Have you ever wondered why big companies have more than one headquarter and are still expanding into more nations and continents?
The reason for this is not far fetched.
Every big company aims to capture as much market shares as possible. Hence, there is no gainsaying; the fact that those companies move headquarters overseas to take advantage of the many benefits that come with it.
Large companies may decide to move headquarters overseas to have access to cheap labor, avoid taxes, utilize raw materials available in other countries, which will help them boost production and consequently increase their world output.
It is essential to make it clear that having headquarters overseas has its advantages and disadvantages also.
So, big companies must weigh their options before taking the necessary steps.
Advantages and Disadvantages of Moving a Business Abroad
Moving a business abroad implies expanding the business territories to explore new options.
For instance, a big company may decide to introduce its product to consumers in a developing country- where there is not much competition.
And every big company understands that when it comes to doing business, a good location is essential.
With that being said, moving a business abroad also has its challenges because doing that means navigating unfamiliar terrain.
A company has to analyze the cost and weigh the disadvantages against the benefit before deciding to move.
- Offshoring: Companies move headquarters abroad to take advantage of the lower cost of producing their goods overseas.
It may be as a result of having access to raw materials used in production or avoiding taxes. Also, companies may opt for offshoring, if the production of their products, can only be managed by experts overseas.
- Cheap Labor: If it is clear that a company can get cheap labor to produce its goods overseas; then, the company may decide to explore the option and move its production to another country.
- Large Market Shares: Big companies that want to have a large market share of the world output within the industry may see a good reason to move their business abroad.
- Talent Explorations: Companies can take advantage of the large pool of talent; available in a particular country to boost their production.
- Abundant Ancillary Services: If a company can have easy access to ancillary services for its production processes; then, they may decide to move office overseas.
- Government Incentives: A company may find the incentives introduced by the government of another country favorable, for its nature of business and so decide to move headquarters overseas.
- Competition: Companies have to be wary of the hostile rivalry they may face; by plying their trade in another country. There may be indigenous companies that produce the same goods as the company planning to move overseas.
- Language Barrier: This is a challenge common in international business transactions. Companies may find it hard to cope with the stress of learning the language in their new locations.
The branding of their products must also appeal to the local customers; to gain their loyalty. And that involves understanding the language they speak.
- Unexpected Change in Government Policies: Government, like every other thing in life, is not constant. The government of a country may today favor the establishment of companies by foreigners.
But another administration may come on board with unfavorable policies regarding the establishment of companies by foreigners.
- Cost of Transporting: Moving a business abroad means incurring the cost of shipping your facilities and personnel abroad too. The process may be costly and cumbersome at the same time.
11 Pros of International expansion
One of the aims of any company is to promote its brand as far and wide as possible. It is only rational for companies to seek to expand their operations in other countries of the world.
There are pros and cons of this practice. These are explained, in turns below:
- Access to New Regional Markets for Products and Services: International expansion avail companies new markets for their products.
- Brand recognition: The brand of a company will be more recognized if it expands on the scenes.
- Cost-Effectiveness Manufacturing or Production: If a company discovers it will be more cost-effective to manufacture its products by expanding internationally, the company should not hesitate to expand to other countries of the world.
- Customer Service Centers: A company may deem it fit to have an overseas presence so that it will be able to provide outstanding customer service to its loyal international customers.
- Use of Free Trade Zone: A company may want to take advantage of the free trade zones in international trade; hence, it expands its operations to those nations covered under the free trade zone policy.
- Lower Operating Costs: Being able to produce goods at a lower operating cost may inform a company’s decision to ply its trade overseas.
- Business-Friendly Laws: Companies want to operate in an environment where the law favors their operation; it is not; then uncommon to see companies expand their businesses to countries where the business law is in their favor.
- Fewer Regulations: Excessive regulations can make the business ecosystem unfriendly for companies. So companies seek markets where they can operate with fewer controls involved.
- Government Incentives and Lower Taxes: Companies thrive in a country where the government offers incentives to business entities; to help; them widen the scope of their operation.Also, companies want to pay as little tax as possible. A company may seek a greener pasture where incentives; are granted to it and where the taxes paid will not erode its profits.
- New Untapped Markets: Companies that see the potential market for their product overseas can decide to move to those countries in a bid to explore the untapped market in those countries.Growing competition in the local scene may also motivate a company to seek a new market with potentials; for the business.
- Employing Skills and Talents not Available Locally: If companies realize there is a scarcity of experts who can handle their productions well, they can decide to go international to have access to the best brains available only in other countries.This is not an uncommon phenomenon in the tech industry.As tech giants, such as IBM utilize experts in other countries to maintain the flow of operation in their company.
6 Cons of International Expansion
- Tightening Immigration rules: The immigration rule in place in a particular country can make it less worthwhile for companies to explore new markets available in such countries.
Big Companies face unnecessary delays in the procurement of raw materials from other countries; because of the stiff immigration rules that must be adhered; to.
- Cultural and Language Barriers: All countries have different cultures and do not speak the same language.
