Methods and driving forces of the internationalization...

Methods and drivers of internationalization of business

Considering the reasons why the company internationalizes its business (whole or in part), it is appropriate to ask what methods can be used by the company to penetrate the foreign market?

In general, there are three main forms of international competition, depending on where the production is located: domestically or abroad.

The first and the simplest form is the production of goods and services in the domestic market and their export to foreign markets.

The second form of international competition is the transfer of production of goods and services to the foreign market on the basis of an agreement with an independent local company. There are different types of such contracts, but they all basically fall into one of the following categories:

- technological license;

- Franchising;

- maintenance agreement;

- management contract;

- contract turnkey & quot ;;

- the international contract of the contract;

is a contractual joint venture.

These contracts are usually concluded for a certain period with restrictions on the use of technology by one of its participants.

Under conditions of the third form of international competition, goods and services of an international company are produced in a foreign market, but this production is carried out by a legal entity that includes the international company under consideration, which owns a controlling stake (not less than 10% of shares). Such ownership of property, which provides control over the management of assets, production volumes, financial flows and decision-making processes regarding foreign operations, is regarded by international standards as foreign direct investment.

The main characteristics of the above methods of internationalization of the company's business are given in Table. 15.1.

Table 15.1 . Typology of ways of internationalization of business

Collaboration Form

Key Features

time limit

volume of transfer of rights and resources

how to transfer rights and resources

Foreign subsidiary wholly owned by the parent company


As a rule, the whole volume


Joint-stock joint venture




Foreign participation in the capital of the company

- || -


- || -


Limited by the terms of the contract





Wide, including support


Management contract

- || -


- || -

Contract turnkey

- || -


- || -

Contractual Joint Venture

- || -



International Contract Contract

- || -



The main driving forces of the growing process of internationalization of business at the moment are:

■ the lack of national natural resources in some countries and favorable for the organization of production of natural conditions in others;

■ worsening competition in national markets, which become sluggish as they become saturated with homogeneous products;

■ the opportunity to reduce the costs of production and marketing by attracting cheaper labor and "human capital" so-called host countries, as well as the use of foreign capital, technology and management experience of companies;

■ use of additional ways and opportunities to increase the competitiveness of their exports in the face of growing competition in world markets;

■ reducing the costs associated with national government regulation, such as taxes, the costs of environmental measures to achieve compliance with environmental standards, etc .; ■ using international business opportunities to reduce companies' losses from government regulation in the host country: redistribution of component manufacture in foreign enterprises, transfer prices and other measures to overcome customs barriers and trade restrictions in host countries; ■ growing uncertainty in the long-term demand for goods, as well as other numerous economic and political risks;

■ the ability to use foreign industrial infrastructure, as well as foreign exchange resources of other countries.

The increase in the internationalization of business is also facilitated by such secondary factors as:

■ Internationalization of capital, which is a process of interweaving and unifying national capital, manifested in the ever-increasing migration of capital between countries;

■ internationalization of scientific and technical research - combining the efforts of different countries for scientific research, realized through international trade in patents and licenses;

■ a worldwide flow of information on scientific and technological developments in all sectors of the economy and technology;

■ Improving communication and transportation facilities, allowing companies to respond quickly to customers' wishes in other countries, to the maximum extent satisfying their needs.

The development and combination of economic factors, such as:

- a high level of the international division of labor;

- accumulation and concentration of capital;

- specialization and co-operation of companies on an international scale

- accelerated formation of the world market;

- outperforming the growth rates of foreign trade and foreign direct investment in comparison with the dynamics of industry development.

Thus, the internationalization of the world economic system is an objective economic process of the emergence and development of links between national economies of different countries. Its impact on the world economic processes is now complex and covers practically all subsystems of the world economy and all countries.

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