Business internationalization, globalization, and competitiveness

Business internationalization, globalization, and competitiveness

The international economic environment today is increasingly characterized by its dynamism and globalization. Trends such as the growing interdependence between countries, the formation of regional blocs, the emergence of emerging economies in Asia and Latin America, as well as the surprising technological advances in different sectors, shape an increasingly competitive and changing world environment.

As a consequence of these trends, the phenomena of globalization of markets and internationalization of companies have become even more accentuated, making it essential for businessmen to have a cosmopolitan and international vision of economic activity and to rethink economic concepts and strategies within a model such as an open economy.

In an environment of these characteristics, internationalization appears as a pressing need for companies.

However, it should be noted that this is a difficult, complex, and expensive process, which can even harm the company that undertakes it if it does not previously carry out a serious and rigorous strategic analysis before making such a decision.

Just thirty years ago, the business policy of most countries was far from conquering the world; but earning money within the limits of the nation; without thinking of accessing, at least massively, the international market and competing with other companies that were on the other side of the borders. At the international level, tariffs were prohibitive and businessmen, in a general sense, focused on their own countries. The division of the world into isolated fragments also conditioned mentalities. (Alvarez, E., 1995)

However, in a short time, this situation has undergone transcendental changes. The international economy in the second half of the century that just ended evolved considerably, adopting a series of trends that implicitly carry the idea of ​​economic internationalization, among which are:

  • Progressive growth of trade and production.
  • Growth in the prices of merchandise in dollars worldwide, mainly due to the increase in the price of basic products and changes in the exchange rate.
  • Growth of manufactured products in international trade.
  • Incessant progression of direct investment abroad.
  • The constant development of international technology transfer.
  • Progressive increase in international capital movements.
  • The growing economic significance of international cooperation.

Currently, the international economic environment is increasingly dynamic and global; This is reflected, on the one hand, in the enormous growth of world trade in the last decades of the 20th century and, on the other, in the boom in direct investment abroad, which has also grown at unexpected rates. (Forsner, H.; Ballance, R., 1990)

The internationalization of a company implies expenses, and to compensate for them, the value must be added to the company. The goal of a company being international must be to obtain competitive advantages that allow it to overcome the competition. Most of the companies that decide to go international adopt the old scheme of trial and error.

The decision on which and how many markets to address, how to enter them, and the type of organization to adopt there, are incremental decisions that require rigorous analysis of a strategic nature. A large number of companies face internationalization as a way to grow, without realizing that selling abroad can decrease their profits and imply risks that are not incurred in the national market. Being international is expensive because the goal is not to be bigger but better. (Canals, J., 1996)

The internationalization process: general aspects

The process of internationalization of the company has been studied historically, from very different perspectives, standing out among them two great approaches: the economic or rational and the sequential approach. Within the economic approach, the two most recognized theories give a leading role in the transaction costs derived from the mobilization of the company’s intangible assets across national borders. In one case, the theory of internalization builds on them the explanation of the investment phenomenon; in another, the eclectic approach integrates them into an aggregate consideration of the various partial aspects involved in the internationalization decision. Regarding the sequential model, two currents can be distinguished: the Uppsala model and the innovation approach.

The term internationalization largely received its current form from Kindleberger, who expounded his theory of the big business, which is based on that of a monopoly right over five specific asset classes: access to technology, knowledge of team management, economies of scale at production sites, better marketing ideas, and generally well-known brands. (Kindeblerger, C.P., 1969)

The first approach (internalization theory), refers to property advantages, which in turn is based on the fact that the possession of assets of an intangible or immaterial nature and the existing imperfections in the market for these assets causes the existence of high transaction costs.

These costs have their origin, among other reasons, in the need to establish coordination and control mechanisms on the part of the “selling” company, as well as in the uncertainty of compliance or not with the terms agreed in the license contract. The company, aware of such dangers, will try to integrate under its hierarchy and organization all those activities to which it is capable, taking into account both the limitation of resources to which it is subjected, as well as the opportunities and threats offered by the environment. Therefore, the company will only outsource part of its activities when one of the following conditions is met: when the internalization costs are notoriously higher than the transaction costs; the less specific their property advantages; the greater the interrelationship between the activities; and the more stable, competitive and dispersed the market you want to access. (University of Vigo Research Team, 2001, 35)

The second attempt to build a general theory about internationalization comes from a more pragmatic option: the one that results from adding the various elements considered, in the previously existing partial approaches.

