Why Businesses Internationalise? Compare And Contrast Mainstream And Alternative Theories

599 words - 3 pages

This essay would be focused on the meaning of internalisation and why businesses would want to partake in it with theories to support it as well as its problems.
In recent years, globalization has caused the business areas in countries to keep developing. This resulted in companies more concerned with making their operation more efficient and effective and wanting to compete in the global environment. This would mean the firm would have a lot of competition therefore we would need to have structured strategies to gain an upper hand over the competitors. According to Hymer (1976), firms’ involvement with international investment/trade is driven by market imperfections that create advantages and conflicts that a firm can exploit to gain a competitive advantage. According to Buckley and Ghauri (1999) “Internationalization is the process of involvement in international operation.” It can also be viewed as the involvement of firms ...view middle of the document...

Firms take part in internationalisation get income and use it to develop production level of their goods in the country. The better the production level, the better their chances of competition in the international market. Also, Ricardo (1817) suggested that firms would want to internationalise to gain comparative advantage. This is when a firm would be able to produce goods or services at a lower opportunity and marginal cost. Here, if a country is more efficient in the production of cloth and another is more efficient in wine, they can benefit from each other and trade with each other. On the other-hand, there are some of the reasons why businesses would want to internationalise.
Firstly, Ricardo (1817) suggested that internationalisation would lead to benefiting from other countries main production, the problem is some countries would have government regulations that would disallow them to buy particular goods from countries therefore no or little revenue. Also, Coutts and Godley (1992) added that from internationalisation, countries would get revenue to purchase goods that they can’t produce, but due to exchange rate fluctuations high revenue in that country could be low in the other country, which would mean fewer goods to purchase.

In conclusion, businesses would want to internationalise in other to gain comparative advantages, get revenue to import goods they cannot produce, and develop the standard of living of in the country. But with all these, there are some problems such as government regulations or exchange rate that could affect it.

Reference

Adam Smith (1776). An Inquiry into the Nature and Causes of Wealth of Nations. London: W.Strahan and T. Cadell
David Ricardo (1817), On the Principles of Political Economy and Taxation, London: John Murray
Peter J. Buckley, Pervez N. Ghauri (1999). The Internationalisation of the Firm: A Reader. Uk: Thomson.
Robert E. Morgan, Constantine S. Katsikeas (1997). Theories of international trade, foreign direct investment and firm internationalization: a critique, Management Decision, Vol. 35 Iss: 1, pp.68 - 78

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