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There are several incentives that entice businesses to use international strategies such as having easier access to raw materials and it gives them more opportunities into global operations. They also have the ability to extend a product’s life cycle. The benefits are access to a larger market, economies of scale for more learning opportunities, and lower cost. By gaining access to international markets, they can obtain new resources and create connections within the global market. Some firms may choose not to expand internationally due to the risk of not having strong contracts for importing and exporting materials. Food products for example, are a risky venture due to possible contamination of items that are imported into the United States. Also, some small businesses do not have the resources to expand globally. Research can be costly and some companies do not have the financial backing to move from the domestic market to international. Businesses tend to locate facilities where business laws are lax because the operating costs is lower. Labor overseas is cheaper and companies directly profit from paying artificially lower prices for consumer goods. Businesses also save money on taxes and start-up fees. However, when expanding to other countries where business laws are lax, there are can be differences in the exchange rates between currencies which can lead to an unfavorable return on investment.
Diversification for international firms is an important strategy to pave to the global markets. According to our text (Hitt et al), financial and political risks bar many firms from encroaching the international markets. Conflicts among nations and unstable financial markets make it risky to achieve internationalization. However, strategic alliance is one of the most effective strategies where firms in different setting combine resources, technology among other vital aspects to manage risks of the global operations.
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