Specifically, three factors are considered necessary to explain the ability and willingness of the company to internationalize: (Universidad de Vigo Research Team, 2001, 36)

  • The company must have some advantage over its competitors in the host country to counteract the drawbacks of producing in an unfamiliar environment.

These advantages, called “ownership advantages”, can come from the existence of economies of scale and specific knowledge of a technological type and the ability to lead and manage business -commercialization, and distribution of goods and services, organizational and managerial capacity, ability to create new technology- and possession of resources and assets in general, generating income.

  • It must be more beneficial for the company to internalize the aforementioned advantages through Foreign Direct Investment than to externalize them through the sale of patents or licenses to other companies.

This type of advantage is called “internalization advantage” and can be generated by imperfections in the markets for goods and productive inputs, which make it difficult to set prices for them, due to the desire to hide specific information about a certain product, protect its quality, or avoid public intervention in the form of tariffs, taxes, etc.

  • The destination market of the investment must have some location factor -“local advantages”- of its own such that, associating it with the specific advantage of the investing company, it prefers to invest versus export.

These location factors may be based on cost elements or demand factors. In the first case, both the cost and the availability and abundance of natural resources and production factors will be the variables to be taken into account. Factors related to the market, the level of current and potential demand, government policies, the degree of existing rivalry, and the existence of trade barriers or political instability, will be, among others, the elements to be taken into account.

The eclectic approach integrates into a single proposal the specific advantages of the company -property advantages-, the advantages of internalization, and the characteristics of the receiving market -location advantages-. Each of these three concepts encompasses theories about the factors that motivate a company to be multinational, so each of them as an independent theory is incomplete. Furthermore, the interplay of these advantages may work differently for each company.

Despite the indisputable ability to suggest the two previous approaches, some limitations make it difficult to use them directly as useful theoretical instruments to analyze the complexity with which internationalization processes currently appear. In general, we can say that these are static approaches whose preferred subject is large companies and acceptable establishment in international markets. Hence, to study the sequence followed by small-medium-sized companies, it is convenient to note the contribution made to the analysis of the internationalization process from a different tradition: the theory of development phases.

The study of a series of European multinational companies, particularly Nordic ones, led some authors, grouped around the Uppsala school, to attribute the internationalization process to a fundamentally evolutionary nature: the company ascends to higher levels of international commitment, after establishing itself and accumulate experience in previous sections. (University of Vigo Research Team, 2001, 37)
Johanson and Wiedersheim were the first authors to recognize that the lack of resources and knowledge about foreign markets generated a level of uncertainty that could only be reduced through incremental decision-making, that is, a series of cumulative steps. over time, due to the learning of the organization is developing an increasing international commitment. Thus, the first model of the internationalization process was constituted that offered a certain dynamizing character by including feedback in the form of learning.

This decision-making model is expressed as an “input chain” that represents a progressive expansion of operations from non-regular exporter to exporter via an agent, to a sales subsidiary, to end up in production subsidiaries. (Johanson J.; Wiedershein P., 1975, 322.) The theory of development phases provides an interpretation of the process that is especially useful in the case of SMEs or companies that are in the early stages of internationalization since it is easier for large companies to dispense with the proposed gradualism. In short, from this point of view, internationalization has a broader meaning than export, since it means relating to the exterior from a richer level: importing – exporting products or services, technologies, subcontracting,

See also  What are Economies and Diseconomies of scale?

There are different coordinates when facing the challenge of internationalization. One of the most classic perspectives is in the analysis of risk and the scope associated with basic internationalization decisions. Establishing a solid position abroad is possible through investment, although it implies a greater risk.

