Name: Yagya Raj Bhatt

Roll no.: 75341015

Why do business firms or industry go international?  How has IB contributed to development?
Discuss
Traditionally many companies have stayed focused in their domestic markets and have refrained from
competing globally. They know their domestic markets better and understand that they have to make
fundamental changes in the way they work to be able to compete globally. But increasingly companies
are choosing or are being forced to sell their products in markets other than their domestic markets. It has
become imperative for most companies to compete in foreign markets.
i. 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.
ii. ii. Domestic markets are small. Companies which have ambitions to become big will have to
look for bigger markets outside their boundaries.
iii. iii. 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.
iv. iv. 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.
v. 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.
vi. vi. 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.
vii. vii. 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.
viii. 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.
ix. 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.
Contribution of International Business to development
National Economy:

i. It is important to meet imports of industrial needs.

ii. Debt Servicing: This means to grant loan for and for their industrial development.
iii. For rapid economic growth.
iv. For profitable use of natural resources.
v. To face competition successfully-better quality goods production having lower or moderate
prices. To improve the image of the producer as well as of the country in the minds of foreign
customers.
vi. Increase in employment opportunities.
vii. To increase national income.
viii. Increase in standard of living of the people.

Exporting Firm:

i. Insufficiency of Domestic Demand: If the domestic demand for the product is not sufficient
to consume the production, the firm may take a decision to enter the foreign market. In this
way he can equalize the production and demand.
ii. To Utilize Installed Capacity: If the installed capacity of the firm is much more than the level
of demand of the product in the domestic market, it can enter the international market and
utilize its un-utilized installed capacity. In this way it can export the surplus production.
 iii. Legal Restrictions: Sometimes the Government of a country imposes certain restrictions on
the growth and expansion of certain firms or on the production and distribution of certain
commodities in the domestic market in order to achieve certain social objectives.
iv. Relative Profitability: The export business is more attractive for its higher rate of
profitability. The higher profitability rate also gives extra strength to the firm.
v. Less Business Risk: A diversified export business helps the exporting firm in mitigating the
risk of sharp fluctuations in the business activity of the firm.
vi. Increased Productivity: Due to certain social and technological developments the industrial
production has increased to a great extent. The production will be higher at cheaper rate. The
surplus production can be exported.
vii. Social Responsibility: In order to meet the social responsibility some business firms take the
decision to contribute to the National Exchequer by exporting their products.
viii. Technological Improvements: Technological improvements also attract the business firm to
enter foreign markets. It introduces new products with latest technological improvements and
faces the competition successfully in the international markets.
ix. Product Obsolescence: If a product becomes obsolete in domestic market it may be in
demand in International markets. The firm has to make a survey for introducing the product
in those markets
Other Points of View:

i. International Collaboration: Developed countries fix their import quotas for different
countries and for different commodities. A county can export various commodities to these
developed countries to the extent of its quota.
ii. International Business Brings Various Countries Closer: Better business relations are
established among the countries. Government and non-government business commissions or
business representatives visit other countries from time to time. The local representatives and
other related persons came into contact with foreign representatives and come to know their
habits and customs.
iii. Helps in Maintaining Good Political Relations: The economic relations between two
countries help each other to improve their political relations. Various countries having
different political ideologies import or export their products. To conclude it is now
undisputable that export business contributes to the national economy, national exchequer,
individual exporting firms and maintains international, economic cultural and political
relations among various countries. Countries have come closer on account of international
business.