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Companies to Expand Operations Internationally, Ref No: 1231
Contents
The Motivations behind the Internationalization for Companies.
Increased Sales, Profits and Market Share.
Improvement in Brand Image and Brand Equity.
Introduction
Companies to Expand Operations Internationally, The assignment focuses on the motivation behind the internationalization of businesses for the companies. In the view of Knight (2007), the expansion of operations internationally helps the businesses generate additional sales, produce at a cheaper cost but the internationalization of operation impacts the risk borne by the company. As the company expands its operations overseas, its’ operational risk increases due to different internal and external factors. There are numerous factors that motivate both the manufacturing and service companies to go international for the production and sales in other countries. These reasons vary from operational opportunities available in other countries to cheaper labor and other resources available internationally. These factors are highlighted in a detailed manner in this assignment along with the relevant examples available in different countries.
The Motivations behind the Internationalization for Companies
In accordance with Biggs (2013), there are different reasons why business move towards international operations. Some companies go international by their choice as they seek expanded operations while others are forced to do so as a result of declining domestic market or slow growth in the domestic market. There are some objectives and motivations when business expand operations internationally which are discussed below:
Increased Sales, Profits and Market Share
In the view of Biggs (2013), the company can easily increase its target market by expanding geographically or introducing new products to target the new demographics. When the companies choose to expand geographically, their target market increases visibly, this normally leads to increased sales. The companies often get motivated to go in international market considering their sales can increase potentially. The increased sales often lead to increased profits because of the economies of scale and higher profit margins in some parts of the world. According to Biggs (2013), another important motivation for the companies to internationalize their business is that it can lead to increased market share of the company. As the sales increase, the global market share of the company increases; the global presence of brand also impacts its domestic sales due to improved brand image. These are main reasons behind the expansion of businesses internationally as seen in the contemporary era; there are many examples where the internationalization of businesses led to higher sales, profits and market share.
For Example: MAC cosmetics started their business as a small venture and now they have been able to expand their business in 118 countries. The business has captured 45% of total cosmetics sales around the globe. The company’s philosophy which led to success was it’s believe in internationalization. The business focused on internationalization since its inception and was able to expand its business faster than peers in the same industry (MAC Cosmetics, 2015). Another example can be illustrated from retail industry of UK. Retailing is one of the main industries in UK but still the bigger players of the industry chose to expand internationally to improve their performance and brand image. Tesco PLC has been one of the large and profitable players in the UK retail industry but it has also expanded its business across different countries. It can easily be analyzed that the sales, profits and market share of Tesco has increased after international presence despite major portion of sales from UK (Lowe and Wrigley, 2009).
Controlling Expenses
According to Knight (2007), every business aims earn more profits by increasing sales or controlling expenses. The expenses can be controlled significantly by internationalization as the production costs vary from region to region, country to country. The production cost in a developed country is significantly higher than that of the developing countries due to the availability of cheaper labour or materials. Companies are always in search of a source where they can get resources at the lowest price. These companies also search for resources across borders so that their costs can be reduced and Companies to Expand Operations Internationally this is only possible by the internationalization of operations. Therefore, the chance of controlling expenses also motivates the companies to start their operations overseas.
An example of controlling expenses by internationalization is the World giant Technology Company Apple Inc. Apple is a US based company but it manufactures its products in other parts of the world such as China these days. The manufacturing operations of Apple are spread internationally to control the costs primarily by hiring cheaper labour and incurring lower operational costs. Apple Inc has been able to cut its costs and increase profit by the internationalization of operations (Blodget, 2012). It can be seen generally that some of the big companies of the world do not produce goods in the country of incorporation but they transfer main operations to a developing country so that they can earn maximum.
Competitiveness
Another motivation/reason behind the internationalization of business is that it helps companies maintain or increase their competitive position in the industry. Some companies expand their business internationally due to the fact that their competitors are expanding internationally. Some other companies expand internationally to gain first mover advantage and a competitive advantage over its competitors. In today’s world when the online business is gaining market share, every small business competes with the international businesses. As a result, Companies to Expand Operations Internationally these businesses either survive by innovative strategies or they also merge with an international company to ensure survival in the competitive industry (Knight, 2011).
In the current era, it has become easier to compete with international companies by having an international presence. Many companies have increased their competitiveness by having an online international business while they are located in only one country. They sell their products as exports to other countries; an example of such a business is Amazon as it sells products all over the world but have main operations in the USA only (Amazon, 2015). Therefore, increased competitiveness by the internationalization of business also acts as a key motivator to the companies to expand the operations overseas.
An example of competitiveness is that a small shop of video games faces competition from international players like Blockbuster video. The small video shops have a relatively lower collection as compared to world giant players so either these small businesses expand rapidly to ensure survival or they merge with a large company.
Diversification
Another motivator to the companies behind the internationalization of operation is the diversification of business. A company can diversify its product line by making the investment in different countries. The product line can be expanded because when a company has operations in different countries, it can introduce new products as per the diversified customers.
The products that will not attract an audience in one country may be able to do so in another country (Sharma and Blomstermo, 2003). The company’s business is also diversified in terms of macroeconomic factors because when one economy underperforms, it is not necessary that the other will also underperform. In this case, the company has operations in multiple countries can save themselves from losses by earning significantly in the economies which…
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