Explain why firms internationalize their operations?
In modern times, globalization trends are forcing many business organisations to seek opportunities in different countries across the world. While business expansions lead to increased profits in the business, they can also be sources of downfall for business when not managed effectively. One of the main reasons why firms internationalize is that it creates room for further expansion (Liberman, 2013). This is the reson why Fuji Xerox Co believes that by investing in the new market in Vietnam, it will start to expand and enjoy economies of scale. Which is common with companies that have gone global in many countries across the world. After expansion, the internationalisation process assures an increased market shared because of many clients (Chen, 2000). A diminutive home marketplace more often than not implies clients are inadequate. The thinking can simply be summarized as follows; a bigger market place is equivalent to more clients and higher returns on investment (Homann, Koslowski, & Luetge, 2007).
With increased competition in the domestic market, firms are often forced to look for additional spaces from where they can increase their market share. In the case of Fuji Xerox Co., Ltd, the decision to expand into Vietnam, is expected to enable the company increase its customer base and thus an increased market share (Cantwell, 2009). The company believes that the Vietnamese market will be interested in testing and using its products, something that will make them increase their sales in the new country. The company has decided to establish a new manufacturing site, which it hopes will save the cost of having to import finished products in the new market (Cantwell, 2009). In this way, the customers will be able to get the goods that they want, which are LED printers and other digital devices. By investing in Vietnam, the company is moving away from the already concentrated Chinese market that has become no longer lucrative for the company (Burger et al., 2013).
Why firms might chose particular (direct) international entry modes?
Fuji Xerox Co, believes that by investing in Vietnam they can exploit the untapped market that many other global investors have not realised. According to Cantwell (2009), companies always have different methods that they can adopt in achieving their goal. In choosing the kind of method to apply, firms need to ensure that their needs can be met at minimal costs that bring returns on their investment. In the case of Fuji Xeroz, one of the best ways managing their globalisation strategy is setting up a subsidiary in the new Vietnam market as opposed to importing their products for sale (Cantwell, 2009). One of the considerations that companies have to make in choosing international entry modes regards the need to have a deep insight into the market (Chen, 2000). It is important to realise that direct entry modes helps companies gain better insight into the foreign marketplace. The second reason for choosing an entry mode into a foreign market regards the need to have control over the good and services that they are introducing into the market. Direct entry modes are known to have total control of the good ad services in the overseas markets (Liberman, 2013). For instance, exporting does not require firms to produce their products in the new country. In this regard, exporting gives internationalizing firms an opportunity to send their products to the new markets while still monitoring the best ways of producing the same.
Another important consideration that firms often make regards the need to cultivate the market and grow it. A firm has to consider whether there is need for having direct contact with their products or can be handled by middlemen (Homann, Koslowski, & Luetge, 2007). An examination of this consideration means that companies can end up picking a method that ensures their clients can interact with their goods and services effectively and efficiently. In the same way, a firm has to ensure they examine the government regulations and policies needed to manage their businesses in new markets (Blaine, 2008). Where the policies and regulations in the new markers can be managed with middlemen, the business adopts mechanisms by which they can give their goods to their customers.
What factors might influence foreign direct investment location decisions?
The expansion of Fuji Xerox Co in Vietnam provides a good ground by which investment decisions that are location specific can be made. In investing in new markets, firms have to make several considerations so that they can achieve their goals and objectives as expected (Goerzen, Asmussen, & Nielsen, 2013). One of the main considerations that influence such investments relates to the various economic determinants (Dunning, 2009). Some of the determinants in this category include the trade procedures that exist in the countries chosen for investment. In actual sense, many of the economic determinants fall into the market seeking category (Dunning, 2009). This is where a firm has to look for opportunities that give it added advantage in seeking new markets in the most effective way (Chen, 2000). Countries that do not belong to the same trading bloc may have regulations that may affect effective businesses expansion. Secondly, firms are supposed to examine the principles that operate in the new country regarding overseas affiliates. This is an important consideration because it enables companies to understand ways by which the will relate with their middlemen. Company facilitation steps and procedures are also an important consideration in choosing the locations for foreign direct investments (Liberman, 2013).
Another important consideration that has to be made regards the stability of the currency in the new market place. This consideration can also be termed as resource-seeking (Goerzen, Asmussen, & Nielsen, 2013). In the case of Fuji Xerox Co, resource-seeking considerations focus on the ways in which the company can reduce on costs in their expansion strategy, which informs the need to create a manufacturing plant in Vietnam (Burger et al., 2013). Other considerations for effective investments in new markets are associated with labor (Homann, Koslowski, & Luetge, 2007). Firms give preference to countries that have cheap sources of labor so that they can increase their production and get more on their investments. In the same way, countries that have fewer bureaucracies in establishing foreign investments are also a target for firms going global since they can easily set up and begin their operations in those markets (Chen, 2000).
Theories and concepts relating to the study of multinational enterprises and foreign direct investment
The study of multinational enterprises and the reasons behind business internationalisation is essential in understanding the motives behind business globalization. it is important to realise that in the recent past, many businesses have joined global markets with the aim of enhancing their influence and increasing their market share (Burger et al., 2013). A lot of research has so far been carried to examine some of the motivations behind business globalization trends. This developed has seen many theories having been proposed to help explain the reasons behind this move. One of them is the capital market theory; this theory states that foreign direct investments begin on the basis of interest rates (Goerzen, Asmussen, & Nielsen, 2013). One of the reasons why Fuji Xerox has chosen Vietnam as its investment destination is because its economic conditions are favorable
The dynamic macroeconomic theory focuses on the adjustments in the macroeconomic factors in other countries. Here, businesses have to ensure that they launch their products in countries that have established favorable terms for managing business activities. For instance, in Vietnam has been seen to encourage a lot of foreign direct investments at a faster rate than many of the developing countries (Blaine, 2008). The country has realized that the growth of its economic can be best managed by additional investments, which can help offer job opportunities to its vast population. This has seen companies like Fuji Xerox decided to move away from which, which is considered to be highly crowded for investments (Liberman, 2013).
Burger et al (2013). Revealed competition for Greenfield investments between European regions, Journal of Economic Geography, Vol.13, 619-48.
Goerzen, A., Asmussen, C. G., & Nielsen, B. B. (2013). Global cities and multinational enterprise location strategy, Journal of International Business Studies, 44(5), 427–450.
Blaine, H. G. (2008). Foreign direct investment. New York: Nova Science Publishers.
Homann, K., Koslowski, P., & Luetge, C. (2007). Globalisation and business ethics. Surrey, UK: Ashgate Publishing, Ltd.
Cantwell, J. (2009) Location and the multinational enterprise, Journal of International Business Studies, 40(1), 35–41.
Chen, J. (2000). Foreign direct investment. Houndmills, Basingstoke, Hampshire: Macmillan Press.
Dunning, J. H. (2009) Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 40(1), 5–19.
Liberman, L. (2013). Internationalization. London, UK: Palgrave Macmillan.
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