The Expansion Process of a business into a New Region or Country
There are several factors that can contribute to any business’s decision to venture into foreign markets. The primary motives to do so include: opportunities for profit-making, the possibilities for the expansion of the business, the prospects of the business gaining international reputation and to take advantage of the competitive advantage offered by international expansion over its rivals (Harrison, 2011).http://sherlockessay.co.uk/dissertation Other factors include; the changing international economic environment, country-specific factors and firm specific factors (Bank of America, 2009). The process of business expansion into a new region or country (herein referred to as globalization) is based on these factors.
Business globalisation is a process. A single factor or a combination of any of the above factors does not merely guarantee a firm to globalise. It must follow a well defined process for its globalisation bid to be successful, otherwise it might fail terribly. The first step of the process is for the firm to make sure it has gained a competitive edge in the domestic market through its organisational capabilities and resources; managerial, technological and financial (Kim, 2010). This will enable the firm to have a competitive advantage in the domestic market, consequently resulting to the saturation of the domestic market; whereby supply exceeds demand. This signifies a ripe stage for the firm to venture into foreign markets in other countries and regions. This is important for the firm as it cushions it from the growth-pull effect in its global strategies (Patel & Vega, 1999). At this point, the firm’s globalization motive (either profit-oriented or growth) will determine the countries of choice into which it is to roll its operations. For firms with growth-oriented strategies, developing countries are more preferable to the developed ones (because it is relatively cheap to acquire capacity in the developing regions of the world than in the developed ones) whilst firms with profit-oriented approaches, more advanced foreign markets are more preferable to the developing ones (Kim, 2010).
At this point, a globalizing firm must take into account the following factors: legal considerations in the host country (foreign management and ownership restriction, licensing requirements for foreign investors, enforceability issues, collateral security and other related issues, labour and employment laws, data privacy and protection laws, export control, regulations and related laws, financing product offerings and other limitations), tax considerations and finally, funding and entity choice considerations (McCarthy & Fontana, 2005). Next, the firm must take into account its failures and successes in its past globalization attempt, if any, and learn some few lessons from them. For those firms whose past globalization failed, it is advisable for them to roll out their international expansion bid in a more gradual and cautious way unlike those with more success and less failures that can embrace their past strategies that worked and re-use them (Kim, 2010). Finally, the globalizing firm must improve its managerial and organisational structure to meet the expanding physical capacity need in the global current market (McCarthy & Fontana, 2005).