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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

2.2 Why Do Companies Expand Internationally?

2. THE IMPORTANCE OF INTERNATIONAL BUSINESS

introduction
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 .
i expanded markets and increased profits
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.
expanded markets and increased profits cont
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.
ii controlling expenses
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.
iii diversification
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.
iv competitiveness
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.