ECON616 - Analyzing Key Factors for Successful International Expansion

This report provides a detailed analysis of the factors influencing international expansion decisions. It covers legal, social, and cultural environments, highlighting the importance of understanding regulations, cultural distances, and psychic distances. The report delves into economic factors such as GDP per capita, inflation rates, unemployment rates, and interest rates, emphasizing their impact on production, demand, and investment decisions. It also explores economies of scale, efficiency gains through mass production, and the significance of SWOT analysis in evaluating internal attributes and external environments. The document further discusses market structures like oligopoly, monopoly, and perfect competition, along with the various risks associated with internationalization, including cross-cultural, commercial, financial, and political risks. Cost considerations, such as labor rates and production conditions, are also examined. The report concludes by emphasizing the importance of thorough market and financial research, as well as compliance issues, for successful international expansion. Desklib provides access to this and many other solved assignments.

International
Expansion: Factors to
Consider.

Introduction
 Careful analysis is required on the internal capabilities and external market
conditions influencing internationalization decisions
 Legal, social and cultural environment in the target country
 Economic environment of the target country including GDP, inflation,
interest rates and unemployment rates
 Economies of scale and efficiency
 Market structure in the domestic and global scene
 Risks involved in the external markets and
 The costs the firm is likely to face

Legal, social and cultural factors
 Consider the regulations of investment treaties, tax laws and
employment laws
 Also, the multilateral regulations between the local and target
country are crucial.
 The cultural distance and psychic distance

Economic factors
 The GDP per capita of the target countries
 Consider rates of inflation of target countries to make production
and decision flexibility possible in various target countries.
 Unemployment rates affects the demand in the target countries
 Interest rates affect the strength currency and foreign investment
decisions of the firm.

Elasticity of demand
 Demand elasticities affect the pricing strategies of firms
 The number of substitutes for the commodity sold by the firm is an
important consideration

Economies of scale and efficiency
 Internationalization increases economies of scale through mass
production
 Mass production lowers the marginal production costs
 Efficiency involves producing at the lowest possible average costs

SWOT Analysis
STRENGHTS
Opportunities THREATS
WEAKNESSES
EVALUATION OF A FIRM’S EXTERNAL ENVIRONMENT
EVALUATIONOF COMPANIES INTERNAL ATTRIBUTES
Grab, utilize and
Succeed
Eliminate, reduce and
(or)avoid
Utilize or develop further Develop into strengths
(Vahvaselkä , 2009)

Market Structure
 The market structures; oligopoly, monopoly, monopolistic and perfect
competition offers a glimpse of the degree of competition in the market
 Firms may decide to internationalize if they wish to join highly concentrated
markets
 Markets in oligopolistic market may strategically react to their competitor’s
move to internationalize.
 Additionally, the firms may internationalize if they want to evade harsh
competition in the domestic market

Risks Of Internationalization
Cavusgil,Knight,& Riesenberger( 2013), classify risks of internationalization into four
as shown below.
commercial
risks
Cross-cultural risks
Financial risks
Risks of internationalization Political risks

Risks (continued)
 Cross cultural sensitivities
 Political risks punctuated by unwelcome target market government
regulations

Costs
 The firm needs to venture into markets with cheaper labor rates
 Choice of external markets with cheaper production conditions as well as
other input costs lower fixed and variable costs
 Increasing the total output is possible if the firm expands into foreign
markets hence lowering the marginal costs
 Level of risks contribute to additional costs.

International expansion
 Market research
 Financial research
 Compliance issue

References
Cavusgil, S. T., Knight, G. A., & Riesenberger, J. R. (2013). A framework for international
business. New Jersey: Pearson.
Deuer, G. B. (2013). Factors that influence the internationalization decision in firms from
developing market context: case of Bolivian firms (Master's thesis, Universitetet i
Agder; University of Agder).Ferreira, I. P. (2015). Management consulting Winning
(Doctoral dissertation).

References (Continued)
Grøgaard, B., Gioia, C., & Benito, G. R. (2013). An empirical investigation of
the role of industry factors in the internationalization patterns of
firms. International Studies of Management & Organization, 43(1), 81-
100.
Kubíčková, L., & Toulová, M. (2013). Risk factors in the internationalization
process of SMEs. Acta Universitatis Agriculturae et Silviculturae
Mendelianae Brunensis, 61(7), 2385-2392.

References (continued)
Miller, L. R., (2012a). Economics today the macro view. 16th ed. Boston: Addison-
Wesley.
Miller, R. L. (2012b). Economics today the micro View. 16th ed. Boston: Addison-
Wesley.
Pakarinen, T. (2012). Internationalization and exporting opportunities to Denmark:
Case Urjalan Keinukaluste Ky.(Unpublished dissertation)Saimaa University of
Applied Sciences, Lappeenranta, Finland

References(Continued)
Vahvaselkä, I. (2009). International Business and Marketing. Helsinki:
Edita Publishing Oy.
Sayek, S. (2009). Foreign direct investment and inflation. Southern
Economic Journal, 76(2), 419-443.