INTERNATIONAL

UNIT 1 SECTION 4 DRIVERS OF INTERNATIONAL BUSINESS

BUSINESS Unit 1, section 4: Drivers of international business

Dear student, we have come to Section 4 of Unit 1 of your course manual.

This Section deals with the drivers of International Business. The goal of
this Section is to draw your attention to the drivers of international business.
The drivers of international trade simply means the forces, factors, or
motivators that drive countries or domestic firms to go into the international
market.

Even though international firms have existed long ago, it is only in recent
years that attention has been focused on the increasing globalisation of their
operations. There are six major kinds of forces driving the globalisation
phenomenon. These forces are the spate of recent economic integration, the
spontaneous advances in ICT technology, the need for market penetration,
the desire for cost reduction in operations, global competition, and political
or legal reasons.

By the end of this Section, you should be able to:

 Identify the drivers of international business;
 Explain the pros and cons of the drivers listed in item (a) above

Now read on.....

The desire for Economic Cooperation and Integration

The spate of recent economic cooperation and integration is creating a trend
towards socialisation and unification of the international community. In
Europe (European Union), America (North American Free Trade
Agreement), Asia (South East Asian Nations) and Africa (Economic
Community of West African States), nations are forming regional groupings
to present significant marketing opportunities for their members. These
groupings have progressively reduced barriers to foreign investment and
trade by governments. The result is that businesses in these regions have
acted swiftly by entering these markets either through exporting or by
building production facilities in them.

Advances in ICT technology

Advances in Information Communication Technology [ICT] are permitting
an increasing flow of ideas and information across borders, enabling
customers to learn about different types or kinds of foreign goods. With the
advent of the internet, businesses are able to contact clients and partners all
over the world at a faster rate and cheaper cost. It has also enabled small
businesses to compete globally because they make possible the rapid flow of
information regardless of the physical location of the buyer and seller.

Market Penetration
As businesses globalise, that is go to the international market to sell their
products, they also become global customers themselves. Finding the home
market saturated sends companies into the foreign markets. When

30 UEW/IEDE
 INTERNATIONAL
Unit 1, section 4: Drivers of international business BUSINESS

businesses exhaust all opportunities in their home market, they look for
other avenues in the international market. Hence, the home businesses get
new customers by going abroad, and they in turn become new customers to
other foreign businesses. When the marketer realises there is a convergence
of customers’ taste and lifestyles brought about by increasing tourist travel,
satellite TV, and global branding, they move into the environment to take
advantage of those changes.

Cost Reduction
One major goal of management is to reduce unit cost per product or output.
This is known as economies of scale. And one means of achieving this is to
globalise product lines to reduce development, production, and inventory
costs. The foreign company can also locate production in countries where
the costs of the factors of production are lower, that is to say nearness to raw
materials, labour, transportation and others.

Global Competition
Global competition continues to increase in intensity. Businesses, in an
attempt to defend their own home markets from foreign competitors, may
enter into their competitors’ home market to distract them.
Many firms that would not have entered a single country because it lacked
sufficient market size have established plants in the comparatively larger
trading groups like the EU, NAFTA, ASEAN, and Mercosur. This is
because in theory, the best way to defend your territory is to attack your
opponent first. Hence, by carrying the competition to their larger
competitor’s home base, smaller businesses intend to protect their own
home markets to these multi-nationals or conglomerates.

Political / Legal Reasons

Another major driver of International Business is political or legal reasons.
Multi-nationals are constantly scanning the global political and/or legal
climate for strengths and weaknesses, opportunities and threats [SWOT].
Most advance countries or business conglomerates want to have some level
of political control or hegemony over other countries. Hence, such advanced
economies or international business conglomerates are always on the look-
out as to which destination around the globe will maximize their profits and
shareholders’ wealth or interests.

Summary
We have learnt about six drivers of international business, and these were
mentioned as economic integration, advances in ICT technology, market
penetration, cost reduction, global competition, and political or legal
reasons. You are to note, however, that while some of these drivers of
international business are controllable, others are not.

UEW/IEDE 31
INTERNATIONAL
BUSINESS Unit 1, section 4: Drivers of international business

Please, refer to other texts in the references provided for further information
on the meaning and importance of this topic. Put down any important notes
you come across in the blank sheet provided below for face-to-face
discussions with your course lecturer.

Can you now assess your understanding of this Section by answering the
following Self-Assessment Questions [SAQs]. Good luck!

Activity 1.4
 Advances in information technology are permitting an increasing flow
of ideas and information across borders. (True/False)
 What are drivers of International Business?
 State four drivers to international business.
 Explain three of the drivers stated in (b).

Did you score all? That’s great! Keep it up.

Please, refer to answers of the Self-Assessment Questions [SAQs] at the end

of the book

32 UEW/IEDE
 INTERNATIONAL
Unit 1, sectionThis
4: Drivers
page isof
left
international
blank for your
business
notes BUSINESS

UEW/IEDE 33