Internationalization Strategy

Internationalization Strategy

DOI: 10.4018/978-1-7998-2007-9.ch001

Abstract

This chapter, devoted to the theoretical framework of internationalization strategy, intends to perform a reflection on its main theories and studies. The authors discuss the main motivations that firms face to internationalize their activity as well as the aspects related to the success of approaching new markets. Then it also characterizes the main risks associated with the decision of internationalization and international trade. The authors will also present developed tools to support the two starting decisions that companies face in this type of projects: where and how to internationalize. They also intend to go into the decision of direct investment in international markets, providing knowledge about different perspectives, as several empirical studies show a more detailed vision of this strategic option and its main financial impacts on business. Finally, it discusses the main conclusions about the relation between internationalization and the performance of companies.
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Introduction

Products, services, currencies and cultural values are constantly changing, moving restlessly around the world, from Continent to country, from city to village and from group to person. What was once considered as a foreign issue is now considered ours.

In our daily routines, we handle with products and services of various nationalities, from clothing and food that we consume, to the most sophisticated technological equipment. Indeed, gone are the times where organizations worked only for domestic markets and faced only national competitors. Organizations are changing worldwide. Nowadays, we live in a so-called knowledge society, with instant communications and global businesses, where changes occur so rapidly that are imperceptible.

As such, today we face a global market, characterized, in the first place, by many companies offering similar or equivalent products, and secondly, by a more exigent demand that is increasingly looking for differentiating factors in the consumed products. Thus, it is not surprising that choice constraints, such as price, are being replaced by certified quality, ecofriendly label, design, technical assistance expertise, packaging, branding, etc.

This competitive reality required a major change in the organizations’ activities. In fact, modern managers focus their attention on the market, its players and business’ critical factors. This is because the company is an open system constantly interacting with the environment where it operates.

Nowadays, business success depends on customer value’ creation, as well as on the strength of the relations with the various actors upstream and downstream, and also on operational and strategic inefficiencies’ elimination, as both contribute to lower competitiveness. As such, there is a relentless pursuit of competitive advantages’ achievement, through either product differentiation or process efficiencies.

Thus, new business context is an assiduous challenge to the organizations, due to players’ very different skills, which could jeopardize the competitive advantages established over time.

However, this new scenario that allows goods, people and capital to move easier around the world, also represents the emergence of numerous opportunities for companies in different countries to reach new markets, more attractive and with higher growth rates, allowing them to develop business and strategic partnerships previously unreachable by distance and by domestic focused markets management. In this sense, the use of such opportunities also enhances companies’ size and competence increase, which strengths the creation of sustained competitive advantages.

This chapter, assigned to theoretical framework of internationalization strategy, intends to perform a reflection on its main theories and studies.

We discuss the main motivations that firms face to internationalize their activity, as well as the aspects related to the success of approaching new markets. Then, it is also this study’s intention to characterize the main risks associated with the decision of internationalization and international trade.

Furthermore, the decision of internationalization also implies greater financial needs. Then, we will present some financial instruments that could leverage the activity of enterprises in international markets. We will also present developed tools to support the two starting decisions that companies face in this type of projects: where to and how to internationalize.

Crossing markets’ attractiveness with organizations’ expertise leads us to discuss the existence of a logical internationalization “by stages”, and the forms of approach to new foreign markets – exports, projects’ development, whose achievement is limited in time – or permanent presence in target markets. Usually, the latter option represents bigger investment and therefore greater risks. Therefore, we also intend to go into the decision of direct investment in international markets, providing knowledge about different perspectives, as several empirical studies show a more detailed vision of this strategic option and its main financial impacts on business.

Finally, it will be discussed the main conclusions about the relation between internationalization and the performance of companies.

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