There are previous steps, for example, trade, that is, export and import. What we call getting involved, that is, internationalizing through franchises or joint ventures, could also be considered a step further. Even acknowledging that this last way is superior to pure marketing, it does not reach the prospects for the future that can be derived from a well-made investment. (Canals, J., 1991)

Therefore, the process of accessing foreign markets does not necessarily have to take place following the above sequence, although this is usually the most common scheme for progressive introduction into said markets. Each phase requires greater capacities, fundamentally strategic, without prejudice to the timeline with the passage of time the commitment increases, and with it the risk incurred.

The internationalization process can also be understood as an innovative process in that it brings the company a change in the organizational structure, the strategic objectives, the marketing program, and, eventually, its previous production conditions. In many aspects, increasing international commitment implies for the company makes an innovative decision, so it is not surprising that both processes present notable similarities. Three are of special relevance: (Alonso, JA, 1994, 128)

  • In the first place, in both cases, it is about creative decisions that are adopted by the conditions imposed by the market and with the possibilities, always limited, of an organization that acts in uncertain conditions.
  • Secondly, it is necessary to recognize that factors that are governed by a manifestly cumulative sequence intervene in both processes.
  • And, thirdly, both processes are far from following a deterministic path (as could be derived from a simplifying vision of its cumulative nature) and a completely random one, to which the uncertain nature of the decisions that support it could lead.

Only when the company is clear about the advantages to be achieved through internationalization, can it begin to answer the strategic dilemmas: (Universidad de Vigo Research Team, 2001, 37)

  • What markets to enter?
  • With what market strategy?
  • With what type of organization?

Markets

Which market to address first is a decision in which the company cannot be carried away by fashion or by the decision of the competitors. Neither be based solely on the result of the analysis of variables such as market size, tariffs, tariff barriers, freight costs, level of competition, and taxes, to name a few.

The relevant variables for the selection of countries are those that respond to the competitive advantages that the company seeks to emphasize or obtain. For example, Bodegas Torres from Spain chose to establish itself in Chile due to its comparative advantages (climate, soils, vines) to produce wines and export from there. He did not care about the size of the domestic market, nor about local competition, but about the quality of the raw materials, the positive image of Chilean wines, and the facility for foreign investment that this country offers.

Likewise, if a jewelry manufacturing company seeks prestige and international recognition, it should settle in New York or Geneva, and if it seeks volume in Tokyo.

Faced with the decision of how best to do it, if advancing gradually in the process by first entering one country and later in others, it is once again crucial to know what competitive advantage is sought and what resources the organization has to make said decision.

If the company seeks learning, gradualness is advisable; if it seeks to export volume and achieve economies of scale, it may be advisable to enter several countries simultaneously to quickly reach the efficient size.

Strategies

There is a variety of strategies or ways to enter economically and commercially in other countries. The best-known are:

  • exports
  • direct investment
  • Joint Venture or joint ventures with local or foreign partners
  • licenses
  • Franchises • Administration and/or production contracts

From the point of view of strategy, three major aspects come into play in the internationalization process, which involves the leap of the company from the area-country of origin to the area-country of destination where the target market is located. They are the following: (University of Vigo Research Team, 2001, 40)

  • The conditions of the base of operations where the company is located.

The company is influenced by the base of operations. The conditions of the area, both specific and global, the dynamics of the industry, and the rest of the companies with which it is related are essential elements when facing internationalization.

A company will hardly be able to internationalize without an adequate base of operations. It is as if to make the “leap to the outside” a consistent springboard is needed. On the other hand, the base of operations sets the conditions to establish cooperative agreements —vertical and horizontal— that make it possible to address the internationalization process.

  • The conditions of the area or country of destination.

The study of the area-country of destination is the focus of interest of the internationalization process since it will be where the corresponding action will be applied. Here, the entry and exit barriers in the corresponding markets, the global and specific conditions of the area-country of destination, and the conditions of the other companies that already operate in the aforementioned area are essential.

  • The decision to internationalize.

The third element refers to the decision to internationalize. A company that has a certain advantage, through the provision of services or the realization of certain products, must try to exploit it in the foreign market.

Logically, the strategy must be defined based on the goal or competitive advantage to be obtained by being international. It is frequently observed that the strategy chosen by companies is copied from others in the sector, or responds to taking advantage of a temporary opportunity that is believed to never happen again.

