How The Chinese Slowdown Hit Apple?
Apple is a well-known brand since it is the most valuable firm in the entire world! Apple can attribute a large part of its success to being one of the few American firms that have been able to gain a significant foothold in China. However, this foothold could be the very reason that Apple is […]
The World of Private Equity
The term “private equity” evokes many emotional reactions. Many investors have made a lot of money thanks to the strategies being followed by private equity companies. However, many companies no longer exist because of these private equity funds. The investments being made by these funds is rapidly growing. Private equity funds have a lot of […]
Why and When to avoid Holding Inventories
Every business organization that is engaged in manufacturing, trading or dealing with salable products holds inventories in one form another. Inventory is held in the form of raw materials or in the form of salable goods. Since every unit of inventoried item has an economic value and is itemized in the books of account of […]
Production Module – Subcontracting and Materials Issue
Production Order Subcontracting – In the age of production outsourcing and the organizational focus on their core competency, subcontracting of production orders is assuming greater importance. In addition to the business functionality necessary for producing goods in house, sub contraction operations necessitates some additional business process such as generation of sub contracting purchase order. Sub […]
Past and Current Directions in ERP
In keeping with technological changes in IT sector as well as evolving business need, there are discernable changes in ERP market as well. The traditional strength of ERP in back office space such as basic manufacturing, financial management, procurement and distribution, is still unchallenged. But the mind set is changing rapidly and ERP system providers […]
The first and foremost reason is that western multinationals would like to expand their sales and acquire newer markets so that they can record impressive growth rates.
Considering the fact that the developing countries are peopled with consumers who have aspirations to western lifestyles, it is, but natural that the western companies would like to target this need and hence, expand into these markets.
Moreover, with declining sales in one region, the western companies hope to recoup the losses by expanding into other markets. Further, the attractive rates of return in the emerging markets are another reason as well.
This is one of the most important reasons for companies to expand internationally. Because the developing and emerging countries have large deposits of minerals, metals and land for agricultural production, the western multinationals eye these markets in order to get access to the resources. This is the reason why many international businesses operate in Africa and South Asia where the humungous deposits of minerals and metals are attractive for the profits that these multinationals can make.
Many emerging markets and developing countries do not have the expertise or the resources needed to tap their reserves of these minerals and metals. Hence, they welcome the multinationals with open arms as it gives them royalties and other payments to grow their economies. As can be seen from the expansion of Vedanta and the South Korean steel company (POSCO) into India, the eagerness to tap the resources is one of the most important reasons for expansion.
Often, businesses expand internationally to offset the risk of stagnating growth in their home country as well as in other countries where they are operating.
For instance, ever since the Western countries saw their growth rates slip to below 3% (in cases recording negative growth i.e. depression), the Western multinationals have made a beeline to the emerging markets that are growing in excess of 5%.
Since firms exist to make profits and grow their bottom lines, it is but natural for them to expand internationally into countries that have better growth rates than their home country.
Further, by operating in a basket of countries as opposed to a few, they are able to manage political, economic, and societal risks better. We had discussed the characteristics of these risks in earlier articles. Because they vary from country to country, it makes sense to spread risk across countries and diversify the portfolio rather than placing all eggs in one basket.
Though this article has concentrated on western companies alone, it is the fact that many Chinese companies are aggressively expanding into African and Asian markets.
In the same way in which Japanese companies conquered Western markets with superior quality, low cost, and exemplary customer service, the Chinese companies hope to target the emerging and developed markets with the same vigor and passion that has made China the factory of the world. These themes would be explored in detail in subsequent articles and this article has given the bare bones reasons why businesses expand internationally.
Your email address will not be published. Required fields are marked *
Cross Border Mergers and Acquisitions and Some Recent Trends in this Field
February 12, 2025
