International Business: The New Realities, 5th Edition

Efficiency-Seeking Motives

International expansion enables the firm to achieve economies of scale. International expansion allows the firm to increase sales and employ company assets across a larger number of products and markets. As the quantity of productive output increases, the per-unit cost of production tends to decline. In turn, profits rise as the firm’s average cost of operations falls. Similarly, with increasing output, the per-unit cost of other productive activities declines—R&D, marketing, distribution, and customer support.

When firms expand into international markets, they obtain economies of scale. This occurs for various reasons.

• Falling fixed costs. Many industries and productive tasks have high per-unit fixed costs that ...