Business internalization

Document Type:Research Paper

Subject Area:Management

Document 1

The company may be driven by the quest to make more profits, business risk diversification, and supply chain security, economies of scale, profitability, long term survival, and expansion among other reasons (Cavusgil et al, 2014). The step of going for the foreign market comes with new risk factors and greater challenges created by cultural differences and foreign exchanges. Due to various economic drawbacks, may small ventures face issues from the shrinking local market and inadequate skills to internalize their operations effectively. Many are the times when companies hope for the products to market themselves without incurring any costs on marketing and sales strategy. This paper provides an analysis of a company in Saudi Arabia namely; Almarai Food and Beverage Company the possible methodology to help the company go international is also given.

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Studies have shown that internalization has been used by some business executives as a strategy of cutting the cost of doing business. Countries with deflated currencies, as well as low cost of living, are known to be the best for helping multinational companies in lowering the business overhead costs. In fact, companies developed in the United States find it cheaper to extend their businesses to countries that have signed the free trade agreement with the U. S. Companies in China and other nations in the Middle East have been known to grow fast due to the utilization of cheap labor (Brush, 2013). History was made when Starbuck went international during the worst economic years in the economy of the United States of America (Abdulrahman, 2007).

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Starbucks made hugely loses in the domestic stores and hotels, but the branches of the firm in other nations were making huge profits to offset the losses in the U. S. A considerable number of other firms chose to go international with the goal of making various rates of growth. Various markets, however, have varying rates of growth and business that operate in nations with dragging growth rate prefer to go to nations with high growth rates. Transactional cost theory This paradigm refers to the costs that are involved in the developing of economic trading in the foreign market (Cobley & Schulz, 2013). It accounts for all the incurred cost at the start of the transaction to the ultimate end. The theory, therefore, refers to the implicit cost and the explicit costs.

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