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Why Firms Go International

The factors which motivate firms to go international may be broadly divided into two groups, viz., the pull factors and push factors. The pull factors, most of which are proactive reasons, are those forces of attraction which pull the business to the foreign markets. In other words, companies are motivated to internationalize because of the attractiveness of the foreign market. Such attractiveness include, broadly, the relative profitability and growth prospect.

The push factors refer to the compulsions of the domestic market, like saturation of the market, which prompt companies to internationalize. Most of the push factors are reactive reasons.

Important reasons for firms involved in exports and imports are discussed below:

Profit Motive

One of the most important reasons of internationalization of business is to earn profit. Often it has been found that international business could be more profitable than selling in the domestic market.

One of the important motivation for foreign investment is to reduce the cost of production by taking advantage of cheap labour input or raw material.

Growth Opportunities

The growth potential of many foreign markets is a strong attraction for foreign companies. In a number of developing countries both the population and income are growing fast. It may be noted that the several developing countries, the newly industrializing countries (NICs) and the Peoples’ Republic of China in particular have been growing much faster than the developed countries.

Domestic Market Constraints

Domestic demand constraints drive many companies to expand the market beyond the national border. The market for a number of products tend to saturate or decline in the advanced countries. This often happens when the market potential has been almost fully tapped. Another type of domestic market constraint arises from the scale economies. The technological advances have increased the size of the optimum scale of operation substantially in many industries making it necessary to have foreign market in addition to the domestic market, to take advantage of the economies of scale. It is the thrust given to exports that enabled certain countries like South Korea to set up economic size plants.

Domestic recession often provides companies to explore foreign markets.


Competition may become a driving force behind internationalization. A protected market does not normally motivate companies to seek business outside the home market. The economic liberalization in India since 1991 has increased competition from foreign firms. Hence many Indian companies are now going international in a bigway.

Government Policies and Regulation

Many governments give number of incentives and other positive support to domestic companies to export and to invest in foreign countries. Sometimes companies may be obliged to exam foreign exchange to finance their imports and to meet certain other foreign exchange requirements like payment of import bill, payment of royalty and dividend and deby. Some companies (particularly in developed countries) move to foreign countries because of certain regulations like the environmental laws.

Spin-off Benefits

International business helps the company to improve its image. International marketing may have pay-off for the internal market too by giving the domestic market better product. Further the foreign exchange earning may enable a company to import capital goods technology etc. Another attraction of exports is the economic incentives offered by the government.

Strategic Vision

The systematic and growing internationalization of many companies is essentially a part of their business policy or strategic management.

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