The strategy must obey the objective sought by the company: If economies of scale are seeking to reach a minimum efficient size, the most logical thing to do would seem to be to export. If the high costs of research and product development are to be amortized, and there is no interest or possibility of entering foreign markets, the most appropriate thing to do would seem to be to grant technology licenses to other manufacturers. However, when the chosen destination market is larger than the original market, is complex in its commercial and distribution practices, has different customs and consumption habits, presents tax obstacles, and a significant state bureaucracy, the best thing will be to access the same, get a good local partner and make a Joint Venture.

When a company starts its internationalization process, it must carry out an in-depth analysis of the competitive advantages that it could achieve internationally, which once identified will allow it to make much clearer and more logical decisions regarding the process.

Among the fundamental advantages that the company could achieve by internationalizing are: efficiency, flexibility, learning, prestige, and customer support. (León, C., Miranda, M., 2003)

  • Efficiency: This has 3 main sources of obtaining: comparative advantages, economies of scale, and own systems.

Comparative advantages do not allow today to face international trade with a strong competitive position, but they do allow them to be exploited worldwide and offer efficiency to the company.

Economies of scale understood as savings in the cost of production of a good or service, due to the reduction of fixed costs, are an important source of efficiency and competitiveness at the international level.

The proprietary systems, including the Know-How that companies develop based on their experience in various countries, allow them to succeed in the development of international strategies. This is the case of multinationals such as NESTLE, UNILEVER, PROCTER, AND GAMBLE, whose accumulated knowledge is applied at a cost in the countries they enter.

  • Flexibility. Companies can achieve a better competitive position by gaining flexibility through their international expansion. The first way to obtain it is by diversifying, which reduces geographic risk by no longer depending on a single market. In addition, by operating in several markets you can better defend yourself from the competition since you will no longer have to do it only in your country of origin.
  • Learning. The learning that companies develop in foreign markets is another important source of competitive advantages since other ideas and other innovations about products, services, distribution, marketing, advertising, etc. are known there, which can only be learned by competing there. In addition, companies can always be more competitive if they are in the most demanding markets.
  • Prestige. For a company, being international adds prestige and value to its customers who appreciate those products already referenced in the best markets. You cannot compete internationally in wines if the product is not in the best restaurants in the European capitals.
  • Accompaniment to clients. Many companies must follow their clients, such is the case of auditing and consulting firms, and banks.

Organize

The nature of the competitive advantage sought to be achieved through internationalization determines the type of organization to assume.

If the company seeks to take advantage of its Know How by applying it in other countries, the most logical thing would be during the first stage of the process, to send personnel trained at home and once the technology has been transferred, it would opt for local personnel. If the company seeks to penetrate another country basically to learn from it and its competitors and diversify the risk by having a good base there, the most advisable thing to break through in the market would be to have an autonomous subsidiary, managed by a person with a profile Entrepreneurial, enterprising and knowledgeable about the market. If the only thing the company wants is to export to a country, without penetrating too much into it, the most logical thing to do is to centralize decisions at the parent company and have a manager with an administrator profile selected for the market.

(J. Canals, 1991)

Causes that lead to the internationalization of a company

From a more strictly business level, the most important causes that motivate a company to enter and remain in foreign markets are the following: (Universidad de Vigo Research Team, 2001, 23-25)

1. Saturation of the internal market of the country of origin.

In general, in Western countries, there are markets for certain products that are becoming saturated, and some of them have already reached that state. Mainly, the low population growth rate suggests that the demand will not grow at the desired rate, which is why many companies from many industries are looking for new markets for their products. This is what happened to US cigarette merchants when they realized that their sales were stagnant, turning to the search for foreign opportunities and trying to find new attractive markets. This was the reason for the said industry to address the Indonesian market.

See also  Definition Of Economic Shock

2. Confrontation with new markets from abroad.

Some companies undertake to go abroad as a reaction to the attack of an international competitor that threatens their local position and wreaks havoc on their cash flow. When Michelin, the large French tire manufacturer aggressively entered the US market with very low prices, Goodyear, the American giant, did not respond by protecting its home market, which was its main source of funds and which was targeted by Michelin.

Goodyear’s response was to aggressively attack the French market, dealing a heavy blow to Michelin in its redoubt. That is, he used the strategy of fighting it in his market of origin.

