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How Matured Firms Seek Growth?


Any the matured firm, that operates in a developed market, a firm like McDonald's, usually seeks opportunities outside the USA or in general the domestic market. As the business is cash flow positive and growth is slow and competition is high, it might be wise to seek opportunities outside of the domestic market.
While these large firms go international the rewards are different for different firms. For example, when firms like KFC or McDonalds go international, they really benefit from new customers, cheap labors. Especially firms moving into populous countries like China and India, where the middle-class population is increasing will get access to a huge customer base.
When Firms like Microsoft, Facebook, Google goes international they benefit from cheap labor. These firms can set up a development center or data center wherever English speaking and technically skilled people are available. The products they sell are standard, and sold globally, regardless of where it is developed. For example, Facebook, Google, Microsoft all these firms have a development center in India, because India has an English speaking population with Engineering skills. This is known as offshoring, while it is not very popular as it takes away the potential of job creation in the domestic market. But, it helps the firms to generate more profit by saving cost.
Offshoring is not only common among tech firms, but manufacturing companies like Nike Apple also offshore their manufacturing to countries with cheaper and skilled labor. China only makes $8 per iPhone. If Apple decides to move the entire operation of manufacturing iPhone in the USA, the iPhone would cost $100 more(Stewart,2018).
But I think diversification of markets applies to all firms. When the firms are operating in a saturated market, it is better to diversify to protect against any economic slowdown. As the firms go to different geography it gains more experience in cultural diversity, it gains more customer base, cheap and skilled labor based on geography. According to Tim Cook, CEO of Apple, China does not really have cheap labor but they do have skilled labor (Stewart,2018).
Most of the firms would face similar risks when they go international. Like currently global trade war is causing major uncertainty in the world, and all the firms are impacted. The current trade tension, tariff and counter tariff on Chinese goods can cost US households between $300 - $800 a year(Russ,2019). I think currently political risk is greatest. Since all countries are moving away from offshoring. The US and China, two biggest economies are engaging in the trade war, and this has introduced the risk of the global slowdown.

For entrepreneurial firms, the greatest reward is access to the market. Although a start-up firm usually still has scope to grow in the domestic market. They should focus on the domestic market and grow. But they can grow and in the international market too. Like Uber went international markets. To gain access to more customers. Uber had to back out from most of those markets. As they could not generate any profit.
For entrepreneurial firms, currently greatest risk is a political risk. As the political risk is creating an entry barrier in international markets. As current trade tension is creating an economic slowdown, funding for the start-up is also getting scares, this would adversely impact entrepreneurial firms.
I think it makes sense for matured firms to go international, as the potential reward outweighs potential risks. Since the matured firms have steady cash flow in the domestic market and the firm is seeking growth so going international would be one option.
But for startups or entrepreneurial firms, while they have an opportunity in the domestic market to grow, the risk outweighs the reward. Most of these firms do not make a profit. Like Uber does not make a profit. When they go international, it requires a lot of growth capital, and with so much uncertainty it does not make sense. While the rewards are different for these two firms, I think in 2019 the risks are the same for different firms.

References –
Stewart, E(September 2018). How much would the iPhone cost if it were made in America?. Retrieved from https://www.vox.com/technology/2018/9/13/17851052/apple-iphone-price-china-trump-us-trade
Russ,K. ( May,2019). The Costs of Tariffs in the U.S.-China Trade War. Reetrieved from https://econofact.org/the-costs-of-tariffs-in-the-u-s-china-trade-war



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