Why Do Companies Go International?

by Neil Kokemuller - Updated October 20, 2018
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Companies go international for a variety of reasons. In general, companies go international because they want to grow or expand operations. More specific motives include generating more revenue, competing for new sales, investment opportunities, diversifying, reducing costs and recruiting new talent. Going international is a strategy that is influenced by a variety of factors and is typically implemented over time. Sometimes, governments will incentivize expansions into global markets.

Improving Profit Margins

Domestic companies constantly look for opportunities to add customers and revenue streams. When growth strategies are used up on the national level, the next path is to seek out international growth. Distributing your products in additional countries increases your customer base. As you offer compelling solutions and build loyalty across international markets, revenue strengthens and escalates as well.

There are also significant cost savings that can be associated with going international. A company may want to reduce costs by relocating closer to a supplier or benefit from lower production costs by expanding operations to another country. Doing business internationally may open up new investment opportunities. Further, a lower cost of acquiring customers may be another compelling reason to expand internationally.

Competing for New Sales

Closely connected to the goal of improved profit margins is the desire to increase sales. Even if company operators generally are satisfied with revenue levels, international expansion can further improve overall revenues. The race to expand internationally is often about gaining a presence in foreign markets. Being the first to arrive in a new market can provide significant advantages.

If you don't enter a ripe market with your solution, competitors do. Not only do you miss the revenue source, but you lose out on other valuable assets that you could use to promote your company at home and abroad. In some cases, a strong domestic company gets overrun by a lesser player that succeeds globally and grows big through global synergy.

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Diversifying the Business

The international expansion allows a company to diversify its business in a couple of key ways. First, you spread the risk of slowing demand across multiple countries. If one market never gains or loses interest in your offerings, you can pick up the slack with success in other countries. In addition, you can connect with suppliers in international markets and take advantage of raw materials and resources unavailable in domestic markets.

Also, companies often enhance innovation and develop additional variations of their solutions when they operate in multiple countries. Product diversification similarly insulates you from the risks of declining interest in a particular item.

For example, Xiaomi, one of the most popular smartphone manufacturers in China, seeks to expand in India over the next few years. In addition to mobile devices, the company is planning to sell electric folding bikes, self-balancing scooters, fitness bands and other products. This will allow it to reach a wider audience and diversify its operations.

Huawei wants to expand its services outside China by 2020. Honor, one of its top-selling brands, is going to be launched on the Russian, Indonesian and Indian markets.

Recruiting New Talent

Operating in international markets also gives you access to a larger and more diversified talent pool. Employees who speak different languages and understand different cultures enhance connections with a broader customer base. Having an international brand that is well reputed will invite top talent to your company. You can also structure global work teams in a way that allows for synergy in building a global brand.

Tips

  • In the modern economy, all companies are already global thanks to technology. Companies develop specific international strategies in order to gain competitive advantages in the new global economy.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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