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An organizations choice to expand internationally and its entry mode is determined by various factors. These factors can be categorized into four groups, internal factors, desired mode characteristics, desired mode characteristics, and transaction-specific behavior (Hollensen, 2017). Firm size is an important internal factor that a firm should consider before exporting their product. For instance, if a company wants to export their product, and they lack enough resources, their control capability for such a market may be less influential. Also, international experience is important since it will help maneuver around technicalities in different countries with different policies (Hollensen, 2017). It also reduces the recurring cost of uncertainty within an international market while presenting a reinforcement for preferable entry modes for different international markets.
The type of product or service is a crucial factor for a business to consider while venturing into international markets for exports. The product or service value or weight ratio, perishability, and composition. For instance, a product that has a high value/weight ratio, such as expensive jewelry, are lined up for direct exporting in countries with a reliable production economy of scale. External factors that should be considered include the market size and growth, whereby if the country is large and has a big market size, then the growth rate is likely to be gradual, with more commitment of resources to its development. Direct and indirect trade barriers such as tariffs and quotas on the importation of foreign goods should be considered (Hollensen, 2017). For instance, identifying the feasibility of establishing local production or assembly operations as opposed to importation. Local suppliers have a higher preference in international markets due to their knowledge of the local consumer.
Other factors to consider include desired mode characteristics such as risk-averse, control, and flexibility, which expounds on the characteristics of the management. In many cases, companies employ multiple approaches in venturing into international markets. In my view, firm size and international experience are the key factors in deciding to venture internationally. In selecting the international market, country risk, product differentiation advantage in that location, competition, and direct and indirect trade barriers are very important. As Zekiri and Angelova (2011) explain, there are many modes of entering international markets. However, every organization will be attracted to a certain mode depending on its background, the nature of the company, strategic objectives, and resources.
In my view, I believe that internal and product factors are the most influential in deciding on international expansion. Do you agree? Why?
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