Internalization involves the expansion of an organization’s operations beyond the borders of a nation. It consists of establishing and maintaining a business network in a foreign environment (Heshmati & Lovic, 2012). Internalization is characterized by benefits and challenges in the same measure. Key services include access to new markets, access to new raw materials, access to more cheap labor, and modern technology. Generally, globalization leads to economies of scale, which can be taken advantage of to enhance the organization’s performance. On the other hand, internationalization comes with a fair share of challenges that must be well handled for an organization to realize sustainable performance (Cuervo-Cazurra & Newburry, 2016). This paper discusses the challenges that come with internationalization and solutions to such challenges.
When an organization expands its operations across borders, it presents itself to a new business environment. Firstly, the new environment may come with new business factors. These factors include; the nature and level of competition and the nature and size of the market. A firm may enter into a business environment with the stiff and unhealthy competition or a market dominated by single or few strong suppliers (Marinov & Marinova, 2014). Similarly, a business may find itself in a business environment with a saturated market or limited market share. Secondly, an organization may enter into a business environment with a stringent legal, social, and political environment. Legal factors determine regulations and procedures on how business is done. The new market may have unfavorable foreign policies, an unfriendly tax system, and bureaucratic business procedures. It is important to note that foreign markets come with foreign currency, which brings the challenge of dealing with exchange rates. These factors may present themselves as real challenges to Emerging Market Multinationals (Cuervo-Cazurra & Newburry, 2016).
Entrance into the new market presents the organization with customers with novel preferences and expectations. While these factors may potentially work to the advantage of an organization, organizations have the challenge of deciding on the best ways to approach these challenges. If a business cannot win a new market, it may not be able to sustain itself in the new market. Many Emerging Market Multinationals have had to exit certain markets due to hostile market reception prematurely. Lastly, the new market may be characterized by hostile cultural factors. There may be an inconsistency between business products or ideology with a new market’s cultural belief systems. This may present a challenge of acceptance into the new market (Heshmati & Lovic, 2012).
While most of the challenges discussed above are external to the organization, and the organization may generally not have control over them, the organization may adopt appropriate strategies to solve or proactively manage the challenges. To manage market factors such as stiff competition and saturated market, Emerging Market Multinationals can do market research and come up with new products that suit the market. They may engage in localized customer support provision of adequate and true product information to gain and retain customers. To manage the challenge of the unfavorable legal and regulatory environment, Emerging Market Multinationals may research the regulatory and legal requirements and comply with local rules and regulations. This involved following the required legal procedure in registration, business processes, operations, and taxation (Marinov & Olav, 2016).
An Emerging Market Multinational may deal with changing customer expectations and preferences by engaging in market research and developing new products and creating product varieties that satisfy the varying customer expectations. Besides, the organizations may introduce complementary features into their products to ensure their products outcompete rivals’ products. Similarly, the Emerging Market Multinationals may solve the challenge of different currencies adopting major currencies like the US dollars, where the market allows (Marinov & Olav, 2016).
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While internationalization comes with challenges, adopting the right technology and strategies can turn these challenges into opportunities. Noting that internalization may come with more advantages than disadvantages, Emerging Market Multinationals should take advantage of modern technology and economies to develop strategies that will enable them to strive in the new markets.
Cuervo-Cazurra, A., & Newburry. (, 2016). Understanding the Challenges of Internationalization. Florida: Northeastern University, Boston.
Heshmati, N., & Lovic, S. (2012). Opportunities and Challenges in Emerging markets- A case study of two multinational companies in India. Halmstad: Halmstad University.
Marinov, M. A., & Marinova, S. T. (2014). Emerging Economy Multinationals: Successes and Challenges. London: Palgrave Macmillan.
Marinov, M., & Olav, J. (2016). Finding Solutions to the Challenges of Internationalisation. Aalborg: Aalborg Universitetsforlag.