• Please respond to the following:

• What incentives influence firms to use international strategies? What are the three basic benefits firms can gain by successfully implementing an international strategy? Why?
• Determine why, given the advantages of international diversification, some firms choose not to expand internationally. Provide specific examples to support your response.
• As firms attempt to internationalize, they may be tempted to locate their facilities where business regulation laws are lax. Discuss the advantages and potential risks of such an approach, using specific examples to support your response.

Hello class and professor,

The text lists multiple incentives for firms to use international strategies that include:

• Extending a product’s life cycle
• Gain easier access to raw materials
• Opportunities to integrate operations on a global scale
• Opportunities to better use rapidly developing technologies
• Gain access to consumers in emerging markets

The three basic benefits firms can gain by successfully implementing an international strategy are increased market size, economies of scale and learning, and location advantages. Companies can expand their footprint by reaching new customers in different countries, which in turn generates more revenues. It also allows companies to reduce on costs by moving manufacturing operations to countries where laws are looser, labor is cheaper, resources are more readily available, and by outsourcing operations.

There are a number of reasons companies may shy away from international diversification such as economic or political risks. A perfect example of political risk are the tariffs that have been raised in recent years for products being imported to the US from China. These events have lead to companies like Apple to consider moving manufacturing operations to other Asian countries. Financially most companies are not setup for success, and the costs of international diversification can outweigh the benefits.

As mentioned before, laws in foreign countries may be looser or more lax that incentivize companies to do business in such countries. Environmental regulations are some of the laws companies seek to avoid because it may hinder production or be costly to switch to more environmentally friendly practices. The advantages of internationalizing is reducing costs and avoiding fines, but those practices have gained more attention over the years. The developing countries where many operations have be moved to have began to monitor pollution more closely, and customers can exercise their power by shopping with more socially responsible countries. External pressures may cause these companies to incur the costs they were trying to avoid in the first place. Microsoft for example has announced plans to go carbon negative to improve perception even though they have moved production to Asian countries that are much more lax than the US.

Thanks,

David