One reason why companies engage in international business is to minimize risk. In particular, companies decide that it will be beneficial to go into foreign markets to minimize swings in sales and profits. This has to do with smoothing sales and profits, as a company will try to take advantage of a business cycle in another country that differs with their own. Sales will tend to increase or grow more quickly during an economic upswing and decrease or grow more slowly during a recession. It makes sense then for companies to expand to other countries with business cycles opposite that of their domestic country, in order to counteract slower sales during a recession in the domestic country. One example of this is when Nestlé experienced slower growth in Western Europe and the United States in the early twenty-first century, but this was offset by higher growth in Asia, Eastern Europe, and Latin America.
Also, by purchasing the same products, services, or components from different countries, a company can avoid being affected by price swings and shortages from one particular country. Companies will also do international business to defend themselves against competitors. They might need to counter an advantage that a competitor is getting from going global. These are all ways to minimize risk and some reasons why companies will decide to conduct international business.
Written by Carl Phelps, Research Associate for GLOBAL ID, LLC
Visit Our Website! http://www.identifyglobal.com/
No comments:
Post a Comment