BUSF_A01.qxd

Introduction

l its ordinary shares are listed on the New York Stock Exchange as well as the UK

one, which implies that foreign institutions and individuals own a significant per-

centage of the shares.

Cadbury Schweppes is, perhaps, one of the more international of UK businesses,

but it is by no means an unusual case. Most large businesses, and a great number of

small ones, resemble the internationalisation of Cadbury Schweppes, to some extent.

Why do businesses internationalise?

Presumably, businesses become international in a bid to achieve their corporate object-

ive of shareholder wealth maximisation.

Importing and exporting

Without certain raw materials only available, or more cheaply available, outside the

home country, many businesses would not be able to produce their products or ser-

vices. Cadbury Schweppes plc, for example, would not be able to manufacture choco-

late in the UK, unless it imported cocoa.

Exporting enables the business to reach larger markets for its output. It may be that

the home market is saturated with its product, and the only means of profitable expan-

sion is into foreign markets. Possibly the business has the choice of expanding both in

the home market and by exporting, but pursues the foreign market because it offers

better returns.

Overseas investment

Direct investment in facilities in a foreign country may make it more economic to sup-

ply other local foreign markets with goods or services, or even the home one. Many

UK businesses have call centres located outside the UK (India seeming to be a pop-

ular location) from which they supply services to UK customers.

Manufacturing in a location close to the market obviously reduces transport costs.

Production costs may be lower at certain foreign locations, such that it might be

cheaper to manufacture there for export to the home market. Local manufacture may

be the only profitable means of entering certain markets. For example, the attraction

of the UK as a manufacturing location for certain Japanese car producers is not just to

avoid the transport costs that would be associated with manufacture in Japan. Were

the cars not made in one of the EU member states, the businesses would face effective

tariff barriers when trying to sell their cars anywhere in the EU. There might also be

more willingness of EU citizens to buy a car that was locally made.

Overseas financing

The home capital market may not offer the cheapest or most suitable funding options.

In theory, the relatively free movement of capital should mean that financing costs

would be the same wherever the cash is raised, but imperfections in the market mean

that this is not always the case.

Internationalisation and risk reduction

Internationalisation can offer opportunities for diversification of risk, and, it seems,

many businesses are attracted to it for that reason. The risk of an economic slump in

the home market may be able to be countered by the possibility that the slump would