3. Search for less competitive markets or in a different stage of the life cycle of the product and/or service.

This is the case of a product that in its country of origin has reached the maturity stage, faces many competitors and the market growth rate is very low. Given this situation, it is convenient for him to export to other countries where the product is not yet well known. This is what Phillip Morris or Coca-Cola have done, who have penetrated developing country markets early. The North American multinational Gillette sells double-edge razors (an outdated product) in the Chinese market, which is in a growth phase, while this product is in a phase of decline in more developed markets.

4. Appearance of new extremely attractive markets.

Southeast Asia has progressively become an area with a strong push from both the supply and demand sides. During the 1980s, the fastest-growing economies were those of South Korea, Singapore, Malaysia, Thailand, Hong Kong, and Taiwan. This force emerging from the Pacific is both a promise and a threat to Western international traders. A threat, in the sense that they have become fierce competition, both for the domestic market and for the exchanges of Western companies. In fact, in 1987, Matsushita (Japan), Sony (Japan), Toshiba (Japan), Hitachi (Japan), and Samsung (South Korea) became the world’s leading producers of color television sets. The promise comes from the emergence of a market of more than two billion potential consumers. However, international traders should be cautious, as Asians are modernizing, not “Westernizing”, that is, they are buying Western goods and services but not buying values ​​and culture.

5. Government incentives and trade deficit.

Currently, there are many countries with a high trade deficit which forces their governments to encourage exports to obtain foreign currency to buy or that the country needs and that is not in its interior. This is the case of Belgium or Japan whose export rate is higher than 80% of what is produced within the country.

6. Search for broader markets on which to take advantage of economies of scale.

A significant number of industries are undergoing profound changes in all their structures, as a consequence, above all, of technological advances.

This causes modifications in the optimal dimension of the size of many companies, who find it necessary to find more buyers for their products, to reach the minimum efficient size, and find the possibility of distributing R&D costs on a greater basis. This is what has happened with all those industries highly dependent on technological advances.

7. Diversification of the risk of operating in the same market.

The country of origin may be exposed to various economic, political, financial, demographic, etc. circumstances. that promote the need to internationalize. It is a way of not concentrating the success of the company in a single country, whose advances could succumb to it.

8. Monitoring an important client in his international adventure.

For those companies whose business is concentrated on a small number of large clients, the decision to go international occurs when one of their key clients decides to enter foreign markets. This is the case for many American manufacturers of parts and components for the automotive industry that have accompanied Ford and General Motors in their international expansion, first exporting to them and then settling near them in other countries.

This is also the case of major banks such as Citibank and Chase Manhattan, which have internationalized to better serve their clients, many of whom are largely North American multinationals.

9. Search for easy access to technological advances and raw materials.

Relevant examples: European automobile manufacturers pioneered the technology of gasoline injection devices, which helped those American companies that had an active presence in Europe. American steel plate manufacturing companies moved their plants to Canada, due to easy access to raw materials and avoiding the large transportation costs of it.

When labor is a significant proportion of costs, it seeks to expand operations where labor is cheapest.

This is what Intel has done by settling in Malaysia. This option is short-lived as labor is increasingly less important than total production costs.

10. International vocation of its managers.

It is given by the tendency that business managers have to open up to new markets. This vocation is usually given when they have a pleasant experience in foreign countries, are fluent in languages, have studied or taken a course abroad, etc.

Competitiveness in a globalized economy.

The current international economic environment is becoming increasingly dynamic and global. Trends such as the growing interdependence between countries, the formation of regional blocs, the emergence of emerging economies in Asia and Latin America, as well as the surprising technological advances in different sectors, configure an increasingly competitive and changing international environment. As a consequence of these trends, the phenomena of globalization of markets and internationalization of companies have been accentuated, making it more necessary to have a cosmopolitan and international vision of economic activity and to rethink economic concepts and strategies within an open economy model.

