Determinants of the International Success and Failure of Firms

Word Count: 2,313

Determinants of the international success and failure of firms

Shifts in the ever changing business environment are giving rise to the internationalisation of increasing numbers of enterprises worldwide [ (Knight & Liesch, 2002) ]. In order for such enterprises, known as MNEs, to enjoy success they must assess and evaluate the implications of the decision to expand abroad [ (Abraham, 1990) ]. For a considered verdict to be reached they must possess the correct knowledge of what determines the international success and failure of firms. This essay discusses some of the key issues that arise when considering the process of expanding a firm abroad. There is no correct method or step by step guide as every individual situation differs, whether it is by the specific market, the size of the firm or its objectives. However, this essay will examine how and why firms internationalise and provide some level of discussion on the benefits and drawbacks of the internationalisation process.

To initially determine the success of a firm venturing abroad, the internalisation theory must be explored, as it posits that if the firm possesses firm-specific intangible assets such as superior production skills, patents, marketing abilities, managerial skills, or consumer goodwill, that foreign direct investment (FDI) will enhance its market value [ (Saudagaran, 2002) ]. Market internalisation theory was first proposed by Buckley and Cannon (1976). This theory helps to explain a firm’s move to expand using FDI when other means such as licensing and exporting become too expensive or unreliable. In simplistic terms it is the creation of a market within in a firm where the natural market is imperfect or missing [ (Knight & Liesch, 2002) ]. These markets can be concerned with the flow of knowledge or are production orientated, an example of later would be the acquisition of a foreign company by an MNE to enable production of their products.

The theory of...