Corporate Internationalization: Strategies, FDI, and Global Trade Barriers

1. Corporate Internationalization: Forms and Strategies

Corporate internationalization occurs when a company expands its business beyond its home country.

Main Forms of Internationalization

• Exports: The company produces in its home country and sells products abroad.
  • Example: A Spanish winery selling wine to Japan.
• Commercial Delegation: Production stays at home, but the company establishes a sales office or employs salespeople abroad.
  • Example: A French company with a sales office in Brazil.
• Production Plant Abroad: The company builds factories in the foreign country to produce and sell locally.

  This strategy helps reduce transport costs and avoid tariffs.

• Internationalization of Purchases: When a company buys materials or products from abroad.
• Imports: Buying from foreign suppliers can increase competitiveness.
• Relocation (Delocalization): Moving factories to another country to lower production costs (e.g., cheaper labor).

2. Foreign Direct Investment (FDI)

FDI occurs when a company or investor owns at least 10% of a foreign business, demonstrating long-term interest and control.

Types of FDI Stocks

• Outward FDI: Investments made by companies from the home country abroad.
• Inward FDI: Investments made by foreign companies in the home country.

Types of FDI

• Commercial FDI: Establishing branches or subsidiaries solely for sales, without production.
• Productive FDI: Building factories or production centers in the destination country.

3. Key Reasons for Internationalization

Companies expand internationally to achieve several strategic goals:

• Achieve growth.
• Gain more clients and markets.
• Diversify risks.
• Reduce costs (labor, materials, logistics).
• Increase competitiveness globally.

4. Sales Force Organization in Foreign Markets

How a company organizes its sales activities abroad.

Sales Force Types

• Internal: The company’s own employees (from headquarters or subsidiaries).
• External: Independent partners like agents, representatives, or distributors.

Organization Methods

• Geographic: Divided by territory (e.g., Europe, Asia, Latin America).
• Product-based: Teams specialized in one product line.
• Client-based: Teams focused on a type of customer (e.g., government, wholesalers, hospitals).

5. Barriers to Internationalization

Challenges that make it difficult for companies to enter foreign markets:

• Cultural Barriers: Language, habits, customer preferences.
• Transport and Logistics: Costs, distance, and infrastructure limitations.
• Customs Barriers: Tariffs, VAT, import bureaucracy, and health/safety checks.
• State Aid: Governments supporting local businesses (subsidies).
• Technical Obstacles: Product standards, certifications, and safety regulations.
• Public Procurement: Governments prefer buying from national firms.
• Restrictions on Foreign Establishment: Limits on foreign ownership, labor rules, and repatriating profits.
• Monetary Obstacles: Exchange rate fluctuations and bank commissions.

👉 Note: Most of these barriers are forms of protectionism — policies that make foreign products more expensive or less competitive.

6. Types of Protectionism

Government measures implemented to protect domestic industries from foreign competition:

• Tariffs: Taxes imposed on imports.
• Quotas: Limits on the amount or value of goods that can be imported.
• Voluntary Export Restraints (VERs): Agreements between countries to limit exports voluntarily.
• Intellectual Property Laws: Protecting national innovations (patents, copyrights).
• Technical Barriers: Strict labeling or health/safety standards.
• Subsidies: Financial aid provided for domestic producers (e.g., EU farm subsidies).
• Import Licensing: Needing official permission to import goods.
• Exchange Controls: Restrictions on foreign currency movements.
• Financial Protectionism: Local firms receiving preferential access to credit.

7. Core International Trade Theories

These theories explain why countries engage in trade with each other.

Absolute Advantage (Adam Smith)

Countries should produce goods they are most efficient at and trade with others. This specialization increases total output and wealth.

Comparative Advantage (David Ricardo)

Even if one country is less efficient in everything, it should specialize in what it does least badly (i.e., the product with the lowest opportunity cost). Both sides still benefit significantly from trade.

8. Reliable International Trade Information Sources

Where companies can find reliable international trade data:

• ICEX: Spanish government agency that assists companies in global expansion.
• Access2Markets (EU): Database providing information on tariffs, trade agreements, and import rules within the European Union.
• UN Comtrade: The world’s largest database of international trade statistics.

9. European Union (EU) Trade Policy

The European Union controls trade policy for all its members collectively (not each country individually).

Scope and Process

EU trade policy covers trade in goods, services, intellectual property, public procurement, and FDI. The European Commission negotiates trade agreements, and the Council and Parliament approve them.

Types of EU Trade Agreements

• Customs Union: Features no tariffs between members plus a common external tariff for outsiders.
• Free Trade / Association Agreements: Designed to reduce or remove tariffs between partner countries.
• Cooperation Agreements: Focus on collaboration where tariffs generally remain unchanged.