International Business and Globalization – 2

Discuss five (5) motives for establishing foreign operations.

ANSWER

There are various reasons why a company would decide to make its operations globally. Among them includes market opportunities where the company is looking for new market opportunities abroad. This could be supported by the idea that the company’s products and services are in demand abroad, there is favour towards the company’s products and services in the new market or there is no competition abroad giving the company a competitive advantage. Secondly, the company could be in search of risk diversification where a company wants to avoid putting all its eggs in one basket. This strategy aims to make the company more resilient in the face of changes that could affect consumer behaviours such as climate or political change among others.

Thirdly is to achieve a positive economy of scale where a company may want to economise on the distribution and transport network. It is also possible for production to be cheaper in some other countries as with regards to labour, raw materials and legislations. Fourthly, sales expansion where there more positive potential of expanding internationally in comparison to concentration on local markets which can be affected by seasons as is with the nature of sales. Establishing a company on a foreign marker comes with new market prospects and hence new consumers and therefore more sales.

Lastly, a motive for a company to launch foreign operations could be for the reason of resource seeking. Foreign markets could have resources that are vital to production such as raw materials and labour which could offer the company either a competitive advantage or a reduction on overhead costs all which companies are constantly in search.

References

Dawson, J. A. (1994). Internationalization of retailing operations. Journal of marketing management, 10(4), 267-282.