The Main Challenges of Internationalizing (18.2)

Chapter 18 - Location Decisions

Lesson Objective: To understand the difficulties in internationalizing operations

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There are so many factors influencing location and relocation decisions, most of which are related to costs, sales, and logistics:

• Cost of site;

• Size of site (opportunity for expansion);

• Labor costs and availability;

• Transportation costs (delivery of goods and access to supplies);

• Market potential;

• Government incentives;

• Legal restrictions;

• Quality of local infrastructure;

• Ethical issues and concerns;

• New market opportunities;

• Barriers (tariffs and quotas).

There are also so many benefits of relocating internationally:

• New market opportunities;

• Growth;

• Reduced costs and higher profitability;

• Access to global markets leading to economies of scale;

• Avoiding trading barriers;

• Taking advantage of government incentives.

It's not all flowers, though. Internationalizing a business comes with some hairy challenges:

• Cultural differences: workplace and marketplace differences can cause loss of reputation, sales, and increased costs;

• Communication problems: language (workers, managers, suppliers) and distance to the headquarters can lead to poor coordination (diseconomies of scale);

• Ethical concerns: redundancy of home country employees; exploitation of host country workers (low wages, child labor) damaging a firm’s reputation, revenue, and profits;

• Quality issues: quality of supplies and quality of finished goods are harder to control when a business expands internationally.

It is clear, therefore, that businesses will face decisions/choices when relocating internationally and they will need to weigh out and choose the ones which benefits outweigh the limitations.

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Activity 18.1

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Governments implement legal controls to limit the activity of businesses and protect customers, workers, society, and the environment. What are some of these controls?

• Building permissions;

• Environmental protection controls;

• Social/community protections (pollution);

• Some countries have specific industrial zones;

• Pollution laws are becoming stricter;

• Minimum wage laws;

• Discrimination laws;

It's important for us to understand that every country has different legal controls - multinational businesses need to be able to cope with all of them: and that's the challenge!

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Activity 18.2

Case study (p. 240);

Test yourself (p. 240)

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To-Do-List

• Chapter 18, Exam Practice Question #2 (p. 241)

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Chapter 18 - Location Decisions