Free CIPS L6M2 Practice Exam with Questions & Answers | Set: 2

Four Key Drivers of Internationalisation

Introduction

Internationalisation refers to theprocess of expanding business operations into international markets. Companies expand globally toincrease market share, access resources, reduce costs, and enhance competitiveness.

Several factors drive internationalisation, but the four key drivers are:

Market Drivers– Demand from global consumers.

Cost Drivers– Reducing production costs.

Competitive Drivers– Gaining an edge over rivals.

Government & Regulatory Drivers– Trade policies and incentives.

These factors influencebusiness strategy, supply chain management, and operational efficiencyin international markets.

1. Market Drivers????(Demand and Market Expansion)

Definition

Market drivers relate toconsumer demand, global branding opportunities, and standardization of products across different markets.

✅Why It Drives Internationalisation?

Companies seeknew customers and revenue streamsbeyond domestic markets.

Global branding createsstrong market presence and customer loyalty.

Similar customer preferences allow forproduct standardization and scalability.

????Example:McDonald's expands globallyby offeringconsistent branding and adapted menusto match local tastes.

????Key Takeaway:Businesses expand internationally totap into new markets, increase sales, and leverage brand recognition.

2. Cost Drivers????(Reducing Production and Operational Costs)

Definition

Cost drivers involvereducing manufacturing, labor, and supply chain costs by operating in lower-cost regions.

✅Why It Drives Internationalisation?

Labor cost savings– Companies move production tolow-cost countries (e.g., China, Vietnam, Mexico).

Economies of scale– Expanding operations globallylowers per-unit costs.

Access to cheaper raw materials– Firms relocate toresource-rich countriesfor lower procurement costs.

????Example:Apple manufactures iPhones in Chinadue tolower labor costs and supplier proximity.

????Key Takeaway:Companiesinternationalise to optimize costs, increase profit margins, and improve supply chain efficiency.

3. Competitive Drivers????(Gaining Market Advantage)

Definition

Competitive drivers push firms toexpand internationally to stay ahead of rivals, access new technologies, and strengthen market positioning.

✅Why It Drives Internationalisation?

Competing with global playersforces firms to expand or risk losing market share.

First-mover advantage– Entering new markets early buildsbrand dominance.

Access to innovation– Expanding to regions withadvanced R&D and skilled talentenhances competitiveness.

????Example:Tesla expanded into Chinato compete with local EV manufacturers and dominate the world’s largest electric vehicle market.

????Key Takeaway:Businesses internationalise tooutperform competitors, access innovation, and capture strategic markets.

4. Government & Regulatory Drivers????️(Trade Policies & Incentives)

Definition

Government policies, trade agreements, and financial incentives influencehow and where businesses expand internationally.

✅Why It Drives Internationalisation?

Free Trade Agreements (FTAs)reduce tariffs, making exports/imports more attractive.

Government incentives(e.g., tax breaks, subsidies) encourage foreign investments.

Favorable regulationsallow easier market entry and operations.

????Example:Car manufacturers set up plants in Mexicodue toNAFTA trade benefitsand lower import tariffs into North America.

????Key Takeaway:Businesses internationalisewhen government policies support market entry, trade facilitation, and investment incentives.

Conclusion

Internationalisation is driven bymarket demand, cost efficiencies, competitive pressures, and regulatory factors. Companies expand globally to:

✅Access new customersand increase revenue.✅Reduce coststhrough cheaper production and labor.✅Stay competitiveand gain market leadership.✅Leverage government trade policiesfor easier market entry.

Understanding these drivers helps businessesmake informed global expansion decisionswhile managing risks effectively.

The Role and Influence of Industry Regulators and International Bodies in the Business Environment

Introduction

Industry regulators and international bodies play acritical role in shaping the business environmentby enforcing regulations, setting industry standards, and ensuring fair competition. These organizations influence how businesses operate, impacting areas such astrade, finance, environmental sustainability, labor practices, and consumer protection.

Companies must comply with regulations set by bothdomestic industry regulatorsandglobal institutionsto maintain legal and ethical business operations.

1. Role of Industry Regulators

Industry regulators aregovernment-appointed or independent organizationsthat oversee specific sectors to ensure compliance with laws and standards. Their key functions include:

✅Enforcing Compliance– Ensuring companies adhere to legal requirements (e.g., financial reporting, safety regulations).✅Promoting Fair Competition– Preventing monopolies and anti-competitive practices.✅Consumer Protection– Safeguarding consumer rights and ensuring product/service quality.✅Regulating Market Entry and Operations– Setting standards for licensing, pricing, and ethical conduct.

????Example of Industry Regulators

A screenshot of a computer Description automatically generated

Case Example:TheUK’s Competition and Markets Authority (CMA)blockedMicrosoft’s acquisition of Activision Blizzarddue to concerns over market dominance in cloud gaming.

2. Role of International Bodies

International bodies setglobal regulations, trade policies, and ethical standardsthat influence businesses operating across borders.

A table with text on it Description automatically generated

Case Example:TheWTO’s intervention in Brexit trade negotiationsaffected tariffs and supply chain costs for UK-based companies.

3. Influence of Industry Regulators and International Bodies on Business Strategy

Businesses must align their strategies with regulatory and international frameworks toensure compliance and avoid financial or reputational risks.

A screenshot of a computer Description automatically generated

Example:TheEU’s General Data Protection Regulation (GDPR)forced global companies to enhancedata protection policiesor face heavy fines.

4. Advantages and Disadvantages of Regulatory and International Influence

✅Advantages

Promotes Stability & Fair Competition– Reduces market manipulation and corruption.

Protects Consumers & Employees– Ensures safety, fair wages, and ethical standards.

Encourages Innovation & Sustainability– Businesses invest in R&D to meet regulatory requirements.

Facilitates Global Trade– International trade agreements create business opportunities.

❌Disadvantages

Regulatory Burdens & Compliance Costs– Strict laws increase operational costs.

Trade Barriers & Bureaucracy– Lengthy regulatory approval processes slow down market entry.

Risk of Overregulation– Too many rules can stifle competition and innovation.

????Example:TheEU Emissions Trading System (EU ETS)requires manufacturers topay for carbon emissions, increasing operational costs.

Conclusion

Industry regulators and international bodiesshape the business environmentby enforcing laws, ensuring ethical practices, and facilitating global trade. Companies must proactivelymonitor regulatory changes, integrate compliance into strategic planning, and adapt to international standardsto maintain market competitiveness and sustainability.