Why would a company go international? There are many reasons why companies would go international, but generally a company goes international so they can seek opportunities in domestic markets, or they seek solutions to problems that cannot be solved through domestic operations. There are many profitable possibilities by going internationally and these include greater profit potential, offers new locations to sell products, it may provide better access to needed raw materials, it may access to financial resources from many nations, and lastly it may allow labour-intensive activities to locate in countries with lower labour costs. For a small business to become an international business they must use five guidelines the first is global sourcing, exporting and importing, licensing and franchising, joint ventures, and wholly owned subsidiaries. The first two are market entry strategies and the remaining are direct investment strategies.
The first step in doing international business, this involves manufacturing and/or purchasing of components in different regions of the world and then putting them together to make the final product. The benefit of producing a product in a different part of the world is it can be done at a lower cost. For example Indonesia boasts among the lowest costs in the world, a big domestic market, and proximity to the rest of Asia. As a result, some companies are not merely sticking around they are expanding. Coca-Cola plans to open a new bottling plant next year. All told, over the past three years, the government has approved $26.2 billion in new foreign investment. Officials say foreign investors, apart from petroleum and financial-services companies, employ 3.5 million Indonesians, or 3.5% of the workforce.
EXPORTING AND IMPORTING
Exporting is the commercial activity of selling and shipping a good or goods to a foreign country. Importing is the commercial activity of buying and bringing in goods from a foreign country. The benefits of exporting and importing are good to a countries economy as it creates local jobs. The Honda plant in Alliston exports the Honda Civic (a three door hatchback and four-door sedan) as well it is the only facility in the world that builds the full-size Odyssey minivan and the Acura MDX sport utility vehicle.
LICENSING AND FRANCHISING
Licensing occurs when a firm pays a fee and enters into a licensing agreement giving it the rights to another company’s product, resulting in the rights to make or sell that company’s product. The potential benefit of licensing is that it is a way to transfer technology from one country to another. Franchising is a form of licensing but instead of buying a product you buy a complete “package” of support needed to open a particular business. The benefit of franchising is for example Wendy’s sells a franchise, but they retain certain product and operating controls.
It is a venture by a partnership or corporation designed to share risk or expertise. The benefit of joint venture is that everyone benefits. Both sides benefit from each others markets. In mid-June, Renault announced a joint venture with Suzuki assembler Indomobil that will assemble and distribute several Renault models.
WHOLLY OWNED SUBSIDIARIES
It is an operation completely and totally owned by another firm. Thirty-four Arby’s Restaurants that are located in the Chicago land area is operated as wholly owned subsidiaries of Lunan Corporation.
The reasons outlined above are very important and beneficial to a small company that is going towards the international scene. In all of the examples management’s decisions were affected as the firms began to grow, and increase. There are the five steps to follow in becoming an international company.