REASONS FOR ENTERING INTERNATIONAL MARKETS (IM 20 Aug 2020)

REASONS FOR ENTERING INTERNATIONAL MARKETS

1. Domestic Market Saturated: Domestic markets are saturated and there is pressure to raise sales and profits. Most companies have very ambitious sales and profit targets. If such figures have to be realized, companies have to move out of their domestic markets.

2. Domestic Market are Small: Companies which have ambitions to become big will have to look for bigger markets outside their boundaries.

3. Slow Growth of Domestic Market: Domestic markets are growing slowly. Most companies are no longer content to grow incrementally. If such companies have to achieve high growth rates, they have to obtain some of their sales from international markets.

4. Suppliers follow their Customers Internationally: In some industries like advertising, customers want their suppliers to have international presence so that suppliers can contribute in most of the markets where the buyer is operating. For instance, a multinational will choose an advertising agency which has a presence in all the markets where the multinational is selling its product. The customer does not want the hassle of hiring a separate advertising agency for each of its markets. This process will be replicated in more industries.

A multinational company seeking materials and equipment’s would want its supplier to supply to all its international manufacturing locations. The supplier is forced to develop competencies and resources at many international locations to be able to serve the international manufacturing locations of its buyer.

5. Competitive Pressures: Some companies will have to move out of their domestic markets when their competitors have done so, if they want to maintain their market share. If the competitor is allowed to pursue its international growth alone, the competitor is likely to plough back some of the earnings from its international operations to the domestic market, making it difficult for the companies which refrained from pursuing international markets, to focus on the domestic market. In other cases, a domestic player would start operations in the home country of its global competitor, to divert the attention and resources of its competitor towards operations at home to safeguard its home market.

6. Attractive Cost Structures Globally: Developed markets have high cost structures and companies may move their operations to regions and countries where costs of production are lower. Once a company starts operating in a geographical region, it becomes easier and profitable to market their products in that area.

7. Growth Rate and Potential: Countries and regions are at different stages of development, and their growth rates and potential are different. Companies do not like to concentrate all their efforts in limited regions and want to spread out their risk. Such companies will look for markets which are likely to behave differently from their existing ones in terms of economic parameters like growth rate, size, affluence of customers, stage of market development, etc.

A company would not like all its markets to be under recession or inflation simultaneously, and would not like all its markets to be in mature stage, or in growth stage. Having different type of markets will make revenues and profits more consistent. The investment requirements would also be more balanced.

Even if a company decides to concentrate on its domestic market, it will not be allowed to pursue its goals unhindered. Multinational companies will enter its market and make a dent in its market share and profit. The company has no choice but to enter foreign markets to maintain its market share and growth.

8. Compete Successfully in Domestic Market: Companies are realizing that it is no longer an option to stay put in one’s domestic market. The ability to compete successfully in domestic markets will depend upon their ability to match the resources and competencies of multinational companies, with whom they have to compete in their domestic markets.

And once they decide to take on the multinational companies on their home turf, they have to improve their resources and competencies to be able to match those of the multinational companies. They will also learn about the ways of operation of multinational companies. This experience will be helpful when they have to protect their domestic markets against the multinational companies.

The boundary between a company’s domestic market and other markets is getting blurred. Only a company which is internationally competitive can protect its domestic market. No market is or will be protected from incursion by multinational companies. A company’s only choice is to go global, even if its prime interest is to protect its domestic turf.