There are so many causes that contribute to increasing global business. The main reasons for the rapid expansion of international business are discussed below.
Reasons for rapid expansion of international business
1. Reduced Costs: One of the most common reasons is the desire to reduce costs. By locating plants abroad, firms can be closer to their supply of raw materials.
This step eliminates the need for expensive transportation, insurance, and administration costs; the availability of inexpensive labor abroad also reduces costs.
Moreover, by enforcing minimum wage laws and labor unions’ perquisites, firms can significantly reduce their labor costs by establishing plants overseas.
Finally, building semi-finished goods abroad can reduce costs. Producing most an item abroad, especially labor-intensive products, forms can drive costs below domestic costs.
2. Less Government Regulations: Firms will choose to locate abroad due to less government regulation in other aunties. Two of the most common factors are pollution controls and safety requirements placed on firms.
Plant emission controls, health safety requirements, waste disposal, and many other pollution and safety laws increase the costs of doing business.
These requirements may not exist or are waived in other countries, especially in those that are trying to attract new business.
3. Knowledge about the Market: Locating abroad can enable firms to be closer to their product markets. It reduces transportation costs and helps firms to learn the unique characteristics of each market.
4. Growth Opportunities: The international sector can provide access to growth opportunities that are not available at home.
5. Cheap Labor Forces: Firms also locate facilities abroad to take advantage of labor force quantity and quality. It is not difficult to find areas where people want to work and where the local government wants foreign firms to be there to put their people to work.
6. To Avoid or Reduce Trade and Tariff Barriers: Many firms will locate facilities overseas to avoid or reduce trade and tariff-bather problems. Japanese automobile manufacturers have been abiding by a self-imposed export quota to the United States.
7. GATT: A more far-reaching agreement, known as the General Agreement on Tariffs and Trade (GATT) was approved in 1995. This agreement will eliminate even more of the hindrances to free trade worldwide.
8. Improved Transportation and Communication Systems: Improve transportation and communication systems at least in developed countries have helped increase the number of firms doing business abroad Markets that were physically inaccessible 20 or 30 years ago are now open as developers of new technologies such as satellites; computers, facsimile machines, container shipping, and airfreight.
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