the problem of saturated markets in the
home country they have to go to foreign markets in search of better markets. They find
markets where there is demand for the products that they produce and thus help in
making the world a global market.
3. Improvement of Communication/Transport: - As the technology improved the global
communication have been revolutionized by the developments in satellite, optical fiber,
and wireless technologies. Better and cheaper communication leads to better trade which
eventually leads to globalization. In addition to developments in communication
technology, several major innovations in transportation technology have occurred .The
introduction of containerization, which simplifies trans-shipment from one mode of
transport to another. The advent of commercial jet travel, by reducing the time needed to
get from one location to another, has efficiently shrunk the globe.Better transport led to
doing better business by reducing the distances between two countries by great margins
thus leading to globalization.
4. Removal of trade Barriers: - With the establishment of World Trade Organization
whose main objective was to remove the trade barriers that existed between two
countries, doing trade has been much easier. WTO as it is known is one of the main
factors why the average tariff rates of countries like France, Germany and United States
have fallen.Lower tariff allows the system of free trade in the global market thus helping
in greater globalization.
5. Profitability: - All the business firms have one common objective which is to earn
profits. When the profit margin in the home country diminishes gradually the firms starts
looking for other partners who are often from other countries thus leading to
globalization.
6. Growth/ Expansion: - The firms also want to expand and grow with time. Therefore
they spread their business to other parts of the world. They trade with different partners
all over the world which leads to globalization.
 7. Cost Consideration: - The firms often to minimize the cost of production start their
operations in different parts of the world. For example a country from Europe may start
its production operation in a country in Asia for reducing its cost of production since the
cost of labor is cheaper in Asia then in Europe. By spreading their operations the firms
are eventually helping in globalization.
8. Image of the company: - The Company often to enhance its image in the eyes of the
customers starts its global operations. They join foreign partners for this reason thus
leading to globalization.

Restraining Forces/PULL FACTORS

Restraining forces are the forces that act as obstacle in the process of globalization. They are
also known as the pull factors of globalization. The main restraining forces can be explained
under the following headings.

 Cultural Myopia
 Concentration of Power
The restraining forces or the pull forces are described briefly below:-

1. Cultural Myopia
Culture is one of the major obstacles in the process of globalization. Since the culture of
different countries all over the world is different sometimes this acts as an obstacle in the
globalization process. Different beliefs, rituals, customs and traditions which together are
known as the culture of a particular region or a country often become a problem. A country
which wants to start its global operation in a foreign country must first analyze the culture of
that country which may be quite difficult in some cases.

2. Concentration of Power
Critics of globalization argue that despite the supposed benefits associated with free trade
and investment, over the last hundred years or so the gap between the rich and the poor
nations of the world has gotten wider. This proves that the globalization process is helping
the rich grow richer and eventually making the poor poorer. The reasons behind this being
the concentration of power in the hands of few countries.