Question

Why do firms expand internationally? What are the main advantages for firms to go global? What are the main disadvantages? Give examples to explain.  

Answer 1

The firms expand internationally because of the following reasons:

1. To expand and grow operations or activities of business.
2. To generate more revenue
3. To compete in the market for the Sales
4. To find new investment Opportunities
5. TO diversify the operational activities, product or services geographical location, etc.
6. To recruit fresh talent
7. To reduce cost.

The main advantages for firms to go global is

1. Generate more sales and profits
2. Opportunity to Reach new market
3. Assets Diversification
4. To gain the competitive advantages over their opponents.
5. Investment opportunities rises.
6. Increase your resources and stock

When the company grow globally, although they need capital but the benefits are more than the capital which they need. For example, when the company expand, they hire fresh talent from different geographical location consists of different cultural values and different way of approaching the problems. Hence, this enhance this enhances the new ideas generation to the business. This actually contributes to the handling business activities more efficiently. So, the cost associated would return higher revenue. This also expands the Assets to the business and the stability and ability to meet the liabilities would be higher.

The main disadvantages for the firms to go global are as follows:

1. Shortage of Cash
2. Quality has been compromised
3. The line of control would loss
4. It increases the Staff turnover
5. Need more capital to operate

For example, when the company expand globally, they need to purchase machinery, need more funds for the business operations, need fresh talent which also needs cost etc. Hence, the shortage of capital may happen. This also leads to the reduction in sales hence in turn reduces the revenue. The capital requirement would be much higher. Hence, in order to retain the business, the business has to compromise with the Quality of the product or services offered to the customers.