Operating Objectives Influencing Internationalisation
According to Daniels and Radebaugh, 1998 there are four major operating objectives that may influence companies to engage in international business:
1. To expand sales- sales depend on customers' interest, willingness and ability to buy companies' products. However, the amount of purchasing power in one country is limited. Therefore expanding sales across borders helps to increase revenues and consequently profits. Many of the largest companies derive over half of their sales from outside their home country.
2. To acquire resources- to secure resources companies may engage in the worldwide exploration, possessing, transportation and marketing of raw materials. The potential benefits of this practice are clear: either the profit margin may be increased or the cost saving may be passed on to consumers, who will internally by more products. Sometimes a company buys abroad in order to acquire a service or raw material not available in its home country. Other resources a company tries to gain may be intangible such as technology, knowledge, expertise, etc.
3. To diversify sources of sales and suppliers- to help avoid wild swings in sales and profits companies seek for alternative resources of supply. Many companies take advantage of the different timing of business cycles in various countries. Recessions and expansions differ among regions and countries and skilful managing helps to avoid sales decrease. Additionally, obtaining supplies of the same product or component from different countries diminishes the impact of price swings or shortages in any given country or region.
4. To minimise competitive risk- many companies move internationally for defensive reasons. They seek to counter advantages that competitors might gain from foreign operations because such advantages could be used against them domestically. By spreading sales over more than one foreign market, a producer might be able to minimise the fluctuations in demand. Another factor in spreading risk is that through dealing with many foreign markets a company develops more customers, thereby reduces its vulnerability to the loss of a single customer.
Bartlett & Ghoshal, 1989 support this way of thinking and state that the search for resources, markets and cheap labour had motivated the overseas expansion of most worldwide companies and shaped their attitudes of their managers.