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2.2 Why Do Companies Expand Internationally?

2.2 Why Do Companies Expand Internationally?. 2. THE IMPORTANCE OF INTERNATIONAL BUSINESS. Introduction:. Among others, companies participate in international business: To increase sale To obtain resources or needed materials and goods

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2.2 Why Do Companies Expand Internationally?

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  1. 2.2 Why Do Companies Expand Internationally? 2. THE IMPORTANCE OF INTERNATIONAL BUSINESS

  2. Introduction: • Among others, companies participate in international business: • To increase sale • To obtain resources or needed materials and goods • To expand the territory for sales and sources of supply • After establishing themselves at home many companies begin to trade internationally for the following reasons: • Market expansion. • Increasing Profit .

  3. I. Expanded Markets and Increased Profits • Profit making is the ultimate goal of all businesses. • Profitability separates the successful business from the unsuccessful one. • Increased sales and expanded markets are sure routes to profitability • Movement into international markets can be risky but it can also open doors for profitability through increased sales and expanded markets. BENEFITS: • Sponsorship for social programs locally and internationally. • As an example, read the case of Makeup Art Cosmetic (M.A.C.) pp. 51-52.

  4. Expanded Markets and Increased Profits (cont.) • How businesses expand markets and increase profits: • Acquisition: Total buyout. E.g. 1994 -Estée Lauder Companies Inc. acquired 51% in M.A.C. 1998 - Bought out the remainder of the entire company 2000 - Estée Lauder Companies Inc.: • Controlled 45% of cosmetic market in USA department stores; • Sold its products in 118 countries; • Had $3.6 billion in sales.

  5. II. Controlling Expenses • All businesses make the effort to control expenses. • Entering the international markets is one way to control costs. • At certain times, less expensive factors of production lie in international settings, e.g. products, services, human resources, parts, capital and technology. • Outsourcing: One common route to accomplish expenses control has been to obtain required services by contracting it from another source. Outsourcing has always been financially less costly.

  6. III. Diversification • Some companies have entered the international markets with the objective of diversifying. E.g. Estée Lauder Companies Inc. has acquired companies with diverse market specialties like: • Both genders; • Different skin types and colors • Teenagers • Older people seeking anti-aging skin care • Actors, entertainers, models • People living with diseases that disfigure the skin • The trendy and the traditional • At other times companies diversify in the international markets in order not to depend on any particular economy entirely, especially when their economy is bad.

  7. IV. Competitiveness • Companies may also enter the global market for the purpose of defending themselves. • Benefits from less expensive resources could also lead to lower per unit costs of production with which sometimes they undercut smaller local businesses.

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