(Llamazares, O., 1999)

In recent years, additional facts have appeared that, in turn, accentuate the globalization process, such as: (Universidad de Vigo Research Team, 2001, 30)

  • High indebtedness in international markets by governments and companies, due to internal credit restrictions and the abundance of resources abroad.
  • Financial flows from the growth of investments in the short and long-term portfolio, by institutional investors such as pension funds, insurance companies, investment funds, etc.
  • Financial flows related to the development of new financial instruments and hedging of foreign currency risks.
  • The internationalization of technology is due to the accelerated process of technological innovation and its costs, through franchises, licenses, patents, etc.
  • The importance acquired by the management of human talent, since companies have been forced to seek and train managers with the international mentality and leadership capacity.

Globalization: a new order to act.

At some point a dividing line was crossed, most economists say that it occurred in 1973 with the first oil crisis, while others refer to the revolution experienced by the media and information technology, the truth is that In recent years there has been a transcendental change that has led to a profound conceptual remodeling. That is to say, in a relatively short period the perception of the world from the point of view of the economy increasingly focuses on relationships and interdependence.

As a phenomenon, globalization has its basic impulse in technical progress and, particularly, in its capacity to reduce the cost of moving goods, services, money, people, and information. This phenomenon of “reducing the economic distance” has made it possible to take advantage of existing opportunities in the markets for goods, services, and factors, reducing, although not eliminating, the importance of trade barriers. (V. Donoso, 1997,108)
Although globalization factors are multiple, four large groups of explanatory elements can be distinguished:

(Forsner, H., Ballance, R., 1990)

  • Social and Governance Factors
  • Factors derived from cost pressure
  • Market and Demand-Related Factors
  • Factors derived from competition.

Among the social and governance factors, the most notable aspects are:

  • Free trade policies, since globalization means that international trade is above all possible (greater opening of borders), more feasible (international free trade agreements), and less expensive (increasingly lower tariffs).
  • The logical and reasonable technical harmonization that slowly, but inexorably, is taking place in almost all sectors of the world economy.
  • The economic integration of large areas such as the European Union, MERCOSUR, and NAFTA, represents a process of creating internal markets free of customs obstacles, but also of unifying the technical, regulatory, social, fiscal, and monetary conditions of the activities of member countries.
  • The role of information and communication technologies that have brought human and commercial relations closer together in an unthinkable way a few years ago.

About the factors derived from cost pressure, it refers to the need for companies to increase market shares to reduce total average costs (economies of scale) and at the same time achieve lower direct costs through the experience effect (experience curves) and the greater ease of reaching any point due to the reduction of logistics and transportation costs.

On the other hand, research and development is another element that presses in favor of globalization, since technological progress, capable of changing the competitive configuration of entire sectors, requires being at the center of innovations, since no country is self-sufficient from a technological point of view. Also, the difference in costs between different countries causes some industries to settle in different countries, or companies from countries with lower costs try to address attractive markets and with more attractive margins.

In the group of market and demand factors, the pressure to grow stands out, that is, it is about increasing the volume of business through access to a broader market, to respond to new consumer needs each time with more similar tastes although with different customization requirements. Other elements are the existence of a new, more global demand and the use of new global distribution systems.

Finally, in the group of factors derived from the competition is the increase in world trade, which motivates companies to participate in a greater internationalization of their activities. On the other hand, the interdependence of nations mobilizes the natural increase in the flow of goods and services. The existence of multinational competitors and the globalization of competition itself also require responding on all possible fronts.

The growing globalization of markets is reflected in the strong increase in world trade in the last three decades, which has easily exceeded the increase in world product, and in the boom in foreign direct investment that has grown since 1970 at unsuspected rates. It is also reflected in the integration of the markets themselves, the development of cooperation agreements between countries, and the lifting of some types of controls.

See also  Basic Concepts of Economics

On the other hand, the strong need to gain competitiveness encourages companies to operate in broader markets, cooperating and competing in a game that is perceived to be mutually beneficial.

