Why companies engage in IB

Companies engage in international for a variety of reasons, but the goal is typically company growth or expansion. Whether a company hires international employees or searches for new markets abroad, an international strategy can help diversify and expand a business.

Let us look at some of the reasons why companies engage in international business:

1. To expand Sales

Companies are dependent on

  1. Consumers’ interest in product and services and
  2. The consumers’ willingness and ability to buy them

Over years the number of consumers is increasing with their standard of living also rising, which has led to increased purchasing power and demands in a particular country. When this is compared to the consumers and demand of the entire world it opens up an exciting world of opportunities. This means higher sales and higher profits due to economies of scale that can be achieved with high volumes.

2. To acquire Resources

Manufacturers and distributors look for foreign capital, technology and information that they can use at home to reduce costs. Sometimes companies operate abroad to acquire something which is not readily available at home country so as to improve the cost and product quality. Also it is possible that setting up the industry in another country is cheaper than transporting the raw material from other country to home country.

3. Minimize Risk

Companies seek foreign markets to minimize swings in sales and profits arising of business cycle i.e. recession and expansions, which occur differently in different countries. For example there would be recession in one country where the sales are growing very slowly on other hand there would be a developing country where there is high demand for its products due to its expanding markets.

4. Lower Cost of Production

Companies go international to find alternative sources of labor. Labor in developing countries is much cheaper when compares to developed countries, labor cost has a direct impact on the cost of production which affects the bottom line of the companies. Some companies look to international countries for lower-cost manufacturing, technology assistance and other services in order to maintain a competitive advantage

5. Broaden Workforce

Companies go international to broaden their work force and obtain new ideas. A work force comprised of different backgrounds and cultural differences can bring fresh ideas and concepts to help a company grow. For example, IBM actively recruits individuals from diverse backgrounds because it believes it’s a competitive advantage that drives innovation and benefits customer.

Companies who are proactive in international business are, in most cases, better positioned than companies that simply react. If you simply react you might make a mistake and not do things properly because you are stressed for time, money or manpower.

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