Thursday, December 20, 2012

INTERNATIONALIZATION THEORY



Introduction
The recent past has witnessed significant development in the establishment of the organizations. The consideration of organizational development can be best illustrated by the concepts of internalization that has been witnessed with the emergence of globalization. Globalization is an extremely beneficial aspect that has the attributes of enhancing development of the regional organizations and establishing them to the prospects of global market. The consideration of internalization considers the attributes of developments where regional boundaries are overlooked and development between nations is enhanced (Andersen & Kheam, 1998). Normally, the aspect to internalization is an aspect for enhancing trade where different theories contribute towards the development of trade in the organization. The stakeholders of the business incentives immensely benefit from the aspects of increased market scope and this is the role of internalization of business (Andersen, 1993). Over the period, various business ventures have adopted the consideration of engaging in the expansion to encompass the external markets because this promises higher revenue for the business ventures. The usages of internalization theories have been critical in establishing the benefits of external trade between various nations. Internalization theories are critical for the organization because they aim to enhance the aspect of trade which in the motive of the organization. In this regard, internalization has been viewed as the process of increasing development of enterprises in the international markets. In the analysis of the internalization theories, significant numbers of theories have been ascertained to contribute to the aspect of enhancement of internalization of organizational venture (Andersen, 1993, Penrose, 1959). The leading theories that are significantly related to the process of internalization are behavioral theories, foreign direct investment theories and the theories of growth of the firm. In view of the above findings, the consideration of external expansion is a process that is gradual and extremely dependent on the aspects of growth theory and behavioral theories. The aspects of behavioral theories will stir the firm to continue with the attributes of growth and development and this will pave way for the need to expand the venture. The necessity to enhance organizational growth is also a critical aspect that will significantly enhance the growth and development of the firm to capacitate the international markets.
Internationalization theory
The attributes of internationalization theory are depicted from the consideration of the theories of growth and the theories of organizational behavior. According to Johanson and Vahlne (2003) the expansion and internationalization of firms is normally caused by lack of a proper incentive to enable firms to develop gradual. The theory of growth asserts that firms grow and develop over period and this leads to the establishment of the branches in the international markets. The aspects o establishing branches in the international markets is a gradual process and it is initiated by the organizational behavior that highlights the consideration of growing and expanding. The aspect of internationalization of any firm is depicted as an incremental process that involves the formulation of commitment decisions based on the perceived problems and opportunities in the targeted market (Blomstermo & Sharma, 2003). Normally, the expansion and development of the firm into the international markets are best illustrated through the usage of process models and the models are based on the assumption that firms have imperfect information about the foreign markets and this aspect is responsible for their gradual entry in to the foreign markets.
Analysis conduced about the internalization theory provided by Johanson and Vahlne has shown that forms build their presence in the foreign markets through a series of movements and the depiction of thee movements occurs in an incremental model. The expansion into the foreign markets is a process that is gradual and it results in the transformation form small investments to the increased investments that form integral organizations (Cyert & March, 1963). Analysis has also shown that only limited numbers of firms are engaged in the conduction of initial investment in large proportion of the international market. In reality, the decision to invest and engage in foreign investment is based on two considerations that include the aspect of commitment and the availability of market knowledge to the organization.
Market commitment
Over the period, various organizations have developed ideal strategies to help them participate in the aspect of international markets. The commitment to engage in the production of commodities is the ideal factor that enhances participation and growth of the organization. During the establishment of the organization, values, visions, missions and objectives are stipulated to form the basis of operation of the organization (Eriksson et al, 2000, Johanson &Vahlne, 1977). The critical attribute the necessities commitment of the organization in the international market is the perspective of the organization to engage in the aspect so realization of the goals and objectives. The commitment of the organization leads to the realization of the goals and objectives of the organization which translates to the satisfaction of the consumers’ needs and wants. The aspect of commitment is enhanced by the consideration of behavioral theory and the growth theory. The commitment of the organization normally translates establishment of commitment. The consideration of organizational commitment is enhanced thought the consideration irregular export activities, export via independent representatives, the establishment of overseas sales subsidiary and finally, the establishment of foreign manufacturing subsidiaries (Forsgren, 2002). Finally, a committed firm in the market employs the usage of significant resources that leads to the enhancement of the market scope.
Market knowledge
Over the period, analysis conducted on the performance and establishment of the organization has shown that organizations are engaged in the operations of the markets in which they understand its provision because this will enhance reduction of losses and an increase in the profit margins of the organizations. The attribute of market knowledge is based on the provision of internalization theories that highlights the necessity for the organizations to enhance their performance (Hadjikhani, 1997). The behavioral theories of the organization states that organizations will be engaged in the establishment of the market in which there is adequate activities and knowledge. The aspect of market information is an extremely vital component of internationalization because it forms an integral apart of internationalization decision making. The consideration of engaging in the venture is extremely crucial because it leads to the enhancement of the performance of the organization. Therefore, the manager of the organization must ensure that ideal information about the market is considered before engaging in foreign markets. Analysis has shown that significant number of organization normally conduct their transacting in the regional markets to enable them gain significant information about the market. The next step for organization will be to expand to the international markets because they will apply the knowledge gained from the regional organization to impact performance on the international market. In this regard, the firms with access to large pool of resources are less susceptible to the consequences of bad decisions and they can step up the aspect of internationalization at a higher rate.
The internationalization model