The concept of globalization is based, therefore, on a series of fundamental aspects such as economic interdependence and the physical integration of markets, the standardization of products, the homogenization of national demands, and the vision that competitive advantages do not are reached by the sum of the countries but by the integration of coordinated activities at a global level. (Ventura, J., 1994)

This phenomenon of the globalization of economic life affects all social partners. In the first place, companies are presented with new opportunities to introduce their products in foreign markets; but at the same time, they also face significant challenges since they will have to face foreign companies in their local markets, which means increasing domestic competition and greater pressure to improve quality and price. It also poses significant challenges for company managers as they have to operate in different geographic markets and with different clients. Globalization increases the difficulties and makes managerial tasks more difficult. It imposes restrictions on the government when it comes to designing its economic policy, reducing its room for maneuver. (Baraba, V., Zaltman, G.,

The process that internationalization presupposes, associated with economic globalization and competitiveness in the international framework, are elements considered to be of the first order when carrying out an in-depth study on this subject. Under this internationalizing pressure, it is increasingly difficult for competitors, suppliers, or customers to access markets from abroad. Economic globalization is forcing companies to compete in world markets and hence the interest in international competitiveness.

As the economy is globalizing, companies need to operate in foreign markets since they are supporting the action of competitors from third countries. In this way, they are forced to expand their markets, either by exporting, establishing agreements, or manufacturing products abroad. (Forsner, H., Ballance, R., 1990)

To the extent that the limits between the national and foreign markets are dissolving at great speed, companies from a certain area or country find themselves with the possibility of operating in another area or country, bringing with it that the intensity of the competition grows and with it the demand for competitive improvement and the search for new markets. Therefore, the economic health of a country depends on its strengths, capacities, advantages, and level of competition. In an open world economy like today’s, competitiveness is therefore a fundamental variable to guarantee business success.

(University of Vigo Research Team, 2001, 17-18)

The globalization of international economic life directly affects companies, creating challenges mainly due to the complexity it imposes on the management of entities, the restrictions it imposes on national economic policies, as well as the growing presence of foreign companies in the national market.
In an environment of these characteristics, internationalization appears as a pressing need for companies. However, it should be noted that this is a difficult, complex, and expensive process, which can even harm the company that undertakes it if it does not previously carry out a serious and rigorous strategic analysis before making such a decision. Both the process and the problems that arise from it are issues that deserve the attention of the government, businessmen, academics, and the media. (J. Canals, 1991)

Competitiveness in the international framework.

Internationalization appears almost always linked to the problem of competitiveness vis-à-vis the exterior. It is necessary to protect the company abroad to generate competitive advantages that allow it to face the future with guarantees of success.

A company cannot be competitive locally without being international. Therefore, companies that intend to be competitive must begin their internationalization process. On the other hand, only those companies that are competitive at the national level will be able to successfully promote an internationalization process. Profit and even growth can only be considered necessary attributes of a competitive company, but they are no longer sufficient. Only the active and growing presence in international scenarios, through its own investment and alliances of various kinds, constitutes valid proof of sustained competitiveness. Competitiveness fosters growth and success. (Forsner, H., Ballance, R., 1990))

The competitiveness and internationalization of the company are therefore closely related. Internationalization hardly occurs without the first, the internationalization process cannot begin if the company is not competitive at a national level, and, in turn, internationalization makes the company more competitive by being able to produce in larger series and, consequently, allowing you to benefit from economies of scale. They are, then, factors that feed each other, but at the origin is, without a doubt, the competitiveness of the company. (Kotler, P., Armstrong, G., 1996).

In addition, entering the international scene requires analyzing international competitiveness as an indicator of the competitive position of a country and its companies.

This concept has been used and defined from different perspectives, although generically, it can be understood as the ability to withstand international competition obtaining a certain level of profitability, or as the ability of companies in a country to create, produce and distribute goods. and services in international markets.

Three fundamental sources of the development of international competitiveness can be distinguished: the country, the sector, and the company. (Forsner, H., Ballance, R., 1990)

Many studies have been carried out emphasizing the competitiveness of countries, that is, on determining how national environments are beneficial or detrimental to the competitiveness of the companies that operate in them.

Within this approach would be the meanings of foreign competitiveness that are linked to the orthodox vision of the principle of comparative advantage and, therefore, understanding that international competitiveness is expressed exclusively in terms of relative costs and prices. According to this meaning, the evolution of the competitiveness of a specific country concerning another country or group of countries, throughout a period would be evaluated based on the comparison of the evolution of their respective costs or prices expressed in a common currency. (Ventura, J., 1994).
If only these factors are considered in the analysis of competitiveness, it is not possible to explain why companies in the same industrial sector present different competitive patterns among themselves.

