Ever since the global recession of 2008 cost millions of people their jobs, companies with sizable overseas investments have come under the scanner. A lot of local workers have dubbed these companies traitors and profiteers though most economists claim that companies have a good reason for investing in overseas market. We investigate what prompts some companies to put their money in overseas markets instead of doing the same in their national market.
Exploring new markets
Traditionally, the single biggest reason for companies to invest in overseas markets was to explore a new market for their goods and buyers. A great example of this would be soda giants Pepsi and Coca Cola and furniture retailers like IKEA. What these brands have essentially done is set up shop in overseas markets that had little to no competition for the kind of products they sold. By collaborating with local retailers and manufacturers, these brands were able to create demand for products that weren’t traditionally in demand in these markets while establishing themselves as premier brands in their respective segments as well.
Another great reason that prompts companies to invest in setting up manufacturing facilities in overseas locations is that many of these countries have cheaper resources. By investing in an overseas market, these companies are able to exploit the benefits of cheaper natural resources (like cheap hydroelectric power in Iceland), cheaper land (eastern European nations) and cheaper labor (South East Asia and China) to reduce their operational costs and costs of manufacturing which of course results in higher profits.
To build strategic assets
When a company invests in establish of manufacturing or distribution of a product or technology that is relatively new for an overseas market, they are essentially help create the demand for their products before rivals can. Most companies invest in overseas markets through partnerships with local firms. This helps them build strategic assets in a new market while reducing the risk they face.