International expansion or global expansion of business is very helpful or benefited for business and countries. For many business companies, the following are the reasons to expand into international markets: Reduce transport and distribution costs, Better production conditions, Avoid trade barriers, customers base, Meet different rules and regulations, Secure supplies of raw materials or markets, Cost advantages – for example, low labor costs, Economic growth, and employment.
Benefits of International Expansion of Business
Following are Advantages/Benefits of International Expansion of Business or advantages of doing business internationally.
1. Boost for Economy
International expansion of business or essence of an MNC is that they bring inward investment to countries that are not their home base. If they choose to expand by building production facilities they will be bringing in inward investment into the country.
This investment is likely to provide a boost, not only to the local economy but also the national economy.
Building a new plant requires resources – land, labor, and capital. Labour has to be found to help construct the plant and all the equipment that goes into it and some firm somewhere will be hired to build the machinery and equipment, provide the bricks, steel, cement, glass, etc. that go into the building.
If it is announced that Company X from Germany is to build a new distribution center in the UK at a cost of $10 million, this effectively means that a whole host of firms will be getting additional work to the value of $10 million.
2. Provide Benefits of R&D Activities
Multinationals have enormous resources at its disposal. Some are utilized for R and D activities.
The benefits of Research and Development activities are passed on to the enterprises operating in the host countries and business also.
3. For Employment and Workers
International expansion of business is very helpful in building a big and powerful employment environment. Employment might not be as extensive as hoped – many jobs might go to skilled workers from other countries rather than to domestic workers.
There might be a limit in the effect on the local economy – it will depend on how big the investment into the local economy actually is.
It can also be expected that the additional income will find its way through the local economy. If additional people are hired, they will receive an income which they spend.
For existing workers, increased orders might equate to job security and they too might feel more confident in spending on new items – furniture, house extension, new white goods, and holidays and so on. Inward investment, therefore, can act as a trigger to generating wealth in the local economy.
If an MNC is attracted to an area then this might also lead to other smaller firms in the supply chain deciding to locate in those areas. Other firms providing services to these firms are then attracted to the area and so on.
“Honda located a factory in Swindon, Wiltshire, a town known for its railway industry. Now the town is synonymous with car manufacturing. The Honda plant was an investment of over $1.3 billion. It is one of 120 Honda manufacturing facilities in 29 different countries.”
4. Promote Bilateral Trade Relations
Companies expand into international markets will facilitate bilateral trade relations between their home countries and the other countries with which they have business relations.
It is a good symbol for two countries economy also.
5. Improvements in Quality Skills, Production Techniques
International expansion of business is improving the skills and mindset of workers and employees for work.
It can be argued that MNCs bring with them new ideas and new techniques that can help to improve the quality of production and help boost the quality of human capital in the host country.
Many will not only look to employ local labor but also provide them with training and new skills to help them improve productivity and efficiency.
In England, one of Europe’s most productive car manufacturing plants, the workers have had to get used to different ways of working and different expectations than many might have been used to if working for other British firms.
The skills that workers build up can then be passed on to other workers and this improves the supply of skilled labor in the area.
This makes the area even more attractive to new industry as it helps to reduce the costs of training and skilling of workers.
In some cases, this can prove a challenge but in others, it can lead to improvements in motivation and productivity.
6. Improvements in Infrastructure
One of the most reasons for global expansion is improvements in business infrastructure. In addition to the investment in a country in production or distribution facilities, a company might also invest in additional infrastructure facilities like road, rail, port and communications facilities. This can provide benefits for the whole country and business also.
The costs can be summarised in the points below – for the most part, the costs are closely linked to the benefits but it will depend on the extent of the benefits that might arise as a result of the activity of the MNC.
7. Availability of Quality Goods and Services
International expansion of business is giving wide advantages of availability of quality goods and services. In some cases, production in a host country may be primarily aimed at the export market.
However, in other cases, the inward investment might have been made to gain access to the host country market to circumvent trade barriers.
The location of businesses in different countries might mean the availability of high quality and relatively cheap products being available to the home market.
8. Promote Export and Reduce Imports
This is one of the Benefits of companies going global. MNC’s help the host countries to reduce the imports and promote exports by raising domestic production.
Marketing facilities at the global level are provided by MNC’s due to their global business contacts.
9. Taxable Revenue
One of the reasons for the International expansion of the business is taxable income. For the host country, there is a likelihood that the MNC will have to be subject to the tax regime in that country. As a result, many MNCs pay large sums in taxes to the host government.
In less developed countries the problem might be that there is a large amount of corruption and bad governance and as a result, MNCs might not contribute the tax revenue they could and even if they do it might not find its way through to the government itself.
The size and power of multinationals can be used, it is argued, to exploit weak or corrupt governments to get better deals for the MNC.
10. Repatriation of Profits
Profits might go back to the headquarters of the MNC rather than staying in the host country the benefits, therefore, might not be as great.
11. Facilitate Transfer of Technology
The best benefits of companies going global are transferring technologies.
Multinationals act as agents for the transfer of technology to developing countries and thereby help such countries to modernize their industries.
They remove technological gaps in developing countries by providing techno-managerial skills.
12. Pollution and Environmental Damage
Some countries may have less rigorous regulatory authorities that monitor the environmental impact of MNC activities. This can cause long term problems.
In India, Coca-Cola has been accused of using up water supplies in its bottling plant in Kerala in Southern India and also of dumping waste products onto land and claiming it was useful as fertilizer when it appeared to have no such beneficial properties.
Production can cause problems in any country, but in some countries, the rules may be less rigorously enforced.