Contents.Entrepreneurs and enterprises Those entrepreneurs who are interested in the field of internationalization of business need to possess the ability to think globally and have an understanding of international cultures. By appreciating and understanding different beliefs, values, behaviors and business strategies of a variety of companies within other countries, entrepreneurs will be able to internationalize successfully. Entrepreneurs must also have an ongoing concern for innovation, maintaining a high level of quality, be committed to, and continue to strive to provide the best business strategies and either goods or services possible while adapting to different countries and cultures.Trade theories Absolute cost advantage (, 1776). Main article:Adam Smith claimed that a country should specialise in, and export, commodities in which it had an absolute advantage. An absolute advantage existed when the country could produce a commodity with less costs per unit produced than could its trading partner. By the same reasoning, it should import commodities in which it had an absolute disadvantage.While there are possible with absolute advantage, comparative advantage extends the range of possible mutually beneficial exchanges.

• Cost Drivers Of Internationalisation India

In other words, it is not necessary to have an absolute advantage to gain from trade, only a comparative advantage.Comparative cost advantage (, 1817). Main articles: andDavid Ricardo argued that a country does not need to have an absolute advantage in the production of any commodity for international trade between it and another country to be mutually beneficial. Absolute advantage meant greater efficiency in production, or the use of less labor factor in production. Two countries could both benefit from trade if each had a relative advantage in production. Relative advantage simply meant that the ratio of the labor embodied in the two commodities differed between two countries, such that each country would have at least one commoditiy where the relative amount of labor embodied would be less than that of the other country. Gravity model of trade (, 1954).

Main article:The Heckscher-Ohlin model (H-O model), also known as the factors proportions development, is a mathematical model of, developed by and at the. It builds on 's theory of by predicting patterns of commerce and production based on the endowments of a trading region.

The model essentially says that countries will export products that utilize their abundant and cheap factor(s) of production and import products that utilize the countries' scarce factor(s).The results of this work has been the formulation of certain named conclusions arising from the assumptions inherent in the model. These are known as:.Leontief paradox (, 1954). Main article:Location theory is concerned with the geographic location of economic activity; it has become an integral part of, and spatial economics. Location theory addresses the questions of what economic activities are located where and why. Location theory rests — like generally — on the assumption that agents act in their own self-interest. Thus firms choose locations that maximize their profits and individuals choose locations, that maximize their utility.Market imperfection theory (, 1976 &, 1969 &, 1971).

Cost Drivers Of Internationalisation India

Main article:In economics, a market failure is a situation wherein the allocation of or use of by the is not. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that can be improved upon from the societal point of view. The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian philosopher.Market imperfection can be defined as anything that interferes with trade. This includes two dimensions of imperfections. First, imperfections cause a rational market participant to deviate from holding the market portfolio. Second, imperfections cause a rational market participant to deviate from his preferred risk level.

Market imperfections generate costs which interfere with trades that rational individuals make (or would make in the absence of the imperfection).The idea that (MNEs) owe their existence to market imperfections was first put forward by, and Caves. Main article:New Trade Theory (NTT) is the economic critique of international free trade from the perspective of increasing and the. Some economists have asked whether it might be effective for a nation to shelter infant industries until they had grown to a sufficient size large enough to compete internationally.New Trade theorists challenge the assumption of diminishing returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries will then allow those sectors to dominate the world market (via a network effect).Specific factors model. Main article:The diamond model is an economical model developed by in his book The Competitive Advantage of Nations, where he published his theory of why particular industries become competitive in particular locations.The diamond model consists of six factors:. Factor conditions. Demand conditions.

Related and supporting industries. Firm strategy, structure and rivalry.

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Government. ChanceThe Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs. Diffusion of innovations (Rogers, 1962). Main article:The eclectic paradigm is a theory in economics and is also known as the OLI-Model. It is a further development of the theory of internalization and published by in 1993.

The theory of internalization itself is based on the. This theory says that transactions are made within an institution if the transaction costs on the free market are higher than the internal costs. This process is called internalization.For Dunning, not only the structure of organization is important. He added three additional factors to the theory:. Ownership advantages (trademark, production technique, entrepreneurial skills, returns to scale). Locational advantages (existence of raw materials, low wages, special taxes or tariffs).

Internalisation advantages (advantages by producing through a partnership arrangement such as licensing or a joint venture)Foreign direct investment theory. Main article:Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a (MNC).

