Why companies go global?

The reasons for which companies go global are explained here briefly.

 Why companies go global?

Companies go global because of various reasons mainly are the number of customers increases, more talent availability and more suppliers are available so that they can increase their operations of business. The benefit of going global do not just end on customers, talent and suppliers but there are many other reasons for which companies go global. Going global has tangible reasons (which are visible like the reduction of cost, cheap labour, taxes, tariffs and many other financial benefits) as well as intangible reasons (which are not visible like better understanding of the international market, attracting global talent and improvement in company operations) for which companies are hastily expanding their business operations are discussed below. United States is a huge market but they are not self-sufficient in operating their business alone in US because 73% purchasing power is outside United States. Going global increase stability of companies. 

1. Cost Reduction

Cost reduction is one of the major reason for which companies go global. We can take the example of cost reduction from maquiladoras which is developed between America and Mexico. It is basically a trade corridor between them through which Americans who do trade through these corridors save themselves from tax zone. Another advantage they take through this is they save their labour cost as they use Mexican labour which is cheaper than American labour. Other countries are also planning to build such trade corridors for cost reduction. When WTO came into existence, the trade was smoothen and tariffs (which are trade barriers) were almost reduced from 40% to 3%. WTO enables the free flow of goods across borders.

2. Supply Chain Improvement

  When companies go global they attain economy in input/recruitment side. The availability of parts or raw materials will be available at cheaper rate in better quality. Companies have developed location facilities like Nike is making their shoes in Indonesia because of cheap labour. Companies have achieved efficiency through going global because more customers, suppliers and talent is available throughout the world. The chance for profit has been increased for companies who are operating global because they can cut their cost and earn handsome profit.

3. Increased Life of Product

A Product life cycle has three stages which are growth, maturity and decline. Whenever a new product is launched in market it grows and remain in growth phase after that if the product becomes successful it shift to maturity phase and after sometime it shift to decline phase where the product sale declines. But due to globalization, product life has been increased but how? The reason is if a product become mature in developed country which is advanced in technology then they transfer the product to third world country where technology is less developed. In this way the cycle of product is extended and you can enjoy profit for longer time even after maturity of product. The difference of technological advancements among countries is a cause of increased product life for global firms, For instance Hybrid cars are rare in third world countries than developed countries so they are now shifting their hybrid cars to those countries who lack this technology. 

4. Improved Operations 

When companies go global the operations of company become improved because different countries are advanced in different technologies and you learn different management innovations. For example, the Germans have improved using robots which is due to globalization. The innovative methods are on round through the globe. Global firms understand international markets well where firms go for diversification. Many firms share their operations with other firms for their benefit. 

5. Attracting Global Talent

The availability of talent increases for a company if they go global because not every country is perfect and advanced in every field, if they want to achieve more proficiency in their products they have to recruit and retain the per son who is expert in particular field and can provide better growth of company. The global firms can also reduce unemployment in third world countries where talent is in excess but there are limited employment opportunities. Shrinking the world creates more opportunities for both the talent and companies.

6. Government Policies & Regulations

 To take advantage of some government policies and regulations companies want to become global firms. Governments like the initiatives of exporting products to other countries to better economic trade. Sometimes the government do not allow you to do certain activities in your country and for that reason you have to go global.