Question

In your view, is gaining access to low-cost labor a sufficient reason for a firm to pursue an international strategy? Why or why not? In your view, is gaining access to special tax breaks a sufficient reason for a firm to pursue an international strategy? Why or why not? Are international strategies always just a special case of diversification strategies that a firm might pursue?

*Not the Course Hero Answer, please*

Answer 1

Companies expand internationally for at least five reasons. They seek the following-

• new markets
• access to finance capital
• cheaper or more plentiful supplies, etc

Gaining access to low-cost labor is a sufficient reason for a firm to expand its operations internationally. If the cost of labor decreases, then the cost of producing the product comes down and hence results in higher profit margin. Thus, the proper location should be chosen where the cheap labor is available. If your business is heavily manufacturing based, then you’re almost certainly aware of the cost savings potential available to businesses that manufacture in countries where real estate and labor are cheap which will enable you to test selling your product in a foreign country prior to initiating a full blown global strategy.

Gaining access to special tax breaks is also a sufficient reason for a firm to go internationally because if taxes are high, profits would come down.  It is common for governments to incentivize their country’s companies to export which results in many companies entering markets they would otherwise not have tackled.