In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The (IMF) defines control in this case as owning 10% or more of the ordinary shares or voting power of an firm or its equivalent for an unincorporated firm; lower ownership shares are known as. Monopolistic advantage theory. Main article:The monopolistic advantage theory is an approach in international business which explains why firms can compete in foreign settings against indigenous competitors and is frequently associated with the seminal contribution of.Prior to Stephen Hymer’s doctoral thesis, The International Operations of National Firms: A Study of foreign direct Investment, theories did not adequately explain why firms engaged in foreign operations.Hymer started his research by analyzing the motivations behind foreign investment of US corporations in other countries. Neoclassical theories, dominant at the time, explained foreign direct investments as capital movements across borders based on perceived benefits from interest rates in other markets, there was no need to separate them from any other kind of investment (Ietto-Guilles, 2012).He effectively differentiated Foreign Direct Investment and portfolio investments by including the notion of control of foreign firms to FDI Theory, which implies control of the operation; whilst portfolio foreign investment confers a share of ownership but not control. Stephen Hymer focused on and considered FDI and MNE as part of the theory of the firm. (Hymer, 1976: 21)He also dismissed the assumption that FDIs are motivated by the search of low costs in foreign countries, by emphasizing the fact that local firms are not able to compete effectively against foreign firms, even though they have to face foreign barriers (cultural, political, lingual etc.) to market entry.

He suggested that firms invest in foreign countries in order to maximize their specific firm advantages in imperfect markets, that is, markets where the flow of information is uneven and allows companies to benefit from a competitive advantage over the local competition.Stephen Hymer also suggested a second determinant for firms engaging in foreign operations, removal of conflicts. When a rival company is operating in a foreign market or is willing to enter one, a conflict situation arises.

Through FDI, a multinational can share or take complete control of foreign production, effectively removing conflict. This will lead to the increase of market power for the specific firm, increasing imperfections in the market as a whole (Ietto-Guilles, 2012)A final determinant for multinationals making direct investments is the distribution of risk through diversification. By choosing different markets and production locations, the risk inherent to foreign operations are spread and reduced.All of these motivations for FDI are built on market imperfections and conflict.

A firm engaging in direct investment could then reduce competition, eliminate the conflicts and exploit the firm specific advantages making them capable of succeeding in a foreign market.Stephen Hymer can be considered the father of international business because he effectively studied multinationals from a different perspective than the existing literature, by approaching multinationals as national companies with international operations, regarded as expansions from home operations. He analyzed the activities of the MNEs and their impact on the economy, gave an explanation for the large flow of foreign investments by US corporations at a time where they were incomplete, and envisioned the ethical conflicts that could arise from the increase in power of MNEs.Non-availability approach (, 1956). Main article:The non-availability explains international trade by the fact that each country imports the goods that are not available at home. This unavailability may be due to lack of natural resources (oil, gold, etc.: this is absolute unavailability) or to the fact that the goods cannot be produced domestically, or could only be produced at prohibitive costs (for technological or other reasons): this is relative unavailability. On the other hand, each country exports the goods that are available at home. Technology gap theory of trade.

Main article:The Uppsala model is a theory that explains how firms gradually intensify their activities in foreign markets. It is similar to the POM model. The key features of both models are the following: firms first gain experience from the domestic market before they move to foreign markets; firms start their foreign operations from culturally and/or geographically close countries and move gradually to culturally and geographically more distant countries; firms start their foreign operations by using traditional exports and gradually move to using more intensive and demanding operation modes (sales subsidiaries etc.) both at the company and target country level. Further theories Contingency theory. Main articles: andThe theory of the firm consists of a number of which describe the nature of the firm, company, or corporation, including its existence, its behaviour, and its relationship with the market.set out his transaction cost theory of the firm in 1937, making it one of the first attempts to define the firm theoretically in relation to the market.

Coase sets out to define a firm in a manner which is both realistic and compatible with the idea of substitution at the margin, so instruments of conventional economic analysis apply. He notes that a firm’s interactions with the market may not be under its control (for instance because of sales taxes), but its internal allocation of resources are: “Within a firm. Market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur. Who directs production.” He asks why alternative methods of production (such as the and ), could not either achieve all production, so that either firms use internal prices for all their production, or one big firm runs the entire economy.Theory of the growth of the firm (, 1959).

Main article:While at Johns Hopkins, Penrose participated in a research project on the growth of firms. She came to the conclusion that the existing theory of the firm was inadequate to explain how firms grow. Her insight was to realise that the 'Firm' in theory is not the same thing as 'flesh and blood' organizations that businessmen call firms. This insight eventually led to the publication of her second book, The Theory of the Growth of the Firm in 1959.See also.References.