Push and pull-factors involved in Internationalisation of business / Highlight the motives of international business / reasons for entering into International Business.
Pull Factors
Motives of International Business
The pull factors are those forces of attraction, which pull the business towards the foreign market or, companies are motivated to internationalise due to the attractiveness of the foreign market which includes the relative profitability and growth prospects. The following are some of the important Pull.
Factors: 1. Growth: Firms enter international markets when the domestic market potential saturates and they are forced to explore alternative marketing opportunities overseas.
2. Profitability: The price differences among markets also serve as an important incentive to internationalise. An important incentive for international business is also the profit advantage. International business could be more profitable than the domestic.
3. Risk Spread: A company that operates in domestic markets is highly vulnerable to economic upheavals in the home market. But oversease markets provide an opportunity to reduce their dependence on one market and spread the market risks.
4. Achieving Economies of Scale: Large-scale production capacities necessitate domestic firms to dispose off their goods in international markets once the domestic markets become saturated. The basic reasons behind this internationalisation of Great Britain during the Industrial Revolution was domestic market saturation.
5. Emergence of WTO: There are a number of friendly and neighbouring countries which enter into trade agreements to develop trade.
6. Unifying Effect and Peace: Two way business help development activities and economic growth. Business develops long lasting relationships of trust and thus a feel good factor.
7. Access to Imported Inputs: The national trade policies provide for import of inputs which are used for export production, that are otherwise restricted. Also there are a number of incentive schemes that provide duty exemption or remission on import of inputs for export production, such as advance licensing, duty-drawback, duty exemption, export promotion, capital goods scheme.
8. Economic Integration and Free Markets: The growth of liberalisation is seen in opening of free markets. There is movement in goods and services from country to country and companies look for growth opportunities in free markets.
Push Factors
The push factors refer to the compulsions of the domestic market such as saturation of the market, that prompt companies to internationalise. The followings are some of the important push factors
1. Resource Utilisation: New industries are developed where resources are readily and abundantly available which reduces considerable transport costs of raw materials.
2. Spreading R & D Costs: A firm recovers quickly the costs incurred on research and development by way of spreading the potential market size. This is especially true for products involving higher costs of R & D, where use of price skimming strategies necessitate faster recovery of costs incurred.
3. Marketing Opportunities Due to Life Cycles: Each market shows a different stage of life cycle for different products, that varies widely across country markets. When a product or a service gets saturated in the domestic or an international market, a firm may make use of such challenges and convert them into marketing opportunities thereby operating into international markets.
4. Uniqueness of Product or Service: The products with unique attributes are unlikely to meet any competition in the overseas markets and thus enjoy enormous opportunities in international markets.
5. Competition and Costs: Competition may become a driving force behind internationalisation. The economic liberalisation, that has increased competition from foreign firms as well as from those within the country, have, significantly changed the scene.
6. Government Policies and Regulations: Government policies and regulations may also motivate internationalisation. There are both positive and negative factors that could cause internationalisation..
7. Quality Improvement: Larger markets and improved margins help large investments in quality improvements, which include better equipments training and adopting quality systems.
