Internationalization has been viewed as a process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization or international entrepreneurship. There are several internationalization theories which try to explain why there are international activities.

Trade theories

Absolute cost advantage (Adam Smith, 1776)

Adam Smith claimed that a country should specialise in, and export, commodities in which it had an absolute advantage. An absolute advantage existed when the country could produce a commodity with less costs per unit produced than could its trading partner. By the same reasoning, it should import commodities in which it had an absolute disadvantage.

While there are possible gains from trade with absolute advantage, comparative advantage extends the range of possible mutually beneficial exchanges. In other words it is not necessary to have an absolute advantage to gain from trade, only a comparative advantage.

Comparative cost advantage (David Ricardo, 1817)

David Ricardo argued that a country need not have an absolute advantage in the production of any commidity in order for international trade between it and another country to be mutually beneficial. By absolute advantage was meant greater efficiency in production, or the use of less labor in production. Two countries could both benefit from trade if each had a relative advantage in production. By relative advantage was meant simply that the ratio of the labor embodied in two commodities differed between two countries, such that each country would have at least one commoditiy where the relative amount of labor embodied would be less than that of the other country.