Identify at least three benefits for companies of expanding internationally, and provide an example of each.

Question

What will be an ideal response?

Answer 1

The benefits include:

1. Availability of supplies. For years oil companies, for example, have expanded their activities outside the United States in seeking cheaper or more plentiful sources of oil.
2. New markets for old products. Sometimes a company will find, as cigarette makers have, that the demand for their product has declined domestically but that they can still make money overseas.
3. Lower labor costs. For example, the rationale for using maquiladoras, manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens, is that they provide less expensive labor for assembling everything from appliances to cars.
4. Access to financial capital. Sometimes a foreign government will offer a subsidy in hopes of attracting a company that will create jobs, as Ireland did in the 1970s for Lotus sports-car maker John DeLorean.
5. Avoidance of trade barriers. For example, Japan imposes tariffs on agricultural products, such as rice, imported from the United States. To avoid these penalties, a company might create a subsidiary to produce the product in the foreign country.