Friday, February 13, 2009

Motives of Internationalization of Firms

Motives of Internationalization of Firms

The factors which motivate or provoke firms to go international may be broadly divided into two groups :
(1) Pull factors
(2) Push factors


(1) Pull Factors:

Those factors or forces which attract the foreign firms to do business in Foreign market are come under this categories. Such attraction include, broadly, the relative profitability & growth prospects. These are also called Proactive reasons. The followings are important Pull Factors :

(a) Profit Advantage : IB could be more profitable than the domestic. But if not profitable than Total Profit would be increase & thus it become again profitable.

(b) Growth opportunities:
· To increase sales
· To increase market share of the firms

(2) Push Factors:

It refers to the compulsion of the domestic market such as saturation of the market, which prompt companies to internationalize. These reasons are also called Reactive reasons. The followings are important push factors:

(a) Competition: Increase competition in domestic market is one of the main cause & consequences of globalization.
(b) Domestic market constraints:
· Surplus production in home market
· Decline the demand of the domestic product in the home market
· Small domestic market in size or limited home market
· To take the benefit of economies of scale by producing mass production
(c) Political Stability Vs. Political Instability

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