International Business

International Business

There are various circumstances that can cause a domestic firm engage in international business. The motives for engaging in international trade is categorized into either reactive or proactive. Reactive motives occur when a company engages in international trade to respond to a problem such as competition. A proactive motive is whereby a company goes to international business to take opportunities before competition or other factors push the company to these markets.
A domestic firm can internationalize to pursue opportunities for growth. The international market can have many customers who would consume a firm’s products, therefore, resulting in the tremendous growth of the company. The other reason to internationalize is to maximize profits by serving the global market. A company can also internationalize to use cheap and better factors of production that are present in a certain country. Other companies relocate to ensure that they serve their customers who have relocated to international locations. Further, companies also venture into the international business so that they can build lasting relationships with their partners including joint ventures and alliances. According to Johanson (2015), companies also internationalize to boost their competitive advantage so that they can be in a position to compete with other companies.
There are two factors that are especially relevant to internationalization compared to others. These factors are profits and competitive advantage.

These factors contribute mostly to why companies internationalize. There are various reasons as to why a large and profitable domestic company can choose not to internationalize. There are many risks associated with internationalization including currency risks, cross-cultural risks, commercial risks, and country risks (Cavusgil, 2016).
Cultural misunderstanding can cause such a domestic company fails to internationalize. Currency risk concerns financial risks that can occur due to instabilities in exchange rates. Country risk occurs when a company’s profit and operations are at risk due to political, economic environment as well as the legal issues. Commercial risk can also prevent such a domestic company from engaging in international business. Commercial risk occurs when a company implements tactics, procedures, and strategies that lead to losses (Verbeke, 2013).
References
Cavusgil, S. T. (2016). International business: The new realities, student value edition. Prentice Hall.
Johanson, J. &. (2015). Internationalisation in industrial systems—a network approach. In Knowledge, Networks and Power, 111-132.
Verbeke, A. (2013). International business strategy. Cambridge University Press.