Motives for Foreign Operations
Discussion Question 2 (50 points)
Discuss five (5) motives for establishing foreign operations. (A 2-page response is required.)
International Business and Globalization
Foreign operations is the controlled entity, joint venture, companion, subsidiary, or branch of the reporting outlet, the operational activities that are founded and carried out in a nation or currency other than the reporting entity. Numerous motives could lead the organization, government or individual to venture into foreign operations, which includes the substantial benefit to the whole entity, while other reasons are attributed to the necessity to fulfil personal interests. Therefore, the paper discusses five motives that could lead to establishing foreign operations.
The first motive is to increase sales and profits. If the organization succeeds within the domestic market, the international expansion could enhance overall revenue. Economic development rates in the USA, Europe, and Japan are extremely lower than the large and new developing markets. In the US and Europe live, approximately 300 million individuals. Merely India and China, the population is 2.4 billion, which translates to potential clients. This shows that the client is international and that if the company explores beyond the local market, it could have certain actual advantage potential (Omokaro‐Romanus, Anchor & Konara, 2019). Moreover, if the organization has a technological edge or unique product that is not available to the global rivals, such an advantage would lead to major business success in foreign markets. Also, foreign market sales could be at an advanced value compared to the local market. Most of the products imported are often paid as premium brands and products. Hence, increased sales within the foreign markets translate into high profit.
Another essential motive is the increase in innovation and management learning. Expanding the firm’s client base globally could aid the organization in financing the development of novel product, getting used to working with erudite and highly demanding clients, and learning from competitive markets and rivals. Therefore, the organization would greatly benefit from participating in the highly competitive and tough market, enhancing its product design and marketing strategies that, in turn, enable better performance. Participation in the lead market is a precondition for qualifying as an international brand leader, despite the profit rates of the market. Suppose the organization opts to maximize learning from the lead market. In that case, it must participate with its subsidiary since direct learning via domestic distributors is often ineffective and would not contribute to the company’s growth as an international player.
The third motive for foreign operation establishment is a competitive strike. The entry to a market could prompt a positive characterization of the nation recognized within a market evaluation project and as a response to the rival’s move. The usual case is the market entry as a follower move, in which a firm enters a market because a core rival has (Ti, Ng & Rasiah, 2022). This is often facilitated by a notion that the rivals will acquire a considerable edge if left to operate singularly within such market. Another case is an offence as defense, where a firm enters the rival’s local market as a retribution of a former entry into the local market. In such scenario, the goal is to force a rival to assign more resources to an increased competition level.
Economies of scale is another motive. Expanding is a proficient approach to expanding the business with products that are widely recognized and accepted internationally. In most manufacturing industries, for instance, internationalization could aid the firms in attaining superior scales of economy, particularly for organizations from smaller local markets. Besides, a firm could exploit an exclusive and differentiating edge like brand, a service model, or patented product. The focus must be on ‘more of the same’, with comparatively little judgement of the domestic market.
Lastly, short- and long-term security can be a motive for establishing foreign operations. The business would be less exposed to sporadic downturns and variations in the European or Spanish economy and market. The Eurozone is a vast, mature market with stiff rivalry from domestic and foreign rivals. In the period of deep economic recession, exports were the resolution for most Spanish-based organizations (De Roest, Ferrari & Knickel, 2018). As a result, most firms maintained and enhanced their production capacity, financial structure and employment.
References
De Roest, K., Ferrari, P., & Knickel, K. (2018). Specialization and economies of scale or diversification and economies of scope? Assessing different agricultural development pathways. Journal of Rural Studies, 59, 222-231.
Omokaro‐Romanus, C., Anchor, J. R., & Konara, P. (2019). The internationalization of Nigerian firms: Motivations and location patterns. Thunderbird International Business Review, 61(1), 75-88.
Ti, L. L., Ng, B. K., & Rasiah, R. (2022). Motivations behind SME greenfield investment in emerging markets. Management Decision (ahead-of-print).