Reasons to Expand into Global Markets
The important decision of financial management is the investment decision. Entity may do business outside of the national border. It all depends upon how the management views the option to expand in international markets. Usually, entity thinks of moving outside of its national border when it has acquired sufficient success in the local market and has something unique that it can compete globally. The most common reasons of investing globally are as follows:
Cheap Labour
The entity might think of moving to a new country to take advantage of the cheap labor. Most of the big companies are opening their factories in various countries to take advantage of cheap materials and cheap labor. This is to maximize profit and reducing the cost of importing.
Competition
There may be the case when the local market has become saturated and the entity is facing severe competition. This severe competition definitely reduces the entity’s profit. In order to make the product life cycle longer and to remain profitable, the entity plans to expand in another country or countries.
Government action
The Government of a foreign country might reduce taxes and other duties to promote foreign investment in the country. These factors can lead entity to expand into this country because it will cost cheaper to manufacture goods in that foreign country.
Economy Failure
There are countries where the economic risk is high. This risk can be balanced by investing into a new country where this risk is low and economy is stable one. But, finance managers should consider the currency fluctuations while making any final decision for expansion globally.
Customers
As the world has become global village, the customer of the entity may live outside the national borders. In order to take full advantage of international customers, the entity may take decision to expand into international markets.