Answer to Question 1
Companies maintain the current level of operations when no new opportunities are foreseen. Yet changing conditions in the competitive global marketplace often force managers to choose between reinvesting in operations and divesting them.
Companies often reinvest profits in markets that require long payback periods as long as the long-term outlook is good. This is often the case in developing countries and large emerging markets. For example, corruption, red tape, distribution problems, and a vague legal system present challenges for non-Chinese companies. But because long-term returns on their investments are expected, Western companies reinvest heavily in China despite what are sometimes uncertain short-term profits. Most of these companies invest in production facilities to take advantage of a low-cost labor pool and low-cost energy.
Companies scale back their international operations when it becomes apparent that making operations profitable will take longer than expected. Again, China serves as a good example. Some companies were lured to China by the possibilities for growth offered by 1.2 billion consumers; however, some had to scale back ambitions based on overly optimistic marketing plans.
Companies usually decide to reinvest when a market is experiencing rapid growth. Reinvestment can mean either expanding in the market itself or expanding in a location that serves the growing market. Investing in expanding markets is often an attractive option because potential new customers usually have not yet become loyal to the products of any one company or brand. It can be easier and less costly to attract customers in such markets than it is to gain a share of markets that are stagnant or contracting.
Yet problems in the political, social, or economic sphere can force a company either to reduce or eliminate operations altogether. Such problems are usually intertwined with one another. For example, in recent years some Western companies pulled their personnel out of Indonesia because of intense social unrest stemming directly from a combination of political problems (discontent with the nation's political leadership), economic difficulties, and terrorist attacks.
Finally, companies invest in the operations that offer the best return on their investments. That policy often means reducing or divesting operations in some markets, even though they may be profitable, in order to invest in more profitable opportunities elsewhere.
Answer to Question 2
Many thanks to you.
Answer to Question 3
Many thanks to you.
Answer to Question 4
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Answer to Question 5
TRUE
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