Colombia

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ANSWER: 1

Please discuss, using appropriate examples, the reasons why firms pursue internationalization strategies. What types of risks are firms likely to face when internationalization strategies are pursued?
Firms internationalize seeking growth and profit opportunities to enhance competitive advantage. Specifically:
1. Seek growthopportunities through market diversification.
2. Earn higher margins and profits.
3. Gain new ideas about products, services, and business methods.
4. Better serve key customers who have relocated abroad.
5. Locate closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products.
6. Get access to lower-cost or better-value factors ofproduction.
7. Develop economies of scale in production, marketing, and other activities.
8. Confront global competitors effectively or thwart the growth of competition in the home market.
9. Invest in a potentially rewarding relationship with a foreign partner

What types of risks are firms likely to face when internationalization theories are pursued?
Cross-cultural risk
■ Differencesin language, lifestyles, attitudes, customs, and religion, where a cultural miscommunication jeopardizes a culturally-valued mindset or behavior.
■ Cultural blunders- hinder the effectiveness of foreign managers.
■ Language- critical dimension of culture- a window to people’s values
■ Language differences impede effective communication.
■ Cultural differences may lead to suboptimalbusiness strategies.

Country risk (also known as political risk)
■ Differences in host country political, legal and economic regimes may adversely impact firm profitability.
■ Also, laws, regulations and indigenous factors e.g. property rights, intellectual-property protection, product liability, taxation policies, inflation, national debt, and unbalanced international trade, may encumber firmoperations and performance.
■ Government intervention: restricts market access; imposes bureaucratic procedures hindering business transactions; and limits the amount of earned income that firms may repatriate from foreign operations.

Currency or financial risk
■ Risk of adverse exchange rate fluctuations, inflation and other harmful economic conditions create uncertainty of returns.
■When currencies fluctuate significantly, the value of the firm’s assets, liabilities and/or operating income may be substantially reduced
Commercial risk
■ Poor formulation/implementation in terms of partnering selections, market entry timing, pricing, product features, and promotional themes result in commercial risk.
■ Failures in international markets are far more costly than domesticbusiness blunders.

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Answer: 2
What are some of the basic issues a firm must confront when choosing an entry mode for a new foreign market? Assuming the firm selects exporting as the best mode, what are likely to be the major advantages and challenges the firm might experience.
When choosing an entry mode for a new foreign market, a firm mustconfront issues relating to ownership advantages, location advantages, internalization advantages, the need for control, the availability of resources, and the firm’s global strategy.
* Dunning’s eclectic theory (see Chapter Six) can be helpful in providing insight as to the best means of penetrating foreign markets. The theory considers three factors: ownership advantages, locationadvantages, and internalization factors, which in addition to other factors such as the firm’s need for control, the availability of resources, and the firm’s global strategy, help a firm decide among exporting, FDI, joint ventures, licensing, and franchising.
* Ownership advantages are the tangible or intangible resources owned by a firm that grant it a competitive advantage over industry...