Most companies move their business operations to foreign countries as they go global. They take their business abroad for different reasons. These companies take the reactive or defensive approach to stay ahead of the competition. Some of them take a proactive or aggressive approach to achieve the same purpose. Most of them choose to take both approaches to avoid a decline in their competition. To remain competitive, companies move as quickly as possible to secure a strong position in some of the world’s key or emerging markets with products tailored to the needs of the people in the areas in which they plan to establish themselves. Most of these world markets are attracting companies with new capital investments with very good incentives. Some of the reactive or defensive reasons for going global are:
(1) Trade barriers
(2) Customer demands
(3) Globalization of competitors
(4) Regulations and restrictions
In the case of trade barriers, companies go from exporting their products to manufacturing them abroad to avoid the burden of tariffs, quotas, local purchasing policy and other restrictions that make exporting to foreign markets too expensive. Companies respond to customer demands for effective operations and product warranty and reliability, or solutions to logistical problems. Most foreign customers, seeking accessibility to suppliers, can request that the supply be kept local to improve production flow. Companies often follow that request to avoid losing business. For the globalization of competitors, companies are aware that if they leave companies abroad for too long without challenge or competition, their foreign investments or operations in the world market can be so strong that competition will be difficult. Therefore, they try to act quickly. The local government of most companies can have regulations and restrictions that are so inconvenient and costly, thus limiting expansion, encroaching on companies’ profits and making their costs uncontrollable. Hence the reason why companies move to a different market environment with few foreign restrictive operations. Proactive or aggressive reasons to go global are:
(a) Growth opportunities
(b) Economies of scale
(c) Incentives
(d) Resource evaluation and cost savings
Many companies will prefer to invest their surplus earnings to expand, but they are sometimes limited due to the maturity of the markets in their area. Therefore, they look for new markets abroad to provide such growth opportunities. So these companies, in addition to investing their surplus profits, also try to maximize efficiency by using their underutilized resources in human and capital assets such as management, machinery and technology. Companies seek economies of scale to achieve a higher level of production distributed in large fixed costs to reduce unit cost. They also want to maximize the use of their manufacturing equipment and spread high R&D costs throughout the product life cycle. Some of the developing countries in need of improvement and development through the injection of capital, skills and technology voluntarily provide incentives such as fixed assets, tax breaks, subsidies, tax breaks, human capital and low wages. These incentives seem attractive to these companies due to their increased profits and reduced risks. Caution: Profit repatriation and currency risks due to leadership instability in these developing countries should be considered in the negotiation. Access to raw materials and low operating costs in financing, transportation, low wages, lower unit costs, and energy are attractive in terms of access to resources and cost savings. Most companies move their headquarters abroad to avoid the high taxes in their respective home countries and other costs associated with doing business in those countries.
Companies need to develop strategies, design and operate systems, and also work with people, different companies and countries around the world in the form of a strategic alliance to ensure sustained competitive advantage. Global management and management functions are often shaped by prevailing conditions and ongoing stable and unstable developments in the world. Some countries take advantage of these companies, but when companies find out that they are being used, they must learn how they can be useful in that different cultural environment to reap many benefits.