And that serves as a discouraging factor to companies that seek international expansion because it means you have to master the proper and acceptable way of communicating the benefits of your products to them.
Learning the languages or getting the staff trained on how to speak may come at an extra cost; for the firm. And that is not favorable enough.
- Incorporation Cost and Regulations: The cost of incorporating a business is enormous, though it might vary with countries. The strict government regulations are another factor that may hinder the smooth exploration of new internal markets by companies.
There are endless and time-consuming paper works for the companies. And they must be endorsed to make them legally established and also get the permit to commence operations.
The time-consuming nature of these procedures makes it difficult for companies to expand their operations; internationally.
- The Need to Outsource Services: In a situation where there are not enough experts that can handle a specific part of a company’s operation, the company may still need to outsource the work to experts in another country.
Outsourcing may cause a delay; in the operation of a company because of the procedures that have to be followed; in getting the service done overseas.
- Capitalization and Ownership Requirement: The huge capital involved in establishing and owning a company is high. And it draws a setback on the ease with which a company can get its brand on the international scene.
Setting up an incorporated organization cost millions of Dollars. Getting the finance necessary to run the company can sometimes be a challenge.
- The Need to Pay Custom and Excise Duties: The unsavory delay; in the supply of useful raw materials to the location where they are needed sometimes poses a challenge to international expansion.
Companies pay a high amount of money as excise duty, and this raises their cost of production.
How Do I Move My Office to a New Place?
Moving an office to a new place may be a daunting task because you are moving to a place you might not yet be used to.
You will need to familiarize yourself and your business with the legal requirements of the new place. Also, you will have to understand the culture of the people. And compete with businesses that are similar to yours.
However, with the useful tips highlighted below, you will find it easier to move your office to a new place.
What You Should Do Before Moving?
- Allocate a desk number to each of your staff members.
- Ensure you and your staff have properly labeled the office equipment. These include your cabinets, computers, printers, furniture, and other necessary equipment you use in running your business.
- Empty the file cabinets of any contents, and lock them properly. It would make the cabinets easy to move to your new location.
- Ensure items like cables, phones, and keyboards are placed inside plastic bags and are labeled accordingly.
- Take your valuable items and devices such as laptops, iPads, and any other valuable devices home.
‘Items’ meant to be shared in your new place, such as kitchen utilities, rooms, and restrooms essentials should be labeled and spelled out in your floor plan.
What You Should Do While Moving
- Put a proper moving arrangement in place. Get your company representatives to be present at your new location. If you have more than a single truck relocating your items and equipment, ensure there’s at least a representative in both locations, to monitor the trucks moving your properties, until all the items have been relocated successfully.
- Encourage the removalist to work on a single area at a time. This is ideal, especially if you are moving to a bigger building.
Also, it will prompt you to give instructions on the proper arrangement of items in the building. You will also be able to attend to any questions they have to ask as regards the arrangement.
- The connection of gadgets such as office phones and computers should come last. This means you will have to be patient for the proper arrangement to be made in your new office building. The installation of your devices should come last, after which your staff can resume work.
1. Why would companies based outside the U.S. register their headquarters in the U.S.?
Companies located outside the U.S. may decide to register their headquarters in the U.S. to take advantage of the favorable regulations that exist; for a business that is not available in other countries.
They may also register in the U.S. if the corporate tax payable in the U.S. is less than that payable where they are domiciled. And that is called tax inversion.
In general, a company that finds it reasonable to expand its operation to the U.S. would be willing to register its headquarters in the U.S.
2. What Are the Factors Affecting International Expansion?
The factors affecting international expansion include ease of doing business overseas, the need to gain brand recognition, availability of raw materials in other countries.
It also involves untapped new markets, differences in climatic conditions, technological differences or constraints, availability of cheap labor in other countries, the need to bypass taxes, availability of government incentives, and the desire to avoid competition locally.
3. Why do companies manufacture in other countries?
Companies manufacture in other countries if there is the availability of raw materials necessary for producing their goods.
Another key reason why companies will want to manufacture in other countries is the availability of cheap labor. As that will help them lower the cost of production.
4. Why do companies move production overseas?
There are a good number of reasons why companies move production overseas. These include brand recognition, low cost of operation, favorable business laws and regulations, coverage of time zones, availability of large markets, and employing experts that are not locally available.
5. What is it called when a company moves overseas?
It is called Offshoring- when a company moves overseas.
6. What percentage of Wal-Mart products are made in China?
More than 70% of Wal-Mart’s products; are produced in China.
7. Why do most European companies move their administrative headquarters to the Netherlands?
Most European companies move their administrative headquarters to the Netherlands because of the availability of infrastructures.
The Netherlands boasts of the largest port in Europe. So, import and export are facilitated; by the existence of this port.
8. Why is it that most headquarters are located in Switzerland?
Most headquarters are located in Switzerland because it is a very peaceful country.
The country is known to maintain neutrality in times of war.
Every company seeks to maximize profit, even if it means moving office. Aside from the benefits such as cheap labor, tax avoidance, access to new talents, and so on, expanding your organization to a new frontier has its fair share of challenges.