For majority of companies getting into new markets is “natural” while for others it is quite challenging (Alon and Banai, 2000). Internationalization brings challenges to a firm in terms of where they are likely to invest, how to access the new market, the methods as well as the theories which the firm should make use of. While some of the firms might be forced to internationalize in the early phases of their operations as a result of saturated markets at home, others often choose to move abroad as a result of the available opportunities in those markets.
Irrespective of the motivations to move abroad, complex decisions are often involved in terms of evaluating the international opportunities, the threats, the problems in the foreign markets as well as risks; evaluation of the internal strengths of the firm and it’s weakness; definition of the scope of the firm in relation to the international business environment; developing of the firm’s objectives during internationalization and also development of particular strategies for the firm According to Wetherly and Otter (2014), there are a number of modes which a company can choose from, in the retail sector, acquisition, the joint venture and also franchising are the most common. However, risk assessment, evaluation of the control level as well as the return on investment is important considerations as well in terms of entry mode selection (Treisman, 2000).
Theories of internationalization
Multinational companies often produce their products in areas where it’s marketed; this is in contrast to deciding to produce in the home country and later exporting the product to the international markets (Alon and Banai, 2000). However, for internationalization process, some opt to export their produce before later concentrating on FDI as opposed to exporting their produce from the home country.
Internationalization and Dunning Eclectic theory
According to this theory, an international firm relies on the following conditions in a foreign country:
Tangible as well as intangible assets and also skills in order to ensure that they are competitive in the foreign country as the host companies have the knowledge and experience in the domestic market.
The success of the firm depends on producing in the host country instead of exporting goods from the home country.
Production through FDI should be considered profitable in comparison to selling, licensing skills or leasing.
Source: (Dunning, 1980)
According to Anderson (2003), changes in technology more so space shrinking technologies in terms of transport and communication are important in “internationalization of economic activity as well as the development and spread of multinational corporations”. This affects the level of foreign direct investment (FDI) in the emerging markets over the world. Buckley and Casson (2008) assert that the level of FDI growth has been high while barriers in trade have reduced at the same time.
The growth of financial products for example derivatives has resulted to augmentation of the global credit markets. This has made it possible for organizations to explore the international markets and achieve a competitive advantage.
Bzhilianskava and Pripisonov (2009) argue that internationalization process enables a firm to move from its local market to operate in the international market. Both internationalization and globalization have affected the operations of organizations, this is because they are required to make decisions on international market entry, the effect of their decisions and the process which is involved in operation in the foreign markets. Internationalization is a complex process and as a result, it needs assessment, global strategic planning and also creating a global vision for the organization and its brand (Gale, 2008).
So as to succeed in the international market and neutralize the advantages of the domestic firms, the use of private knowledge is