3. reactive motivations.
- competitive pressure: a firm may worry about losing domestic market share to competing firms that have benefited from the economies of scale gained through international business activities. It may also fear losing foreign markets to competitors that have decided to focus on these markets.
- overproduction: during downturns in the domestic business cycle foreign markets can provide an ideal outlet for excess inventories.
- declining domestic sales or a saturated domestic market: at the declining stage of product life cycle, firms choose to prolong the product life cycle by expanding the market.
- excess capacity: if equipment for production is not fully utilized, firms may see expansion abroad as an ideal way to achieve broader distribution of fixed cost.
- proximity to customers – physical and psychological closeness to the international market for example, most European firms automatically go abroad simply because their neighbors are so close.
- however, physical (geographical) closeness to foreign markets may not necessarily translate into psychological closeness.
- cultural variables, legal factors, and other social norms make a foreign market that is geographically close seem psychologically distant. For instance, the u.s. firms perceive Canada to be much closer psychologically than mexico, even though both Canada and mexico are geographically close to the close to the u.s.