Why Firms Go International
Why firms go international?
There are many reasons can promote firms go international, includes the domestic market saturation, end of PLC in domestic market, geographic diversification, to gain the economies of scale, stiff competition in domestic market and absence of competitors overseas etc.
1. Some firms go international in order to gain the economies of scale. As a research has pointed out that a doubling of output can reduce the production costs by up to 30 per cent. This is very obvious in Japan, because most of Japanese industries are supported or owned by banks or other financial institutions with a much lower costs of capital. What is more, unlike the variable labour costs in the west, labour cost is regarded as a fixed expense in Japan because of the lifetime employment system. Thus, the only way to increase the productivity rapid for Japanese industries is increase the volume of products when the salary is a fixed amount. So expand their business abroad is a good way to raising the number of products.
2. Domestic market saturation, absence of competitors overseas and emergence of new market are the major motivations for firms to go abroad. Let us take KFC as an example. There are many kinds of fast food restaurant in United States of America as fried chicken and hamburgers are the main food for American, so the competition is very stiff in domestic market and it is almost saturated- there are enough fast food brands to meet people’s need in fried chicken and hamburgers. In order to make more profit, KFC decided to enter China’s market as there was no competitor and the main food for Chinese is rice. Then KFC became the first and now the biggest fast food chain restaurant in china.
3. Another main reason for firms to go international is the lower costs in foreign countries. According to the political and the employment environments, the labour is cheaper in Asia than in Europe or US, labour is cheaper in developing countries and less developing
There are many reasons can promote firms go international, includes the domestic market saturation, end of PLC in domestic market, geographic diversification, to gain the economies of scale, stiff competition in domestic market and absence of competitors overseas etc.
1. Some firms go international in order to gain the economies of scale. As a research has pointed out that a doubling of output can reduce the production costs by up to 30 per cent. This is very obvious in Japan, because most of Japanese industries are supported or owned by banks or other financial institutions with a much lower costs of capital. What is more, unlike the variable labour costs in the west, labour cost is regarded as a fixed expense in Japan because of the lifetime employment system. Thus, the only way to increase the productivity rapid for Japanese industries is increase the volume of products when the salary is a fixed amount. So expand their business abroad is a good way to raising the number of products.
2. Domestic market saturation, absence of competitors overseas and emergence of new market are the major motivations for firms to go abroad. Let us take KFC as an example. There are many kinds of fast food restaurant in United States of America as fried chicken and hamburgers are the main food for American, so the competition is very stiff in domestic market and it is almost saturated- there are enough fast food brands to meet people’s need in fried chicken and hamburgers. In order to make more profit, KFC decided to enter China’s market as there was no competitor and the main food for Chinese is rice. Then KFC became the first and now the biggest fast food chain restaurant in china.
3. Another main reason for firms to go international is the lower costs in foreign countries. According to the political and the employment environments, the labour is cheaper in Asia than in Europe or US, labour is cheaper in developing countries and less developing