Advantages

• New markets

• Lower costs

• Spread risk

• International specialisation

• Consumer choise

Disadvantages

• Local knowledge

• Protectionist measures

• Local competiton

• Control of supply chain

Advantages

Access to new markets can offer increased sales potential.

Lower costs can be achieved through economies of scale when a business expands.

Spreading risk across different markets can reduce the negative impact when a product fails in one. Causes of failure in one market may include economic downturn, high levels of competition or a product reaching the end of its life cycle.

International specialisation refers to the division of labour that can be achieved when large international organisations organise their operations.

Consumers have more choice due to more firms selling in each market. This can improve standards of living and provide more options of each product for different income levels.

Disadvantages

Lack of local knowledge may include tastes and preferences of customers, language, local business legislation, business etiquette and culture. A business operating internationally may seek to hire a local agent or agency to advise.

Protectionist measures such as tariffs and quotas may increase the costs of an importing or exporting business.

Local competition will have first mover advantage over a new entrant. They may have already established a strong brand image and customer loyalty with the local market which may be hard to compete with. In addition, they will have the benefits of local knowledge.

Loss of control of supply chain can occur when a business grows too large. More and more business activity may be outsourced to other firms who may embark in unethical activity or have an impact on quality. Activities of outsourced businesses can be difficult to monitor.

Back to unit 5 homepage