Why Businesses Internationalise? Compare and Contrast Mainstream and Alternative Theories

This essay would be focused on the meaning of internalisation and why businesses would want to partake in it with theories to support it as well as its problems.

In recent years, globalization has caused the business areas in countries to keep developing. This resulted in companies more concerned with making their operation more efficient and effective and wanting to compete in the global environment. This would mean the firm would have a lot of competition therefore we would need to have structured strategies to gain an upper hand over the competitors. According to Hymer (1976), firms’ involvement with international investment/trade is driven by market imperfections that create advantages and conflicts that a firm can exploit to gain a competitive advantage. According to Buckley and Ghauri (1999) “Internationalization is the process of involvement in international operation.” It can also be viewed as the involvement of firms competing in international markets to increase sales and target new markets.

There are different reasons why organisations would want to internationalise their businesses. According to Smith (1776), international trade also known as internationalization is important to countries as it increases their welfare and develops the country. It increases the prosperity of a country and helps it generate income to develop the standards of living in the country. In addition, Coutts and Godley (1992) added that countries that engage in international trade benefit by making money from exportation of goods and services and the revenue gotten would be used to import goods and services the country can’t manufacture. Firms take part in internationalisation get income and use it to develop production level of their goods in the country. The better the production level, the better their chances of competition in the international market. Also, Ricardo (1817) suggested that firms would want to internationalise to gain comparative advantage. This is when a...