The development of internationalization models considers the contributions of the significant attributes of international expansions. These two attributes of the theory are establishment chain and psychic distance. The consideration of chain dimension predicts the prospects of the firm and it asserts that the initial investment of the firm in the local economy involves the consideration of a given level of commitments (Huber, 1991). The depiction of this model has also helped the understanding that firms prefer foreign/international markets that have similar attributes to their own local markets. The model continue to add that as the firms experientially gain knowledge about the market, the firms will enhance conduction of activities and entry into other markets that are characterized by uncertainties. In this regard, it is evident that forms expand internationally after accumulating significant amount of knowledge about the activities of the markets. This incentive is crucial because it confirms the depiction of internationalization theory that states that firms will first expand to the external markets that are physically close to them into gain adequate knowledge about the markets (Gundlach et al, 1995). This aspect of prediction provided by the theory is beneficial because it helps in the conduction of the analysis of the emergence of significant multinational corporations like Ericson that has entered the global market after acquiring critical information abut the operations of the market. Additionally, the representation of the organizations has also been represented as the bid step that involves adopting the technologies and terminologies that characterizes the international market (Pedersen & Petersen, 1998). In this regard, the usage of the big step hypothesis is crucial in explaining the aspects of the international market and organizational development.
The big step hypothesis
The development of this hypothesis is based on the theory of foreign investment that states that internationalization process results from growth and development of the organization. It further provides that internationalization is a discontinuous process.  The big step hypothesis is critical because it highlights significant challenges that are associated with internationalization and these are provided as the disparities because of the differences in political standards, languages differences and the business environment (Gundlach et al, 1995). Another source of disparities is the discrimination by the government, suppliers and the consumers. Finally, the third source of disparity in internationalization is the attribute of exchange risks. The above mentioned aspects depict critical disparities in the organization that restricts operating of the firms in the international markets and the firms must employ ideal measures to overcome the challenges and difficulties in the international markets.
The aspect of initiating activities in the international market represents a bid step because the attributes of development goals and objectives of the organization must be realized. Normally, the entry into the international market represents a big step that firms must undertake despite the significant amount of costs that are involved. Furthermore, the aspect of huge costs of money involved in the internationalization process may project significant number of firms to generate the money before considering the entry into the global market. This calls for the aspect of dedication substantial amount of time before the engagement in the internationalization process. The depiction of the hypothesis below has been confirmed in the organizational growth and development (Huber, 1991). The considering internationalization is that the time between successive entries is longer for the initial investment than subsequent investment overseas.
Over the period, analysis of economic reports has stated that the consideration of the big step hypothesis and the discontinuous nature of internalization are extremely crucial for the managers of the organizations. The discontinuous view of the internationalization is important for the managers because it helps the managers to prepare for the expansion into the international territories (Johanson & Vahlne, 1990). The theory of internationalization is crucial because it considers the aspect of trade and development of the organization. The development of the theories of foreign trade are aimed a enhancing he performance of the organization through the expansion into the international markets. The expansion into the international markers is faced with significant disparities and the managers of the organizations must consider the provision of internationalization theories before engaging in internationalization of business incentives. The provisions of international investments assert that the managers must be committed to the job and engaged in the aspects that are ideal and ethical for the economy. Another provision of the theories is to acquire all the necessary information about the targeted market because this will be extremely critical for the organization (Hedlund & Kverneland, 1985, Pettigrew, 1997). The aspect of full information about the market is beneficial because the business managers can develop hypothesis and market plans for overcoming the disparities and the complexities of the market. The theory of internationalization acknowledges that managers are the propellants of organizational growth and the behavioral trade theory highlights the necessity for engaging in the international growth. Therefore, managers should consider the aspects of organizations profitability before engaging in internationalization. Furthermore, the managers of the organization should consider that aspect of adopting the attributes of markets with identical culture and heritage (Johanson & Vahlne, 1990). The aspect of business environmental in the host country and the provisions of the political stability should be considered because they have immense contributions in the enhancement of international business performance.
Internationalization is an incentive that represents the attributes of development where various business organizations and other corporations establish their branches r outlets in the international lands. Before the engagement into the exercise of internalization, the proponents of the organization must demonstrate the commitment towards enhancing growth and the also the necessity to understand the complexity of the market (Hedlund & Kverneland, 1985). This later provision calls for gathering sufficient pieces of information about the market and trading partners.  In addition, the provisions of internationalization theirs also highlights that advantage of engaging in the international markets where there are significant number of buyers and sellers thereby leading to an increase in the performance of the organization. The provision of the these trade theories states that the firms should consider the proximity markets before adopting larger markets that are distantly apart. An important idea from the trade theories is that the firms and their managers should not be misguided that international expansion to the proximal markets is an incremental process. However, the firms and their managers should consider the firms ad discontinuous process because this notion will enable firms to expand and participate in the international markets (Hedlund & Kverneland, 1985). This attribute will ensure that firms are prepared to face the challenges in the international markets that are attributed to direct investment. When considering expansion as a discontinuous process, the firms will be more likely to overcome the difficulties that are experienced upon entry into the proximity market. In this regard, internationalization is extremely crucial because it enhances development of the global economy and it also encourages the aspect of regional integration.  





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