Why companies globalise?
There are at least four reasons why companies go international: (1) to gain access to more reliable or cheaper resources, (2) to increase return on investment, (3) to increase market share, (4) to avoid foreign tariffs and import quotas.
- To gain access to more reliable or cheaper resources
Most companies globalise in order for them to get a more reliable and / or cheaper supply of raw materials than they can find at home; others can venture into globalisation in order to get less- expensive labour.
Companies may also invest in foreign facilities as a way to escape political instability at home or to gain access to a larger pool of technological know-how.
2. To increase return on investment
Businesses, like individuals, shift their funds ‘from areas where return on capital is lower to those where they are high.’
By globalising, companies also increase their chances for achieving a certain return on investment and stable or growing profits.
3.To increase market share
According to Steven Hymer, companies that expand internationally tend to be ‘oligopolistic’; that is, they tend to dominate their domestic market, either because their products are highly desirable or because their size lets them reap economies of scale. To continue growing, though, they have to expand globally.
4.To avoid foreign tariffs and import quotas
Governments often use tariffs or import quotas to protect domestic business concerns. Therefore direct investment in the foreign country is a more secure solution to the threat of foreign tariffs and import quotas.
