Question

What are the two mechanisms which promote internationalization? Explain with examples.

Answer 1

The mechanisms that promote internationalization are :

1. Direct Investment : These are the investments made by the company or the individuals into the businesses which are operated from overseas so that the business relations are established along with acquiring the foreign business assets. these are usually the capital investments while these companies or individuals has the say in the decision making process of the foreign businesses. Three types of direct investments are horizontal direct investment in which the investment is made in similar kind of business in which they are involved in home country, Vertical direct investment where the investment is made different but related business and Conglomerate investment in which the investment is made in unrelated businesses. Like for example Apple introduced investing in the development projects and research in China so that the business and Apple products can be taken in the Chinese market.

2. Trade : It is related to export and import of the goods between the two countries, to promote internationalization entry, trade barriers to enter the foreign market are made less complicated so that both countries benefit from it. It also allows manufacturers and retailers to promote their products in foreign markets so that the economies of scale can be achieved along with increased sales and revenues. Like for example, China exporting its Tea to the U.S consumers so that the export of Tea increased in foreign market.