THE MAIN REASONS COMPANIES ENGAGE IN INTERNATIONAL BUSINESS.

WHY TO GO GLOBAL- OBJECTIVES

Companies engage in international for a variety of reasons, but the goal is typically company growth or
expansion. Whether a company hires international employees or searches for new marketsabroad, an
international strategy can help diversify and expand a business.

1. Many companies look to international markets for growth. Introducing new products
internationally can expand a company's customer base, sales and revenue. For example, after Coca-
Cola dominated the U.S. Market, it expanded their business globally starting in 1926 to increase sales
and profits.

2. Companies go international to find alternative sources of labor. Some companies look to

international countries for lower-cost manufacturing, technology assistance and other services in
order to maintain a competitive advantage.

3. Some companies go international to locate resources that are difficult to obtain in their home
markets, or that can be obtained at a better price internationally.

4. Companies go international to broaden their work force and obtain new ideas. A work force
comprised of different backgrounds and cultural differences can bring fresh ideas and concepts to
help a company grow. For example, IBM actively recruits individuals from diverse backgrounds
because it believes it's a competitive advantage that drives innovation and benefits customers.

5. Some companies go international to diversify. Selling products and services in multiple countries
reduces the company's exposure to possible economic and political instability in a single country

Reactive reasons for going international include:

 Market - the company is responding to demand it discovers in another location
o it could make this discovery by accident, or by having an affiliated company give them a
tip

 Competitive Environment - it sees competitors going to a particular place

o for example when Honda set up shop in Ohio, some other Japanese auto parts companies
also moved to Ohio to continue supplying Honda

 Political Environment changes - Trade Barriers

o tariff or non-tariff barriers: if an exporting company finds that the government in the
recipient country starts to build tariff or non-tariff barriers to block the export, then it
might be a reason for the exporter to set up a manufacturing operation overseas in order
to avoid the tariffs

o "buy-local" policies: exporting companies may find that "buy-local" policies may restrict
their exports - which may cause the exporter to set up a local alliance or relationship

 Political Environment changes - Regulations

o Environmental regulations or changes in work/safety regulations may cause the company
to go overseas to a less restrictive location

o Some Asian companies (selling in to the U.S. market) have moved manufacturing and
assembly operations from the southern U.S. to Mexico where pollution and labour
regulations are not so restrictive as in the U.S.
  Economic Environment changes

o Costs of production at home increase, forcing the company to find a cheaper place to
produce.
 many Canadian garment manufacturing companies have moved production out of
Canada in the 1990's for the simple reason that labour is a huge cost in clothing
production and there have been cheaper places found to make clothes in Asia and
South-Asia and parts of Latin America

 Chance Occurrence
o sometimes a company goes international for the most simple reason, the CEO went some
place on vacation and thought it would be a good place to do business, or a friend made a
suggestion to a senior executive about an opportunity, so the company seizes on it to do
something

o you would be surprised how often it is chance occurrence that causes someone to get on a
airplane and go somewhere - and, keep in mind, most int'l business is done by companies
with less than 50 people

Companies who are proactive in international business are, in most cases, better positioned than
companies that simply react. If you simply react you might make a mistake and not do things properly
because you are stressed for time, money or manpower.

Proactive reasons for going international include:

 Expanding Sales By Strategically Seeking Out Advantages

o access to resources which may save on shipping or processing costs

o producing inside newly created political or regulatory boundaries (such as free-trade
zones or multi-lateral groupings of countries like the EU or ASEAN)

 Launch An Offensive Into A New Market Before Competitor Does (eg. like Pepsi into Russia,
before Coke)

 Power and Prestige

eg. in the early 1990's, a lot of Canadian law firms merged to form bigger firms, and also boasted
about having affiliated law offices in other countries

 Managing the product life cycle

All companies have products, which pass through different stages of their life cycles. After the product
reaches the last stage of the life cycle called the declining stage in one country, it is important for the
company to identify other countries where the whole cycle process could be encashed. For example, HP
laptops are moving all the developing countries the moment they reached maturity in the U.S. market
 Corporate ambition:
Every corporate in the country has strategic plans to multiply its sales turnover. In case some of the
ventures fail, others will offset the losses because of multi-location operations. For example, Coco Cola
is still today not earning any profit in a number of countries. But this will not affect the company
because more than a hundred countries are contributing to offset losses.
 incentives
o sometimes the host government will offer special tax breaks to entice an investment
 lower costs of labour, production and energy
 less stringent rules and regulations effecting pollution and labour
 Earning valuable foreign exchange.
 Diplomatic Relations