Why do multinationals operate abroad?

Answer 1

Operating in a number of countries gives a company several advantages. The first of these is that the company is able to achieve economies of scale and scope. A company can be cost effective and make more profits if it operates above a critical level. However, its domestic market may be insufficient to achieve this. One solution is to produce locally and export the goods through agents in the h ost country. The second solution is to establish the company;s own trading set-ups abroad. The third is to invest in foreign countries and set up manufacturing facilities locally. All three approaches will provide economies of scale and scope. The last two appraoches would make the company multinational. The story, however, does not end there. A second reaoson why multinational companies set up businesses abroad is to benefit from cost advantages. Labor intensive operations can be shifted to countries that can provide cheap labor. In certain cases availability of raw material might provide an advantage. Tax advantages and incentives could also lead to cost advantages. A third reason for multinational companies to prefer operating in many countries is to spread the risks. If a company puts all its capital in a single country, it is susceptible to the vagaries in that country and can be affected by factors such as general eceonomic depression, interest rate rise, exchange rate variation and so on. Operating from several countries insures the company against such risks.

Answer 2

what are the advantages of multinationals