There are studies carried out in the field of industrial economics that indicate that the average benefits of the sectors differ from each other, which means that the results of the companies are conditioned by the sector or industry to which they belong. The industry is the primary focus of competitive forces; Its structure is the one that primarily conditions the conduct and performance of the company and is the convenient logical unit for studying the conduct and performance of the company. (Alonso, JA, 1994)

The conjunction of these two types of variables – those of a macroeconomic nature related to an area and those associated with the structure of the sectors – also does not offer a complete vision of the phenomenon of competitiveness because they do not analyze in depth the role of the company in competitiveness. Within each sector, the companies, through their management capacities and internal organization, determine their competitiveness. In the light of modern strategy theory, this is the critical determinant of the competitiveness of each company.

In this sense, the theory of resources and capabilities places the firm at the center of the competitive game, by supporting the vital role of firm-specific factors in generating competitive advantages, especially intangible assets largely unrelated to transactions. in the market. For resources and capabilities to become competitive advantages, they must not be generalizable to other companies. (O. Llamazares, 1999)
In the first place, it is necessary to consider that the resources are not homogeneous so that companies can differentiate themselves based on the resources they control; obtaining a competitive advantage those that are capable of accessing superior resources, especially if these are limited, which would cause the remaining companies to have to use resources of lower value in their production.

But to guarantee the advantage in the long term the other companies mustn’t find a way to increase the supply of the input or to replace it with another; that is, there must be mechanisms that isolate the company from possible imitations.

This can be achieved in several ways. The first is that the necessary resources cannot be found in a factor market that any competitor could turn to, but rather that they are generated in the company itself. However, this does not guarantee the maintenance of competitive advantage, since the possibility of imitation by other companies must be considered. It will therefore be necessary to make this imitation difficult and the best way to do it is that the causes of a company’s success are not known exactly, because if the resources and capacities used are not identified, it will be difficult for them to be imitated or replaced.

In short, the best resources are those that are scarce, evaluable, hardly replaceable, and difficult to imitate, since they provide the company with the possibility of obtaining income that it can appropriate if, in addition, these resources are not salable or their sale involves high costs. transaction. (Ventura, J., 1994).

Once the importance of the resources for the competitive advantage of the company has been analyzed, it is worth questioning the relationship that these have with the internationalization processes. The international strategy is nothing more than a specific vector -of greater or lesser importance, depending on the case- of the general competitive strategy of the company. Internationalization can be understood as a form of geographical diversification of the company and precisely the profile of the company’s resources determines not only the existence of growth but also its direction. (J. Canals, 1991)

Bibliography and notes used:

  • Alonso, JA (1994). The process of internationalization of the company. ICE, Madrid.
  • Baraba, Vincent P.–Zaltman, Gerlad (1992). The Voice of the Market. Mac Graw Hill. Harvard Business School Press. Interamerican of Spain. SA,
  • Canals, Jordi (1991). International competitiveness and company strategy. Ariel, SA, Barcelona.
  • Canals, Jordi (1996). The internationalization of the company. Editorial Mc Graw Hill – IESE. Madrid.
  • Donoso, V. (1997). Foreign trade in the global economy. Economists, V.74, pp.104-112.
  • Research Team (University of Vigo), Jorge González Gurriarán, José Cabanelas Omil and others. (2001). The internationalization of small and medium-sized Galician companies: Analysis, diagnosis and possible strategies. Editorial Studies1.
  • Forsner, H; Ballance, R. (1990) Competing in a global economy. Unwin Hyman, London.
  • Johanson J. and Wiedershein-Paul, F. (1975). The internationalization of the firm: Four Swedish Cases. Journal of Management Studies, 12, October, pp.305-322.
  • Kindeblerger, C. P. (1969). American Business Abroad: Six Lectures on Direct Investment. Yale University Press, New Haven.

BUZZBONGO

BUZZBONGO  we are here to serve society through a virtual environment that enables people who wish to develop their personal and professional skills in fields related to finance ,administration, business and the economy to share and acquire knowledge.