Question

Student must complete the following questions as per the instructions

Discuss the primary factors that motivate companies to expand internationally. As per your research (not your personal views) is it more profitable for an organization to expand internationally or stay in its home base and provide more employment at home?

Instructions

You must have a minimum of two academically reviewed journal articles sourced from the CU library to support your answer.

Please use full APA throughout (use in-text citations and a APA reference list). Post your responses in the body of the discussion area. DO NOT INCLUDE A WORD DOCUMENT.

Post your initial response no later than Wednesday of week 4 by 11:55pm EST, secondary responses must be posted by Sunday of week 4 by 11:55pm EST. Please note that initial post not completed on the due date will receive zero grade. All late assignments will receive a zero grade (late is considered 1 minute after 11:55pm EST). See class syllabus for late assignment policies. Review discussion/posting requirements.

Students are required to post their primary response (200 word minimum) Students will respond to at least 1 other postings (150 words minimum each).

Read and respond to at least one (1) of your classmates' posts. In your response to your classmates, consider comparing your articles to those of your classmates. Research from academic articles must be included in your responses to classmates post.

Answer 1

Whether to go global and take the company international, or continue to stay at home base is a crucial decison that many CEO's have to face. The officials of the company needs to decide if it is ready to take the leap of international expansion. This is the process of expansion of a company from the domestic marketplace to international markets all over the globe. There are various reaons or incentives which could motivate companies to expand globally. The most important ones are:

a) Market Seeking: Many companies go international in order to expand into newer markets, where they can sell products throughout the year and where such speciaized products wouldnt be available otherwise. Exapanding your company in other countries makes your products and services accessible to people no matter how far they may be as well as sell all seasons throughout the year. A broader customer base and gaining marking share is one of the most important drivers of internationalization.

b) Cost-savings strategy: Many companies go global to lower production costs by tapping into pools of skilled labour, newer technological resources and fresh inputs of capital. Companies aim to increase profits by increasing economies of scale, i.e. lowering the cost of manufacturing by increasing the output. Also, various companies need various resources to meet their needs. Importing every such resource might prove to be expensive for the company. So, going international helps the company to diversiify its resources and bring down its cost of production.

c) Strategic reasons: In order to combat the risk of staying at one market and using it as a defence mechanism to save the company from intense domestic competition, companies may decide to go international. Also, it helps to spread brand awareness and brand recognition as well as establish credibility in the marketplace.

However, there are certain disadvantages that come with making a company global which are:

a) Tight immigration rules

b) Cultural and language barriers

c) Huge cost and time required to establish a foreign subsidiary.

d) Compliance risk of payroll, taxation etc.

e) Permanent establishment issues which could result in taxable local income.

f) Huge cost of termination of foreign entity in case of contingencies.

As per reasearches, these are the advantages of staying at home base instead of going global:

a) Domestic expansion is much more comfortable and less riskier than going global. Most market leaders claim that its eaasier to manage the supply chains when its all domestic.

b) For most of the companies, they lack the size and money to expand into a new country. This expansion needs finding and managing of overseas partners, employers, customers, supliers etc. This is a very expensive affair for most companies. And they would prefer to spend that much money on research, innovation and marketing to gain more market share in the domestic market.

c) It is believed that going global is only half the war won. Transportation costs, political, environmental, legal risks, poor custom procedures, stand as hurdles in continued expansion.

In a recent study stated on the Harvard business site, tells us how 20,000 companies of 30 countries were analysed to give the following results. It was found that companies who were selling internation has an average return on assets or ROA of minus 1% for as long a time as five years after the expansion. It takes as long as ten years to reach 1% and only 40% of all the companies are able to achieve more than 3% ROA.

So, even though companies look upto role models like IBM, Shell or BMW when considering opportunities outside home markets, all's not that easy.It is easier to admire but all the more difficult to imitate. So, as per research, it is much more profitable for an organization to stay in its home base rather than expanding globally.