Why Do Companies Expand Internationally? 4 Main Reasons for Expansion

All developing countries have opened up their economy to the world. This is like extending an invite to foreign companies to set up base in the country. While on the one hand this helps countries tap their resources in the best possible way, on the other, it enables companies diversify their operations and multiply profit.

Growth within confined territories is always restricted. It limits the capabilities of companies with high potential. But when carried across the border it can prove mutually beneficial in more ways than one.

Organizations that have their presence in multiple countries are termed as Multinational Companies (MNC). These organizations are incorporated in one country but carry out their production and sales operations in various countries. In today’s climate of global economy, foreign sales surpass domestic sales and have helped countries rake in profits many times over. In a level playing field, the scope for companies is limitless. Likewise, consumers can look forward to buy world class products or avail services that otherwise would not have been available to them.

Thus by expanding companies help to fill in the product gap in other countries. Let’s take the example of brands like Mcdonalds and KFC. Both these brands are trusted for their exotic food products.

Today, while these brands have expanded themselves around the world, people identify their names with quality chicken fries and sandwiches. Expansion has helped them become household names and rake in huge profits. What if these companies were restricted to their countries? People around the world would have been deprived of good food and the growth of these companies would have been stunted.

4 Main Reasons…

Expanding business across borders help companies in more ways than one. Some other ways include:

• Procure Raw Materials: Pushing business frontiers to countries producing the necessary raw materials can make it easy for companies to sustain their business in the long run. For instance retail giant Wal-Mart can gain immensely if it gets easy access to buy products directly from local markets in agricultural countries.
• Save Costs: Developing countries are essentially low cost countries. Shifting to these countries can help companies save on money without compromising on production efficiency. Moreover, hugely populated countries like China and India offer skilled and cost effective human resources.
• Cash In On Technologies: – When a company sets up base in a developed country, it has easy access to scientific and design ideas. This helps to accelerate research to improve on the quality of existing products as well as design and develop technologically advanced products.
• Escape Regulations: Every country has its own set of rules and regulations which often prove to be big hurdles. Having base in another country can help companies escape measures that are regressive to growth.

Given the advantages of business expansion companies big and small are raring to reach out far and wide. In the coming years business expansion will grow by leaps and bounds.