Question

Expanding Overseas

When should a firm consider expanding from strictly domestic trade to international trade? What factors might affect the firm's decision?

Select and discuss five of the ten factors below in depth:

1. Cultural Barriers

2. Tariffs

3. Exporting/Importing

4. Competition

5. Price

6. Laws/Regulations

7. Risk

8. Capital

9. Marketing

10. Joint Ventures

Answer 1

At all levels, ultimately 4 things impact a corporation's ability to thrive – Land, Labor, Capital, and thus Entrepreneurship, the thing that wraps it all. So all the factors will all have a correlation to these 4 things.

1. Cultural Barriers - Regionalization in the cultural landscape can heavily impact the economic status of a corporation. Regionalization is where certain geographic areas gain characteristics that differentiate them from other regions in the same country. The region may be known for different goods, and in fact, may reject some products and services. The region may also be heavily against the idea of economic cultural appropriation.


3. Importing/Exporting – If foreign trade is met with ease, it is a good attraction for business and imports/exports. This is a major reason why China's economy has boosted, aside from cheap Labor, Land, and Capital. China has allowed the creation of Special Economic Zones (SEZ) where the trade laws and business is much more calm for trade. It has attracted several businesses, big or small, for international trade. Another example would be the Mexican Maquiladoras. This term describes the US firms and factories along the US-MEX border (ie San Diego - Tijuana or El Pasa - Ciudad Juarez) where factories on the MEX side assemble goods, which are sold in the US. Although this practice has sparked controversy in the US political system (as it is plagued with crime and corruption, along with the deindustrialization of the Rust Belt and Detroit), it has provided several jobs for Mexicans and has allowed the mass productions of US goods.

4. Competition – Competition has several aspects: basic/non-basic industry, situation and site factors, agglomeration and deglomeration factors. Agglomerations are one of the key factors. When several businesses contribute to a basic industry in a region (i.e. San Fransisco being a technopole, HartFord being the Insurance capital, Houston with energy, etc.), agglomerations can lead to extreme competition, which can be boosted by ancillary activities. This is why some firms have to start trading abroad, to lower the economic 'load' and make way for another opportunity.

6. Laws and Regulations - Government imposed taxes or subsidies can promote or discourage a business. A tax on the company would increase input costs. In order to maintain economic equilibrium, the company would sell the good/service at higher prices which lowers demand. This is bad for the company. Thus, the company may consider outsourcing locations and expand international trade. A common example would be the high rent in technopoles such as San Francisco. These tech corporations have moved their locations to other places and have even moved their production factories to battle the unbearable rent. Government taxes have also been imposed on various cigarette companies, which forced them to sell their product abroad.



You can do the fifth one, as I have some other work to do.