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 the proactive or aggressive approach to achieve the same purpose. Most of them choose to take both approaches to avoid diminishing their competition. To remain competitive, companies move as quickly as possible to secure a strong position in some of the key global or emerging markets with products tailored to the needs of 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 to go global are:
(1) Trade Barriers
(2) Customer demands
(3) Globalization of competitors
(4) Regulations and Restrictions
In the case of trade barriers, companies switch 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. The companies respond to customer demands for effective operations and product assurance and reliability, or/and solutions to logistics problems. Most foreign customers, looking for accessibility to suppliers, can request that the supply remain local to improve production flow. Companies often follow that request to avoid losing business. Due to the globalization of competitors, companies are aware that if they leave companies abroad too long without challenges or competition, their foreign investments or operations in the world market may be so strong that competition will be difficult. Therefore, they try to act quickly. The local government of most businesses may have regulations and restrictions that are very inconvenient and costly, thus limiting expansion, usurping business profits and making their costs uncontrollable. Hence the reason why companies move to a different market environment with few restrictive foreign operations. The proactive or aggressive reasons to go global are:
(a) Growth Opportunity
(b) Economies of scale
c) Incentives
(d) Evaluation of resources and cost savings
Many companies will prefer to invest their excess profits to expand, but are sometimes limited by 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 spending their underutilized resources on human and capital assets, such as management, machinery, and technology. Firms seek economies of scale to achieve a higher level of production spread over large fixed costs to reduce cost per unit. They also want to maximize the use of their manufacturing equipment and spread high research and development costs throughout the product lifecycle. Some of the developing countries that need improvement and development through the injection of capital, skills and technology provide voluntary 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: Repatriation of profits and currency risks due to instability in the leadership of these developing countries must be taken into account 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 resource access and cost savings. Most companies move their headquarters abroad to avoid the high taxes of 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 a strategic alliance to ensure sustained competitive advantage. Global management and management functions are generally shaped by prevailing conditions and ongoing stable and unstable developments in the world. Some countries take advantage of these companies, but when the companies realize that they are being used, they must learn how they can be useful in that different cultural environment to make a lot of profit.