In this question, you will consider the main risks and rewards of international business for two

firms. In the case of a large established domestic firm which of the potential rewards is greatest
(new customers, lower costs, and diversification of markets) and which risk is greatest (political,
economic, cultural)? In the case of a new entrepreneurial firm, which risks and rewards are
greatest? Evaluate the reasons why the risks and rewards may (or may not) be different for the
two types of firms.

The growth of business and economic expansion at global scale has pulled the industry to expand
themselves in International Market, where they have been leveraged with various rewards and risks
associated with it. Although the business tends to gain for all the rewards and try to minimalize their
risks, there have been different level of rewards and risks associated for firms at different level of
operation or establishment (Ketchen et al., 2012). The Strategic management has identified the 3
major rewards for international businesses, i.e., new customer, Lower costs & Diversification of
market along with 3 major risks of political instability, economic turbulence and cultural barriers.

As the rewards while moving to an international position, the business gets the opportunity to gain
new customers as when the company moves from local to international platform, they get a sudden
access to 95% of world population as their potential customer. This is another possibility for the
business to lower down their cost and generate more profits by establishing their production units at
low cost countries (Ketchen et al., 2012). There are many countries like China, India and other who
could offer material and labour at quite a low cost as compared to countries like UK, USA, etc. which
could help the business to develop low cost product at these economic locations and gain an
exponential profit difference as compared to their local production centres. Apart from this, having
the business in multiple location could help them diversify their business and balance their profits as
diversification helps them to neutralise their economic turbulences and have a stable profit
generation through other diversified markets. In another rack, the international market do bring
some risks for business as they may fall under the trap of political disturbance where the business
fails to overcome political conflicts with local government, fulfil the local policies and fail to
compliance with the local jurisdiction due to lack of knowledge of the new market (Ketchen et al.,
2012). This is added on with various cultural shocks and barriers which could hinder their business
operations as bringing in the local business at international platform could hurt cultural sentiments
or the products may not be culturally fit for the market. In addition to it having diversified operations
could lead to complex economics as the financial handling could be complex and tackling each
market would need different strategies.

The large established domestic firms have greater funds and developed business with proper
strategies, enough market coverage and well-established revenue generation. The major advantage
an established firm looks while moving to international platform is the market expansion with
diversity in market. As these firms are well established, they have already sufficient market share
and have already been operating with lower costs or offshoring techniques, but the presence in only
one market makes their business vulnerable to economic turbulences. As a result, the established
firms look for a diversified market share where their economic turbulence in the one market doesn’t
hamper much of business operations and they could to grow. In contrary, the new entrepreneur
firms, being new to market, goes in highly optimistic to gain new customers as their main goal lies to
generate higher revenues while gaining market share and this could be effectively taken care with
rise in new customers. In the early stages of establishment, the businesses are ready to take
economic risk and may play with lower profit margin while postponing the lower cost advantages.

In for the risks are concerned, the long established firms have well developed research, marketing,
legal and strategic development teams which can handle the economic and political change but at
times the market cultural study takes their lot of efforts in order to understand the market needs
and requirements. Hence, the cultural risks are greater for the long-established firms. In contrary,
the new firms have lack of developed teams to tackle any form of risks in the international market
and they are prone to any of the three risks of the international expansion and as a research from
various scholars have taken all the three risks of political, cultural and economic factors. When in
summarised, the political factor plays the crucial role of these firms as they lack the research for
tackling political challenges for the organisation.

REFERENCE
Ketchen, D & Short, J. (2012). Strategic Management: Evaluation and
Execution. This book is licensed under a Creative Commons by-nc-sa 3
license.