Why Do Companies Need to Go Overseas?
Globalization means business borders have shifted dramatically, aided in large part by the speed of modern travel and the instant nature of online transactions. With this new era comes an ever-increasing amount of companies that have moved overseas to avoid taxes and enjoy lower operating costs.
Different countries offer different tax incentives, different labor laws and different logistical advantages; companies look for nations that can offer them winning savings and strong logistics for expanding their operations.
There’s what a company may want to do to improve its outlook — like lowering taxes and other overhead — versus what it may need to do, like create operations in different countries for logistical reasons. Most large companies have shareholders to whom they must be accountable, so they feel it’s necessary to lower costs as much as possible to generate the largest profit possible. This is often a motivation behind expanding to other nations or just flat-out moving to them.
Overseas operations and outsourced operations have skyrocketed since the 1980s. Much of this is because of the profitability of doing so, which makes money a definite “pro”. Beyond money, though, the ups and downs include:
Logistics: Shipping options, shipping speed, accessibility with materials and even weather and seasons are all big considerations for moving abroad. Car manufacturers, for instance, have operations worldwide, with their plants seen as major labor coups in those regions. Companies that have moved production overseas can benefit by having lax labor laws, easier shipping procedures and much more.
Quid Pro Quo: "You scratch my back, I'll scratch yours" is a common refrain in business dealings. Sometimes, gaining access to a large market may require extremes, like opening a factory. In places like China or India, whose populations total a third of the people on earth, the government may stipulate trade there requires creating jobs in exchange for market access and favorable tariffs.
Fewer regulations: Being compliant with environmental laws, safety protocols and labor codes is a pricey business; operating abroad can dramatically reduce such headaches for companies since OSHA, the EPA and other government entities have no jurisdiction beyond the U.S.
Tax & Other Incentives: In 2014, Burger King made a strategic move and paid $11 billion to buy Canadian chain Tim Horton’s, then moved their headquarters to Canada. With no capital gains and other incentives, Burger King would save an estimated $1.2 billion in just three years, prompting a tax watchdog to call it a “whopper of a tax dodge”. But there is no way to argue against the allure of such a steep tax savings, which motivates many companies to look beyond the American horizon for greener tax pastures.
Perception: When Burger King shifted to Canada, it was perceived by many as an act of betrayal — highly unpatriotic. Burger King may once have been an American company, but with over 18,000 Burger King stores in over 120 countries, it’s now global. But staying favorable in America is critical for global success.
Cost: After things are running well, savings may come, but getting there is costly when opening new operations, learning relevant tax codes and even greasing all the bureaucratic wheels that must turn before such enterprises can get going.
It’s Complicated: In foreign markets, business practices are different — as are cultural norms, laws and regulations. Political situations can drastically impact business outcomes. Economic collapse in Venezuela has complicated matters for companies like Ford, with factories there, and their governments may not be positioned to financially help alleviate such chaos. Beyond all that is the political corruption rampant in so many countries, plus potentially slow bureaucracy, the need for bribery and much more, all which are simply dismissed as "the cost of doing business" in such places.