Question

International Opportunities" Please respond to the following: · Determine why, given the advantages of international diversification, some firms choose not to expand internationally. Provide specific examples to support your response. · As firms attempt to internationalize, they may be tempted to locate their facilities where business regulation laws are lax. Discuss the advantages and potential risks of such an approach, using specific examples to support your response.

Answer 1

Some of the reasons why some companies do not want to expand internationally are as follows:

• The overall capital required for global expansion is quite high and unaffordable for some companies
• The risk associated with conducting business on global scale is quite high
• The company does not have sufficient resources and expertise to expand globally
• Language as well as culture barriers of the global market pose threat on the overall profitability of business. For example: the culture difference between the home and host country has potential of shocking the employees of the company and hampering their overall performance
• Abiding by the laws and regulations of global market can be quite tedious and tricky. For example: trade barriers levied by a specific country on crude oil, may make it unaffordable for business in that region.

While considering global expansion, some companies get tempted to locate their facilities where the business regulations are quite lax. This means that there are no rigid regulations and compliances to be adhered to in such a region. There are major benefits associated with conducting business in such a scenario:

• Capital required to conduct business is low
• The global business has potential to generate cost effectiveness as well as advantage for the company
• Better access to raw materials and resources may make global expansion quite attractive for the company

Example: Apple opening a manufacturing and assembling facility in China as it has raw materials and resources at quite less cost.

However there are quite a lot risks associated with such a move:

• Economic fluctuations of the region may hamper business performance
• Standard of living an purchasing capacity of the people in the host market may adversely impact the business of the company
• Conditions of inflation and recession as well as government turmoil may affect smooth execution of business