Motivating factors of companies behind international expansion
MNCs wish to expand or grow their operations internationally due to a range of reasons. Internal factors of companies influence some reasons, while external or political ones motivate others. However, the company should consider market trends, foreign country regulations, and the degree of investments required before expanding globally.
Highlighting the common factors
Cultural differences – Culture plays a huge role that MNCs cannot ignore while expanding into new markets. Again, cultural differences of one region motivate companies to expand in another region in order to ensure growth. Before expanding globally, the company is supposed to understand community values.
Increasing profit margins– Companies are always focusing on adding customers and increasing revenues. In other words, the executives are keen to take the next opportunity and increase their customer base (Weinzimmer, 1996). Therefore, profit-making becomes one of the essential factors behind expanding its geographical boundaries.
Cost reduction – Companies often wish to relocate their offices in order to reduce costs and conduct operations by getting closer to suppliers. The company might get benefitted from doing a new investment and completely relocating its office. Hence, new investment opportunities can lower the costs of the company. It is one of the lucrative and compelling reasons behind expansion.
Business diversification– International expansion ensures businesses to diversify their operations. The business can expand its operations by utilizing the resources available. When resources are not available in the domestic markets, companies expand internationally to diversify their businesses. Again, innovation is one of the motivating reasons behind diversification. Innovation ensures the availability of a variety of solutions (Zahra & George, 2002). When a product loses its value in a domestic market, companies ensure product diversification. For instance, China’s smartphone manufacturing industry expanded in India, and product diversification was an essential factor. Apart from mobile phones, companies were willing to sell fitness bands and electric bikes to gain the attention of a diversified population.
Need to recruit talented individuals– International markets provide a wide range of options for recruiters. There is no lack of gifted individuals. Hence, the possibility of creating a diversified pool of talented individuals is possible.
Benefits of expansion
The economy is global, and companies of all sizes will be benefitted from expansion. Global trade has become the only way of ensuring sustainability and long-term growth. The companies that had expanded overseas received a chance to overpower foreign territories. Businesses in these regions might not have grown, and the prospective company has entirely taken advantage of this open opportunity. For instance, renowned U.S firms such as IBM and Nike continues to maintain its global operations due to the massive return on investment (Jormanainen & Koveshnikov, 2012). Similarly, Coca-Cola has been capable of expanding its sales across India, South Korea, and China by focusing on business diversification. These companies have been benefitted because they have got access to skilled and talented individuals after expansion. Candidates with different educational backgrounds and language skills offer these companies a range of opportunities. Consequently, these companies gained a competitive advantage over other domestic companies.