Question

1. What are the three primary reasons for companies to engage in international business? Do these reasons apply to both developed and developing country firms?

Answer 1

The first and foremost explanation for this is that western multinationals want to increase their revenues and acquire new markets to achieve impressive growth rates. Considering the fact that developing countries are filled with customers aspiring to Western lifestyles, it is but natural that Western businesses would like to capitalize on this need and grow into these markets. In addition, with revenues decreasing in one country, Western companies are hoping to recover the losses by spreading to other markets. In addition, the favorable rates of return on the emerging markets are also another factor.

Acquire Capital This is one of the biggest reasons businesses need to grow globally. Due to the large reserves of minerals, metals and land for agricultural production in developed and emerging countries, Western multinationals are looking at these markets to gain access to resources. This is why many international companies work in Africa and South Asia where the humongous mineral and metal reserves are appealing for the profits these multinationals will make. Many emerging markets and developing countries lack the expertise or resources needed to extract these minerals and metals into their reserves.Therefore the multinationals are welcomed with open arms as it gives them profits and other payments to expand their economies. As can be seen from the expansion of Vedanta and the steel company of South Korea (POSCO) into India, one of the most important reasons for expansion is the eagerness to exploit the capital.

Also, businesses are growing globally to offset the risk of stagnating growth both in their home country and in other countries where they work. For example, after Western countries saw their growth rates fall below 3% (in cases of negative growth, i.e. depression), Western multinationals have made a beeline for emerging markets that are rising above 5%. Since companies exist to make money and increase their bottom lines, it is only normal for them to expand into countries with better growth rates than their home countries.

These reasons apply to both developed and developing countries.