Internationalization has been the most important force to reshape the competition and industry profitability in the last half-century. It still remains an appealing strategy for firms to lower cost, expand market and achieve better performance. This essay will first discuss the patterns of internationalization in general, and then move on to analyze the reasons why firms internationalize, among which the establishment of competitive advantage is crucial. More attentions will be paid to the choice of location and the part of value chain to be internationalized. Subsequent analysis will then focus on the modes of entry, reconciling global intergration and national difference.
Basically, the three patterns of internationalization—trading industries, multidomestic industries and global industries—are transformed from sheltered industries that sheltered from imports and inward investment due to regulation, trade barriers, or the localized nature of the goods and services they offer. Trading industries, such as diamond and hardware industries, are developed when shipping and trade are possible between countries. In addition to possible trading, the products should not be nationally differentiated and could be produced in a scale economy. On the contrary, firm could only internationalize through direct investment when trade is not feasible due to high transaction cost and products or service have high national specificities. Take investment banks for example, its service have to consider the unique business environment in certain country and can’t be simpliy replicated among different countries. Combining the characteristics of the previous two methods, global industries explore oversea market through both trade and investment. For example, Nokia manufactures its electronic products in developing countries, taking advantage of its lower wage, and export its products to high demand countries to open its brand.
To implement internalization...
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