Why do companies participate in international business transactions?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Companies participate in international business transactions because they think that they can improve their profitability by doing so.  There are at least two major ways in which they think they can improve profitability.

First, they might think that they can lower costs by participating in such transactions.  Many firms know that they can find lower labor costs in countries such as China.  This makes it worthwhile for them to, for example, use suppliers in China rather than in the US.

Second, they may want to penetrate foreign markets.  They may want to do so as a way of increasing the size of their market and the amount of goods and services that they can sell.  Firms might enter into relationships with foreign firms, then, as a way of gaining access to the foreign market.

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