Since ancient times, nations and other societies relied on importing and exporting goods to meet their needs. The early nineteen century saw an increase in globalization and increasing the amount of goods and population migrating across borders. Most of the migration across national frontiers included flow of foreign capital and labor in large quantities. Moreover, the late nineteen century gave birth to the increase in leaving standard due to growth created by the economic cooperation and development. As a consequence, some Europeans countries tended to grow faster than others. Indeed, poor countries around the European periphery tended to grow faster than the ...view middle of the document...
The importance of European companies and other firms around the world to do business abroad has been brought out by different theories; however the focus of this paper will be on the overlapping product range theory.
Overlapping product ranges theory
Staffan Linder a Swedish economist is at the heart of the overlapping product theory. According to Linder with goods that are manufactured domestically firms are mostly interested in finding a domestic Market. The local market will often determine the kind of goods that are exported. Thus, local demand conditions are important in selecting items to be exported.The foreign markets with greatest exports potential is found in nations with consumer demand similar to those of domestic consumers.A nation’s export is thus an extension of production. Focusing onmanufactured goods, it is only logical for a country to seek trade with countries that have a similar income per capita.
Indeed firms that want to enter a foreign market must decide on which produce will be profitable.Once the product used for entry has been decided,the question for the degree of its marketing involvement and commitment comes next.Thus, the decision should reflect a considerable study and analysis of market potential and company capabilities. When trade is involved each country will gather efforts in order to produce the best commodities for exports.
According to the overlapping theory domestic demand plays a key role in determination potential exports. According to Linder, for one product to be a potential export it has to be first used as consumption or investment good in the home country. This fact means that the product should be generally demanded on local markets first.
For instance, there is a demand for Mercedes-benz, range rovers in Qatar it does not represent a solid demand, fornot a considerable number of the populationare guaranteed to purchase those two brands of cars. Hence, although luxurious, Mercedes-benz and range rovers won’t be considered potential goods for exports to Qatar. In order to explain this theory some reasons are given:
Most entrepreneurs are not interested in producing goods that will not promise a solid domestic demand.
And even if there was need overseas perceived by entrepreneurs, the may not be able to conceive the product that suits this need.
There is the presence of unfamiliar conditions that may cause the product to fail in foreign market.
The reasons given amount to say that production functions are not identical. Hence for entrepreneurs, the production functions in the home countries are the basis for which a venture in a foreign market will be considered. Most multinationals such as Coca-Cola, and Samsung started venturing in other countries after earning a considerable amount of profit in their home country. Thus, production functions of commodities domestically demanded are the most advantageous, it amounts to what entrepreneur call “the support of...