The next factor discussed is labor. This business currently has net sales of €10 billion yet only €150 million in net profit. This suggests that this low level of profit for the size of the company has not come down to their revenue as there is by no means an obvious lack of demand. Therefore, the issue must be down to their costs. In this scenario, focusing on expanding the business into an area with...
The next factor discussed is labor. This business currently has net sales of €10 billion yet only €150 million in net profit. This suggests that this low level of profit for the size of the company has not come down to their revenue as there is by no means an obvious lack of demand. Therefore, the issue must be down to their costs. In this scenario, focusing on expanding the business into an area with low costs would be best. To achieve this, they could go to an area such as China with low labor costs. While this might seem like they would be losing the advantage of operating within the EU, China has many other benefits. Due to the low labor costs, everything tends to be cheaper out there anyway so, therefore, the loss of the single market would not make much difference.
On the other hand, there are downsides to operating in China; the main one being the barriers to entry. If you want to locate in China, Chinese regulations mean you must merge with a Chinese company. This imposes obvious drawbacks such as not owning a majority share in your own company. However it does allow you access to one of the fastest growing economies in the world which comes with its own advantages.
