Reactive and Proactive Global Challenge

Reactive and Proactive Global Challenge

Reactive and proactive reasons for international expansion

Expansion is always a risk for a company, and the risks of overseas expansion can be even greater. However, some companies make a calculated assessment that the dangers of inaction are greater than the risks of actively venturing abroad. Additionally, companies often wish to circumvent a competitor's ability to capitalize upon new opportunities in underdeveloped markets. Efforts at expansion tend to fall into two basic categories: reactive motivations and proactive motivations.

Reactive internal motivations are designed to hedge against a potential risk looming upon the horizon, such as "anticipated declining domestic sales, revenue or market share, excess unsold or inventoried production" (Moloney 2006). Reactive external pressures include "competitive pressures in the home market, saturated domestic markets, the lowering of margins from existing activities, limitations and constraints in existing markets and objections or the placing of hurdles against further expansion" domestically (Moloney 2006). If a company knows that the market for its product is super-saturated or is likely to be threatened by a stronger competitor that can price its goods lower, going abroad is a possible opportunity to sustain its revenue through expansion. Additionally, domestic government regulation can also prompt expansion abroad, as was the case with U.S. tobacco companies. As anti-tobacco and smoking legislation has increased in popularity in the U.S. And the developed world, companies such as RJ Reynolds have expanded overseas, where anti-smoking pressures are less intense.

Proactively-motivated internal expansions include a desire to seek a strategic alliance or to exploit "an effective in-house multicultural operational support base" (Moloney 2006). Proactive external drivers also include "identified and sustainable international opportunities, the discovery of tax benefits / incentives, quantifiable economies of scale, notification of inward investment assistance, ease of physical logistics, a strategic fit with the distribution channel, the capacity and opportunity to reduce inventory by overseas expansion" (Moloney 2006). For example, outsourcing to take advantage of lower labor costs is a frequent proactive expansion technique. Even if a company is not in 'trouble' financially, proactive expansion is a good sign of a forward-thinking management determined to seek out opportunities. Many telecommunication firms, including Verizon have taken advantage of the educated, English-speaking yet far cheaper labor force in India. They have employed members of that nation to staff the 'call centers' that people call for support assistance in using the company's products. While reactive expansion may be more common, given that it can be difficult to take a risk when things are already going well, proactive and informed decisions to expand tend to have a better success rate.