Which of the following is a main reason for businesses to expand into foreign markets?

To Expand Sales

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.

Acquire Resources

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.

Minimize Risk

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.

Closing Thoughts

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.

Authorship/Referencing - About the Author(s)

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International Business: The New Realities

Introduction: What Is International Business?

1) International business is primarily carried out by individual companies.

Answer: TRUE

2) The globalization of markets refers to the growing independence and self-sufficiency of

countries worldwide.

Answer: FALSE

3) International business today is predominantly the domain of large, multinational companies.

Answer: FALSE

Page Ref: 13

4) Exporting is an entry strategy involving the sale of products or services to customers located

abroad.

Answer: TRUE

5) A country's economic assets are also known as factors of production.

Answer: TRUE

6) The two primary types of international investment are portfolio investment and foreign direct

investment.

Answer: TRUE

7) Over the last few decades, export activity by nations has grown more quickly than has

domestic production.

Answer: TRUE

8) In the past, international trade and investment activities were mainly conducted by companies

that sold services.

Answer: FALSE

9) Services are the fastest growing sector in international trade.

Answer: TRUE

10) The level of government intervention in commercial activities is similar across most

countries.

Answer: FALSE

11) Currency risk refers to the risk posed by adverse fluctuations in exchange rates.

Answer: TRUE

12) For internationalizing firms, the consequences of poor business management decisions are

usually more costly when mistakes occur abroad than when they occur at home.

Answer: TRUE

13) MNEs with extensive international operations tend to focus mainly on downstream activities

such as marketing in foreign countries.

Answer: FALSE

14) International business is primarily the domain of large, resourceful firms.

Answer: FALSE

What are the reasons that companies expand into foreign markets?

Which of the following is a main reason for businesses to expand into foreign markets quizlet?

What is one reason that a company would choose to expand internationally quizlet?

Which of the following are ways in which companies enter international markets?