International Diversification

International diversification

International diversification is the process of a company to do business in other countries. Many businesses start off domestically, doing their business in the area where they live. When their business reaches certain level of foundation, they would expand their business aboard. There are many advantages to this, such as not having to worry about domestic policy or economy changes, fast growth, cheaper input (i.e. cheaper labor or tax allowance). It will discuss in below section in details.

Advantage of international diversification

1. Risk Management

One of the reason why corporate would like to expand their business aboard, it is because of risk management, such as not having to worry about how foreign entities are regarded by nationals and it can be easier to watch over the business or investment. At the same time, investing business on a single domestic area could be lead to risks, because there is nowhere to response if the domestic economy situation goes downward.

This leads many people to use international diversification as a risk management technique. For example, someone who only invests in domestic companies that make electronics may find that things get hard if electronics stop selling well in the domestic area. With international diversification, an investor can allocate funds to international areas that are experiencing better electronics sales and still profit from his investments.

2. Faster growth

Firms that have operated internationally tend to develop at a much quicker pace than those operating locally. Some firms do not develop business on their own, they can expand their business by mergers and acquisition (abbreviated M&A).

Mergers and acquisitions is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects, although it has not completely disappeared in all situations.

3. Cheaper labor input, production efficiency and tax allowance

Operating internationally