Importance of foreign market entry and expansion for a business organization

By expanding the customer base and production scale, a business organization can achieve economies of scale. An enterprise can reduce the average cost per unit when the scale of output is increased. After expansion, cost advantages and higher profit can be obtained by bulk purchasing, having higher bargaining power, enjoying higher turnover rate and paying lower interest charges when borrowing, etc. McDonald’s is one of the multinational companies enjoying economies of scale by operating in different countries. McDonald’s offers relatively uniform menu items that can be easily mass produced, so the cost of making each one is smaller.

For a business organization to grow, it has to constantly find new opportunities to expand. When the local market is saturated and being well developed, the business organization should consider entering into foreign markets for expansion. One example would be Hutchison 3G established in Hong Kong. As the telecommunication industry in Hong Kong was over-crowded with different competitors, Hutchison 3G started to enter the markets in China, Europe, Australia and Indonesia.

Also, a business organization can diversify the operating risk by entering into different geographic areas. Loss suffered in a country with declined economy can be compensated by the profit gained from another booming country, which minimizes the impact of undesirable domestic situations. Currently, Marriott is suffering from the economy crisis and declining tourist numbers in Greece, but on the other hand earning a sound profit in the Asia market.

Moreover, entering into foreign markets can increase the return on capital of the business organization. It is convenient for a company to set up business in those areas from where they can obtain the raw materials, which can reduce