Page 54 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 3: EXIM Strategies

The push factors refer to the compulsions of the domestic market, like saturation of the Notes
market, which prompt companies to internationalize. Most of the push factors are reactive
reasons.
Important reasons for going international are given below:
Profit advantage: International business could be more profitable than the domestic one.
Even when international business is less profitable than the domestic one, it could increase
the total profit. Further, in certain cases international business can help increase the
profitability of the domestic business. One of the important motivations for foreign
investment is to reduce the cost of production (by taking advantage of cheap labour, for
example).

Growth opportunities: MNCs are getting increasingly interested in a number of
developing countries as the income and population are rapidly rising in these countries.
Foreign markets in both developed country and developing country provide enormous
growth opportunities for firms of the developing country too.
Domestic market constraints: The market for a number of products tends to saturate or
decline in the advanced countries. This often happens when the market potential has been
almost fully tapped. In the United States, for example, the stock of several consumer
durables like cars, TVs, etc. the total number of household. Further, the technological
advances have increased the size of the optimum scale of operation substantially in many
industries making it necessary to have a foreign market, in addition to the domestic
market to take advantage of scale economies. Again, when the domestic market is very
small, internationalization is the only way to achieve significant growth. For example,
Nestle derives only about 2% of its total sales from its home market Switzerland. Similarly
with only 8% of the total sales coming from the home market, Holland, many different
national subsidiaries of the Philips have contributed much larger share of the total revenues
than the parent company.

Competition: Competition may become a driving force behind internationalization. A
protected market does not normally motivate companies to seek business outside the
home market. Many companies also take an offensive international competitive strategy
by way of counter-competition.

Government Policies and Regulation: Many governments offer a number of incentives
and other positive support to domestic companies to export and to invest in foreign
countries. Sometimes, as was the case with India, companies may be obliged to earn
foreign exchange to finance their imports and to meet certain other foreign exchange
requirements like payment of royalty, dividend, etc. Further, in India, permission to enter
certain industries by the large companies and foreign companies was subject to specific
export obligations. Some companies also move to foreign countries because of certain
regulations, like the environmental laws in advanced countries.
Monopoly power: Monopoly power may arise from such factors as monopolization of
certain resources, patent rights, technological advantage, product differentiation, etc.
Exclusive market information as knowledge about foreign customers, market places, or
market situations not widely shared by other firms.

Spin-off benefits: International business improve the image of the company. There is
white skin advantage associated with exporting, when domestic consumers get to know
that the company is selling a significant portion of the production abroad, they will be
inclined to buy from such company.
Strategic vision: The stimulus for internationalization comes from the urge to grow, the
need to become more competitive, the need to diversify and to gain strategic advantages
of internationalization.

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