If a domestic firm wants to be successful in the international arena, it’s probabilities of success is shaped by four factors −
● Demand conditions of home country
● Factor conditions of home country
● Related and supporting industries in the home country
● Strategy, structure, and rivalry among the domestic competitors
The demand conditions talks about the nature of domestic customers. It is often commonly thought that firms benefit when the domestic customers tend to purchase inferior products. It is a faulty belief! Instead of such beliefs, it has been found that firms benefit when the domestic customers have high expectations.
Why do German automakers such as Porsche, Mercedes-Benz, and BMW create excellent luxury and high-performance vehicles? German car buyers value high- end engineering. The car may be just a means of transportation, but in Germany fahrvergnügen, which means “driving pleasure” is a popular concept.
Factor conditions are related with the nature of raw material and other resources that firms need to build goods and services, including land, labor, capital markets, and infrastructure. When the firms have good access to factor conditions they excel, and face challenges when they do not have good factor conditions.
Firms in the United States, for example, have plentiful natural resources, a skilled labor force, advanced transportation systems, and sophisticated capital markets to be successful. Chinese manufacturers have been benefited in part by the availability of cheap labor.
Related and Supporting Industries
Supporting industries denote the extent to which the firms’ domestic suppliers and other related industries are developed and helpful. Italian shoemakers such as Salvatore Ferragamo, Prada, Gucci, and Versace benefit from the availability of top-quality leather in the home country. In case, these shoemakers need to depend on imported leather, they would lose the advantage.
Firm Strategy, Structure, and Rivalry
The concept of firm strategy, structure, and rivalry talks about how challenging it is to survive the domestic competition. Companies that survive intense rivalry in the home markets, they are likely to have developed strategies and structures for competing in international markets. Hyundai and Kia had to keep pace with each other within the South Korean market before expanding overseas.
If, in contrast, domestic competition is very feeble, a company can have high profits within its home market. However, the lack of competition means the firm will have to struggle to reach its potential in creativity and innovation. This decreases the firm’s ability to compete overseas.
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