Internationalisation of Companies

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Internationalisation of Companies

Postby Anup V » Fri Jul 13, 2012 12:56 am

Since the disintegration of the Soviet Union all conditions and principles for doing business in the area have changed. The shift from a planned economy to a market economy is connected with rapid and basic changes in political, social, economic and technological conditions. The Baltic countries Estonia, Latvia andLithuania are going through a gradual transition and the decrease of central economic power leads to the liquidation of state monopolies. The markets of the Baltic is giving great opportunities for Western European companies since the Baltic is a good springboard to themore Eastern European markets, which consists of over 400 million possible customers.The Baltic countries is not a homogeny group, they have different language, culture and history. Western European companies need to be aware of this facts if they are going to become successfl with their establishments. The Western European companies choose different entry modes in order to fulfil their international ambitions. The entry mode signals to host governments and to competitors the companies ambitions in the hostcountry. For the majority of companies the most significant international marketing decision they are likely to take is therefore how they should enter new markets.

The purpose of the study is to explain how foreign companies strategies theoretically match the Baltic countries strengths and weaknesses and what kind of entry modes provides a good match between the investor´s strategy and the local attractiveness.

The countries of the former Soviet Union offer Western firms cost advantages, in terms of cheap labour, raw materials, energy and services, unutilised production capacities, a potential of highly qualified technical and executive employees and European like consumer behaviour. The companies that invest in the Baltic region are also attracted by the size of the markets in Eastern Europe. Foreign companies put up production facilities in the Baltic countries in order to supply the European market and the potentially growing post Soviet markets, based on the availability of a skilled labour force and relatively low labour costs. Another reason for considering the Baltic countries is that companies are heavily dependent of good transport and communication infrastructure in order to meet their customers requirement of fast deliveries

The Internationalisation Process

The internalisation process is manifested in a number of different ways. It can be seen in the establishment of foreign subsidiaries, in international joint ventures, in licensing agreements, in international advertising campaigns, in international trade, exhibitions and a multitude of other events and traditions. In studies concerning the internationalisation of the firm, development is often seen as a process, in which the enterprise goes through phases of development that successively leads to increased market knowledge and knowledge of different establishment possibilities, this process is called the internationalisation process

The explanations of the internationalisation process of the firm have been made from micro economic and from a macro economic point of view. Dunning´s approach called the “Eclectic approach” state that the company will do a FDI if three conditions are satisfied.

1. The firm possesses firm-specific advantages vis-à-vis firms of other nationalities in serving particular markets. This means firm-specific advantages that take the form of intangible assets, know-how of technology and management or marketing.

2. It must be beneficial for the company that possesses such assets to internalise them through the extension of its own activities rather than externalise them through licensing and similar arrangements with independent firms.

3. It must be profitable to utilise the advantages in conjunction with at least some factor inputs located outside the company’s home country

Author: Neil Yman, Avdelning, Institution Division, Department Ekonomiska Institutionen 581 83 LINKÖPING

Anup V
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