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The process of internationalization and globalization-theoretical

and practical issues

Effective globalization and internationalisation process starts with knowledge of key variables in the global business environment. In any industry or country,
managers must have an overall knowledge of the wheres, whats, whys, and hows ₉
of the countries and regions of the world. This knowledge can be used as an initial
way to identify the threats and opportunities that might arise in their international operations.
There are various definitions of internationalisation. Definition by Beamish et al. (2000) is used: „the process by which firms increase their awareness of the influence of international activities on their future, and establish and conduct transactions with firms from other countries“.
Internationalisation theory links Caves´s explanation for direct foreign investments to Coase´s theory of the firm. Coase explains that the growth of the firm can be understood as the successive incorporation into the firm (internationalisation) of previously external (market) transactions because effecting transactions within the firm rather than through the market has several benefits. The major benefit of internationalization is a reduction of transaction costs which enables the enterprise to either reap greater profits or futher reduce the price of its product. In addition, the internationalization of transactions across national borders has certain political advantages: enterprises gain tariff advantages as well as circumvent foreign exchange controls. The international transactions can influence a firm´s future in both direct and indirect ways. A key element of the internationalisation process concerns „where“ a organization chooses to do business outside its country. Many firms conduct an incomplete analysis of potential markets. In part, it is due to a lack of awareness regarding global demographic.
The internationalization can be perceived as a part of the ongoing strategy process of most business firms. The main differences between internationalisation and other types of strategy processes are as follows: first, when products, services or resources are to be transferred across national boudaries, the firm has to select the international exchange transaction modality, i.e. a foreign market entry strategy.
Internationalisation affects the SME firms in important ways from an inward perspective, which incorporates an awareness of the impact of global competitors on the ability of domestically oriented firms to compete. According to Melin (1992) the internationalization can be perceived as a part of the ongoing strategy process of most business firms. The main differences between internationalization and other types of strategy processes are as follows: first, when products, services or resources are to be transferred across national boundaries, the firm has to select the country where or with whom transactions should be performed. Secondly, the firm has to select the international Exchange transaction modality, i. e. a foreign market entry strategy (Andersen and Buvik, 2002).
Firms become international in scope for a variety of reasons – some proactive and some reactive. These include a desire for continued growth, an unsolicited foreign order, domestic market saturation and the potentional to exploit new technological advantages. The dominant reason relates to performance. There is clear evidence that among the largest multinational enterprises, a strong correlation exists between improved performance and degree of internationalisation. Geographic scope is positively associated with firm’s profitability, even when controlling for the competing effect of the position of property assets. There is a value in internationalisation itself. There are various definitions of internationalisation. Definition by Beamish et al. (2000) is used: „the process by which firms increase their awareness of the influence of international activities on their future, and establish and conduct transactions with firms from other countries“. According to Dassbach (1989, internationalisation theory has its roots by Caves in 1971. Internationalisation theory links Caves´s explanation for direct foreign investments to Coase´s theory of the firm. Coase explains that the growth of the firm can be understood as the successive incorporation into the firm (internationalisation) of previously external (market) transactions because effecting transactions within the firm rather than through the market has several benefits. The major benefit of internationalization is a reduction of transaction costs which enables the enterprise to either reap greater profits or futher reduce the price of its product. In addition, the internationalization of transactions across national borders has certain political advantages: enterprises gain tariff advantages as well as circumvent foreign exchange controls. The international transactions can influence a firm´s future in both direct and indirect ways. A key element of the internationalisation process concerns „where“ a organization chooses to do business outside its country. Many firms conduct an incomplete analysis of potential markets. In part it is due to a lack of awareness regarding global demographic. Andersen and Buvik (2000) have presented that the internationalization can be perceived as a part of the ongoing strategy process of most business firms. The main differences between internationalisation and other types of strategy processes are as follows: first, when products, services or resources are to be transferred across national boudaries, the firm has to select the international exchange transaction modality, i.e. a foreign market entry strategy.

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The next stage of internationalisation is globalisation. This one results from the

trade liberalization, opening economies, processes and reinforcing the worldwide competition. The basis of globalization is the countries integration that consists of linking their economic processes which include foreign trade, investments and production. It is connected with migration of goods, services, production factors, labor, capital and technology. It causes that competition becomes stronger and there are more competitors who act in global market. According to Sporek (2005), globalisation is also based on information and high technology development. Information, knowledge and know – how have become the most valuable assets of every organization. The development of high technology and new fast means of transport contribute to the „world shrinking“ process. It creates the „global village“ phenomen. Transnational corporations realize these aspects the most effective and therefore, they

are the main entities which influence the globalisation process. The globalisation is a complex process which changes as well as has the potential to change the various events in the world at multiple levels. It is widely recognized that there are multiple faces of globalisation including political, economic and cultural environments.
Business decisions made in one country, regarding such things as foreign investments and partnership arrangements, can have significant impact on a firm in a different country. The development of an awareness and appreciation for the role
of foreign competition becomes an integral part of the internationalisation process. ₁₁
Internationalization has inward - looking and outward – looking dimension.
The outward – looking perspective incorporates an awareness of the nature of competition in foreign markets and includes the following modes of activities: exporting, acting as licensor to a foreign company, establishing joint ventures outside the home country with foreign companies as well as establishing wholly owned businesses outside the home country. Internationalisation affects firms in important ways from an inward perspective which incorporates an awareness of the impact of global competitors on the ability of domestically oriented firms to compete. All of these modes and influences are relevant to the internationalisation process and are often overlooked. Based on the information above we can explain that the internationalisation process of a firm can be solved from two main aspects: economic or behavioural perspectives. Behavioural – related theories refer to the organizational and social side, like the decision process by Aharoni (1966) who argues that: “Foreign direct investment is seen as a complicated social process. Many different attitudes and opinions, social relationships both inside and outside the firm and the way such attitudes, opinions and social relationships are changing.” But the theoretical approaches differ in their focus. Some concentrate on the factors causing internationalisation and some concentrate on the internationalisation process itself.

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