This is the Globalization of trades and manufacturing. Companies are now expanding their operations by either opening branches or setting up manufacturing units in other countries. As this is happening across all countries it is now common to see almost all known brands available in every region of the world. The marketplace is getting bigger and both the consumer and the companies profit out of this proliferation of goods and services across the globe.
These expansions have brought in better profits and higher performances. MNC’s have also diversified and added to their product and service portfolios. There are several reasons why diversification has resulted in better performance.
But markets are not entirely integrated, therefore there are regional imbalances. These are the results of some protection that the local governments exercise in the name of protection of their local industries. By operating in more than one international market the MNC’s are able to balance out the regional imbalances caused by local macroeconomic factors. As a result, MNC’s experience greater market performance since investors recognizes and reward stable performance (Shaked 1986). The shareholders are favorable to those companies that are able to reap the profits by expanding their operations to more market.
As a result, a greater spread across international markets reduces their overall risk and in turn, this has a beneficial effect on corporate performance (Caves 1982). Moreover, international diversification offers cost advantages as well as added production competence in its own field with an increase in economies of scale (Buhner 1987)
Expansion of business is both natural progression as well as the desire of corporates to reach larger audiences. But expansion means starting new ventures afresh or building new factories and attending to various initial hazards. In order to expand, an easy and quick route now adopted is Consolidations.
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