• Internationalisation describes designing a product in a way that it may be readily consumed across multiple countries.
  • This process is used by companies looking to expand their global footprint beyond their own domestic market understanding consumers abroad may have different tastes or habits.

Driving forces

  • Trade agreements
    • Tariffs, quotas
  • Improvements in transport
  • Improvements in communications technology

Why pursue internationalisation?

  • Avoid risk of operating in one market
  • Take advantage of economies of scale and experience curve effects
  • Boost profitability
    • Price advantages
    • Cost advantages
  • Protect domestic market
  • Increasing market share and Growth
  • Key customer service
  • Developing market expertise
  • Making competitive move
  • Taking advantage of government incentives

Factors influencing the attractiveness of international markets

  • Size and growth of target customer base
  • Ease of entry to an international market
  • Extent to which product will need to be adapted
  • Existing competitive structure in the target market
  • Economic conditions in the target economy
  • Need for local expertise or partners
  • Consistency with corporate objectives
  • Other external environment factors (eg, legal)

Types of Protectionism

  • Tariffs
    • A tariff a tax or duty that raises the price of imported products and causes a contraction in domestic demand and an expansion in domestic supply.
  • Quotas
    • Quotas are quantitative (volume) limits on the level of imports allowed or a limit to the value of imports permitted into a country in a given time period.
  • Export subsidies
    • A subsidy is a payment to encourage domestic production by lowering their costs. Well known subsidies include Common Agriculture Policy in the EU.
  • Domestic subsidies
    • Domestic subsidies involve government help (state aid) for domestic businesses facing financial problems .

Entering International Markets

  • Exporting direct to international customers
  • Selling via international agents and distributors
  • Opening an operation overseas
  • Joint venture or takeover


  • Benefits
    • Uses existing systems
    • Online promotion makes this cost-effective
    • Can choose which orders to accept
    • Direct customer relationship established
    • Entire profit margin remains with the business
    • Can choose basis of payment
  • Drawbacks
    • Potentially bureaucratic
    • No direct physical contact with customer
    • Risk of non-payment
    • Customer service processes may need to be extended


  • Benefits
    • Agent of distributor should have specialist market knowledge
    • Fewer transaction to handle
    • Can be cost effective
  • Drawbacks
    • Loss of profit margin
    • Unlikely to be an exclusive arrangement
    • Harder to manage customer service quality
    • Agent/distributor keeps customer relationship

Foreign Direct Investment

  • Benefits
    • Local contact with customers and suppliers
    • Quickly gain detailed insights into market needs
    • Direct control over quality and customer service
    • Avoids tariffs
  • Drawbacks
    • Significant cost and investment of management time
    • Need to understand and comply with local legal and tax issues
    • Higher risk

Overseas Takeovers and Joint Ventures

  • Benefits
    • Speed and potentially transformational
    • Popular way of entering emerging markets
    • Reduced risk - shared with joint venture partner
    • Buying into existing expertise and market presence
    • JVs may be a requirement in some markets
  • Drawbacks
    • Higher risk, particularly if the wrong JV partner or takeover target is selected
    • Significant cost and investment of management time
    • Need to understand and comply with local legal and tax issues
    • Costly to withdraw if the strategy goes wrong

Multinational Companies

  • A multinational company (MNC) is a business that has operations in more than one country. Note that a business does not become an MNC simply because it sells its goods and services overseas. The key to being an MNC is the business has operations in two or more countries.

Key reasons for rapid growth of MNCs

  • Global brands seeking to drive revenue and profit growth in emerging economies (in particularly seeking rising demand from increasingly affluent consumers)
  • The search for economies of scale, to reduce unit costs by concentrating production in a few key international locations
  • The perceived need to supplement relatively weak demand in existing, developed economies
  • The need to operate in many countries to avoid protectionism
  • Increased takeover activity that has built businesses with widespread international operations

Potential benefits of MNCs to countries in which they operate

  • MNCs provide significant employment and training to the labour force in the host country
  • Transfer of skills and expertise, helping to develop the quality of the host labour force
  • MNCs add to the host country GDP through their spending, for example with local suppliers and through capital investment
  • Competition from MNCs acts as an incentive to domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency
  • MNCs extend consumer business choice in the host country
  • Profitable MNCs are a source of significant tax revenues for the host economies

Potential Drawbacks of MNC activity in the countries in which they operate

  • Domestic businesses may not be able to compete with MNCs
  • MNCs may not feel that they need to meet the host country expectations for acting ethically
  • MNCs may be accused of imposing their culture on the host country, perhaps at the expense of local culture
  • Profits earned by MNCs may be remitted back to the MNCs base country rather than reinvested in the host economy
  • MNCs may make use of transfer pricing and other tax avoidance measures to significantly reduce the profits on which they pay tax to the government in the host country.