Economies of scale in production are achieved when higher levels of output spread fixed costs over more units, thus lowering the per-unit cost. Gerrit Jeelof,
of Holland's Philips Group, contends that 'only with a global market can a company afford the large development costs necessary to keep up with advancing technology.
Growth Opportunities
Companies in mature markets in developed countries experience a growth imperative to look for new opportunities in emerging markets. When expansion opportunities become limited at home, firms such as McDonald's are often driven to seek expansion through new international markets. A mature product or service with restricted growth in its domestic market often has 'new life' in another country, where it will be at an earlier stage of its life cycle. Avon Products Inc., for example, has seen a decline in its U.S. market since its traditional sales and marketing strategy of 'Avon calling' (house-to-house sales) now meets with empty houses, due to the spiralling number of women who now work outside the home- To make up for this loss, Avon pushed overseas to 26 emerging markets, such as Mexico, Poland, China, India, South Africa, and Vietnam In Brazil, for instance, Josina Reis Teixeira carries her sample kit to the wooden shacks in the tiny village of Registro, just outside of S Paulo. In some markets Avon adapts to cultural influences, such as in China, where consumers are suspicious of door-to-door salespeople. There, Avon sets up showrooms in its branch offices in major cities so that women can consult cosmeticians and sample products.
In addition, new markets abroad provide a place to invest surplus profits as well as employ underutilized resources in management, technology, and machinery. When entirely new markets open up, such as in Eastern Europe, both experienced firms and those new to international competition usually rush to take advantage of awaiting opportunities. Such was the case with the proactive stance that Unisys took in preparing for and jumping on the newly opened market opportunity in Vietnam
Resource Access and Cost Savings
Further, resource access and cost savings entice many companies to operate from overseas bases. The availability of raw materials and other resources offers both greater control over inputs and lower transportation cost& Lower labor costs (for production, service, and technical personnel), another major consideration, enable lower unit costs and have proved a vital ingredient to competitiveness for many companies.
Sometimes just the prospect of shifting production overseas improves competitiveness at home. When Xerox Corporation started moving copier rebuilding operations to Mexico, the union agreed to needed changes in work style and productivity to keep the jobs at home. Lower operational costs in other areas - power, transportation, and financing - frequently prove attractive. Trinidad, for example, offers abundant inexpensive energy, a skilled and well-educated work- force with labor rates at about one-fourth of U.S. levels, and government incentives for export-oriented ventures that generate foreign exchange.
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