How do firms make location decisions when internationalising? What factors do they have to consider and what academic theories have been developed to explain this?
This essay will determine how firms make locational decisions and identifying key factors that can affect their choices and academic theories to support the claims. We will first be understanding why firms want to internationalise, which will be vital for the essay because If we do not considerate the reason behind firms wanting to internationalise we cannot identifying factors that will affect their decision making as firms may have different needs to satisfy from foreign markets that affect their location decision. We will be considering the factors by looking at the proactive and reactive motives for internationalising; this shows us key components in the process of firms making location decisions. Once identified the internal and external factors they have to consider, it will go on to mention key academic theories to support these factors.
Internationalisation is viewed as the process in which “the firm gradually increase their international involvement” (Buckley and Ghauri, 1993). Looking at the possibilities of entering new foreign markets ways from the confined space in their current domestic markets. The new markets can allow firms to extend product life cycle, by re-establishing the product or service to other markets, some modification may be required to suit specific lifestyle to the foreign market. This has been successful for companies like Gillette, Sony and Biogen as they earn more than half of their sales figures from international markets (Cavusgil, Knight and Riesenberger, 2016). Fundamentally the main objective of internationalising is to generate more sales, by exporting their product aboard reaching millions of other potential consumers, resulting in higher profit. However, this factor is hardly a reason for firms to take such an enormous leap. Internationalising is profitable if done right however if the firm is unsuccessful may result in a huge loss. There two categories firms consider Proactive motives which focus the competencies another markers offers such as technological knowledge. Secondly, the reactive motives that consider the current threats in the home market.
Understanding the proactive motives will help us determine what location is appropriate for the firm to internationalise to meet their organisation goals, also what factor that could effect their decision. REACTIVE MOTIVES
· Competitive pressure
· Declining domestic sales
· Excess capacity
· Proximity to international customers/psychological distance
Source: (Morrison, J., 2009). PROACTIVE MOTIVES:
· Profit and growth goals
· Managerial urge
· Technology competence/ unique products
· Foreign market opportunities
· Economies of sales
· Tax benefits
Firstly it needs to be a market that has shown potential growth or stability for the firm to make a prof...