International Diversification

JOHN PAUL CAEZAR DR. PARUNGAO

Diversification
the process of a business enlarging or varying its range of products or field of
operation.
-

THERE IS NO I AM; THERE IS NO I;

ONLY AM. WHO AM I?

- - company x
 International
expansion is
inherently risky and
requires specific
knowledge.
- Howard Johnson
Major Risk of International Diversification
• Economic Risk
• Interest rates. As with any loan, increasing interest rates can lead to reduced profits. Researching the
interest rate environment of a country is a crucial step for comprehensive economic risk management.
• Market Prices. A country’s economy greatly influences market prices. When market prices decrease
but production costs stay the same, profitability can be significantly reduced.
• Taxes. New types of taxes can threaten a business’ profits. When a government introduces new taxes,
it can negatively impact a business’ financial performance.
• The Cost of Materials. An increased cost of materials is one of the economic risk factors that
manufacturing businesses need to identify and manage. When the market is competitive and these
costs increase, consumers still expect to pay the consistent prices, leading to a possible loss in profits.
• Increase counterfeit products
 Major Risk of International Diversification
Political Risk

Government Instability

Conflict or War

Potential nationalization of private asset

Government corruption

Change of government policies

From the Company Perspective: Pros of International
Expansion

• Access to New Regional Markets for Products and Services

The most obvious reason to expand internationally is to access the global marketplace for the sale of goods
and services. This is especially attractive to companies that may be located in less-developed economies
and market regions, where growth is limited.

• Brand Recognition

Opening branches abroad can expand brand recognition to attract new customers and establish credibility
in the marketplace. For example, entering a market such as the U.S. can mean a large boost in visibility,
especially for companies from less-developed markets.
From the Company Perspective: Pros of International Expansion

Cost-Effective Manufacturing or Production of Goods

It is a common practice for companies to outsource production to countries with less expensive labor and
infrastructure costs. For a U.S. or European company, offshore production of goods in some Asian
countries, for instance, can offer real cost savings and competitive pricing of products.

Customer Service Centers

Companies with an existing international clientele may want to set up regional customer service centers for
technical and administrative support. Setting up a proprietary service center in a foreign region allows a
company to overcome time zone differences and minimize delays in response.
Use of Free Trade Zones

Many countries offer free trade zones to encourage participation by foreign companies in transport,
storage, or production facilities. As an example, the United Arab Emirates (UAE) has a free trade zone and
business-friendly tax structure that can give convenient access to Middle Eastern markets, without the
requirement of local majority ownership.
Thank you