Internationalization is the process where a domestic firm try to expand its reach and wants to spread its roots outside the home country , that is the firm wants to go global.But before taking the firm to a different country it is very important that you know the market of that country and also are aware at what time to enter the market of that country. Early entry into the foreign market, that is if the firm is the first one to move international from the domestic market, then it can have following advantages :-
- the firm can have economies of scale since it is the first one and this would lead to cost advantage
- the firm would be able to secure a geographical space or the marketing channel
- the firm would also benefit from the technological advantage since it would be first to use the technological innovations earlier to that of the competitor’s.
- differentiation advantage as there would be reputational advantage for the established brands
apart from the above advantages there are also some obstacles that are faced by the firms in the process of internationalization. Some of the obstacles are discussed below :-
- Liability of foreignness. Since the firm would be new to the country therefore it would face difficulty in understanding the rules and norms of the country also will face problems in understanding the culture, religion, language and politics and there are chances that it could lack the chances of operating successfully in the foreign country.
- Liability of expansion. Since the firm would be new to the country and has no network maintained, therefore the firm would face problems of transportation, communication and co-ordination because of expansion, but such type of problem is mostly faced by the multinational firms because of high cost of coordination.
- Liability of smallness. This is mainly an obstacle for the small and medium sized firms since they would have fewer number of resources to make investment in the foreign market and hence they would lack in proper human resource, number of potential buyers and no contact with the foreign government.
- Liability of newness. Since the firm is entering a entirely new market it could also deal with the disadvantage of being compared with already established firms because they lack in experience and also lack resources that are required in the foreign market.
There are different entry modes through which the firms can enter the foreign market these
are : –
- Mergers and acquisitions
- Joint ventures
- Wholly owned subsidiaries
- Strategic alliances