Why firms go international? Essay
Why firms go international?
There are many reasons can promote firms go international, includes the domestic market saturation, end of PLC in domestic market, geographic diversification, to gain the economies of scale, stiff competition in domestic market and absence of competitors overseas etc. 1. Some firms go international in order to gain the economies of scale. As a research has pointed out that a doubling of output can reduce the production costs by up to 30 per cent. This is very obvious in Japan, because most of Japanese industries are supported or owned by banks or other financial institutions with a much lower costs of capital. What is more, unlike the variable labour costs in the west, labour cost is regarded as a fixed expense in Japan because of the lifetime employment system. Thus, the only way to increase the productivity rapid for Japanese industries is increase the volume of products when the salary is a fixed amount. So expand their business abroad is a good way to raising the number of products.
2. Domestic market saturation, absence of competitors overseas and emergence of new market are the major motivations for firms to go abroad. Let us take KFC as an example. There are many kinds of fast food restaurant in United States of America as fried chicken and hamburgers are the main food for American, so the competition is very stiff in domestic market and it is almost saturated- there are enough fast food brands to meet people’s need in fried chicken and hamburgers. In order to make more profit, KFC decided to enter China’s market as there was no competitor and the main food for Chinese is rice. Then KFC became the first and now the biggest fast food chain restaurant in china.
3. Another main reason for firms to go international is the lower costs in foreign countries. According to the political and the employment environments, the labour is cheaper in Asia than in Europe or US, labour is cheaper in developing countries and less developing countries. So many companies choose to own industries or form a joint venture with local firms in these countries. For example, almost all of the products of Apple are made in china and designed in California, many clothes in ZARA are made in Morocco, China, Vietnam, etc. In one word, the ultimate goal for firms to go international is to make more money.
Components of culture and how it can affect marketing activities? Culture includes: aesthetics, attitudes and values, social structure, education, language, religion, personal communication, physical and material environment. A good understanding of these issues can help you know more about customers’ buying behaviour and then plan an appropriate marketing strategy. The average level of education in a society affects the interests and sophistication of customers. For example, in a community in which a high percentage of potential customers have some form of post-secondary education, firms owners prefer to use more details and explanations while advertising or promoting products. As a part of culture, social organization is a way a society organises itself, how it consider kinship, status system, social institutions and interest groups.
For example, the role of women in a society, whether they were a decision-maker in shopping. A major interest group in area can also influence the society, such as oil industries in Texas. The marketing of a firm can be successful by building their advertising strategies on women, a specific interest group, or a leader who has the biggest influence in a community. A person’s role in society and social status can affect people’s buying behaviour. Everyone plays a dual role in society depending on which group he/ she belongs. For example, an individual working as a president in a reputed company can be someone’s wife or a mother. Social status is also a relevant factor: an individual from upper-middle class might purchase luxurious products while people from lower income group prefer the items just required the basic needs.
Knowing the income information of your potential customers can give the firm an edge on know more about customer habits and implement a successful marketing strategy. Hofstede Framework and High-context & Low-context are two methods to analyse the foreign culture. There are five dimensions in the Hofstede Framework: individualism and collectivism, power distance, uncertainly avoidance, masculinity and femininity, long-term and short-term orientation. As for the long-term and short-term orientation, long-term oriented culture focus on saving for or investing in future while short-term oriented pay more attention on instant pleasure and quick result. Therefore, a long-term oriented advertisement would like to use “saving energy for your country”, but words like “buy it now”, “do not wait” are often used in short-term oriented advertisements.