The funds invested in other nations” (Rugman

The globalization of our world has made it increasingly accessible for companies to internationalise. However, the push and pull factors which lead companies to expand to other countries are specific to the organisation itself. A company must have dynamic capabilities to successfully become a multinational enterprise. “Recent trends indicate many more small businesses are exporting, licensing or investing abroad before they reach six years of age” (Brush 1993). But why do firms want to go international in the first place? A general answer for this question would be the financial aspect of expanding a company, however this may not always be the case. The desires for every business differ, and the drive for success is something they all have in common. The United States, Japan, China and Switzerland are of the top nations to hold MNE’s or Multinational Enterprises (Rugman, 2012). This essay will discuss the main reasons why companies internationalise and the ways in which some do it. Reasons like first mover advantage, potential growth, and a small home markets are why firms move internationally and may form alliances in the process. Why firms internationalise: First Mover AdvantageForeign Direct Investment is “equity funds invested in other nations” (Rugman 2012). As well, control, risk and flexibility are common factors that companies analyze when entering a new market. The reasons companies internationalise are all specific to the business itself. This includes things like, first mover advantage, the potential for growth, small home markets, or to discourage local competitors. First mover advantage argues that there is an advantage if you are the first to act. This can be applied to real life situations like board games, but when applying it to a business model, it states that you can potentially earn a higher profit if you act first. When companies see opportunity that has not been taken by another business, they may act upon it. However, this has a much higher economic risk because it is unknown how that market will do as they are the first to enter it. Although, this give the company more flexibility with pricing, and makes other competitors that come after them adjust to what they have already established. For example, eBay was the first online auction site. This set up the blueprints for all other online auction sites from then on and still remains one of the most popular sites to buy and sell goods from others. Another example would be Kleenex, which became the first facial tissue in 1924. From then on other brands copied them, and used the same pricing in order to compete. As Kleenex was first, many people still use the name “Kleenex” when talking about any brand of tissue. Potential Growth: Another example of why a company would look to internationalise is for the potential growth it can gain from it. If a business stays within the same markets, it has little opportunity to grow and expand. National responsiveness, is “the ability of MNEs to understand different consumer tastes in segmented regional markets and to respond to different national standards and regulations imposed by autonomous governments and agencies” (Rugman, 2012). An example of this would be Airbnb, which started in California only ten years ago, but now has business in over 34,000 cities across the globe. Airbnb saw the potential it had and began catering to all cultures around the world. As it grew a major success in its home country of the United States, the company soon realised this service could be used all over the world, and so they expanded. Small Home Market: In the case of smaller, less populated countries, domestic businesses have a much lower number of potential customers. For this reason, a company may want to internationalise, not because they are looking to grow and expand their company necessarily, but because their home market is too small. To keep the business running, they need to be accessible to a wider market and by venturing into a neighboring country they can have access to a larger market. For example, if you were a business starter in Finland, with a low population density and only 260,000 people to potentially have as customers if you stayed domestically, you would look to expand your company internationally. This is especially so if your product is unique to your country, and attracts tourists to the product of your country. Diversification: Some companies like Dunkin donuts, are million dollar companies, but change and adapt when going internationally. This company has diversified their business in order to fit the needs of the host country’s preferences. For example, the Dunkin Donuts in Korea has a “grapefruit koolata”, and Russia’s “Duncalirs”, are different from that of the United States menus (Dunkin Donuts, 2009). Dunkin donuts is not afraid to adapt and change based on country. Meanwhile, this strengthened their international presence. Having cultural intelligence whilst diversifying your business is an important aspect. Using these integrative techniques allow businesses to be noticed in foreign countries, and cater to those who live there. Companies can have major success domestically but still can possess a demand for products internationally which causes the business to expand and diversify. How: Alliances Alliances are commonly used when expanding internationally because of its reliable and low risk taking properties. This “strategy is developed in unison and a win-win attitude is adopted by all parties; each prepared to share specific strengths with the other” (Rugman, 2012). Things like trust, understanding and communication are extremely important in these relationships because each company is relying on the other to make this partnership work and thrive (Rugman 2012). Cultural differences are a big factor when searching for a potential international alliance. Culture clash happens more often than companies think and the miscommunication that comes from it can lead to a poor alliance. Having dynamic capability shows a firm’s “ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments” (Rugman, 2012). The alliance between The Ericson (Sweden) and Microsoft (USA) was announced in December of 1999. This was an important alliance because it was said to “build, market and deploy solutions using Microsoft’s Window based platforms as well as Ericsson’s mobile Internet technologies” (Kang, 2000).Uppsala model:Businesses looking to internationalise often use the Uppsala model to help them. This model “argues that for firms to succeed abroad, they need to overcome the liability of foreignness, which can be defined as the extra cost of doing business abroad” (Almodovar 2015). The ‘psychic distance’ explains the Uppsala model as companies feel safer with foreign direct investment when the country has the same language, similar political system and similar culture. The Cultural Convergence, or the “growing similarity between national cultures, including beliefs, values, aspirations and the preferences of consumers, partly driven by global brands, media and common global icons” has made it easier and more accessible to even the smallest of companies to internationalise (Rugman, 2012). Licensing: Licensing is “a contractual arrangement in which one firm, the licensor, provides access to some of its patents, trademarks, or technology to another firm in exchange for a fee or royalty” (Rugman, 2012). Disney, is a prime example of a multinational enterprise that uses licensing to succeed. Companies like Primark, and Netflix sign licensing agreements with Disney in order to use their characters on shirts, or films on their website (Melanson, 2016). This way of expanding has low economic risk because Disney simply gives rights to a company to use its name. Generally speaking, this method is used between a company, like Disney, who has already established themselves globally and another company who would like to use the benefits of the name to gain profit. Conclusion The internationalization techniques discussed allow companies to succeed in a multinational environment. First mover advantage allows companies to have the upper hand and have more control. Businesses in smaller countries may expand internationally because of their small home market, and in order to reach more customers, they need to become multinational. Expanding a business means there is a potential for growth and new customers, which is a reason why many companies have internationalised. As well, diversifying the business allows for creativity and adapting to new cultures as a challenge for businesses. While using licensing, and forming alliances, companies can expand internationally with a lower economic risk. Some companies go into business with a geocentric predisposition for various reasons, and using these methods can help them achieve their goals.