Why do companies decide to internationalize their businesses? (reasons for internationalization)
As the economy becomes more globalized, companies are increasingly choosing to expand their existing operations beyond the borders of the country in which they started. The reasons for internationalization are varied, but four main ones stand out: market, costs, resources and politics.
Market motives involve attracting new customers and increasing own revenues. For this reason, the company undertakes expansion, especially when the economic conditions of the local market are unfavourable.
Another reason for internationalization is the optimization of production costs in order to increase profits. Through expansion, the company achieves economies of scale (a reduction in the average cost of production) and gains access to cheaper sources of raw materials and lower labor costs abroad.
Resource motives for internationalization are related to the tangible and intangible resources that guarantee presence in different markets. For example, a company, by expanding into highly developed countries, gains access to modern technology and highly qualified labor.
The political motive for a company's internationalization is to reduce the risks associated with political instability in a particular region by moving its operations to a country with more stable conditions. The company can benefit from lower taxes and more favorable regulations in a foreign market.