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Cost of Doing Business Abroad vs. Liability of Foreignness

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  • 0:03 International Expansion
  • 0:53 The Costs of Doing…
  • 2:54 Liability of Foreignness
  • 4:07 Lesson Summary
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Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

In this lesson we'll address the costs of doing business abroad (CDBA) and the liability of foreignness (LOF). We'll discuss and analyze each and look at their effects on international corporations.

International Expansion

The National Football League (NFL) is considering expanding into the United Kingdom, Mexico, and Germany. In the past, the NFL going international was thought to be a pipedream. Because of improvements in communication, transportation, and shipping, this is now possible. It's a huge untapped market for the league.

The NFL is mulling over whether London will be its first stop. A current team could make a permanent move, or the NFL could schedule a different team every week of the season to play a home game. But while what used to be cost prohibitive is now a market ready to make the NFL money, there are still the costs of doing business abroad (or CDBA) that have to be considered. These are the additional costs incurred by a company when operating internationally. Let's look into them.

The Costs of Doing Business Abroad

The NFL will have production decisions to make. Whether it will make NFL products in the United States and then ship them to London will be one of the first. Depending on what they decide, the NFL will have to consider licensing, outsourcing, and exporting costs, as well as the costs of input and human resources.

Going international also means the NFL will have costs associated with integration. Having a local marketing office to help build a team following will be needed in each new city. Hiring marketing and security firms that are familiar with local customs and languages will also be necessary. In some cases, translators will be needed to help with communication.

There is a lot of risk associated with going global. Having insurance to minimize these risks is important. The NFL will need to be protected from theft, weather, politics, terrorism, and natural and manmade disasters, plus typical accidents.

Travel will be a huge expense for the NFL, as it is for any company that expands to a foreign country. Getting group rates and working with local businesses can help with this. For example, the NFL may want to offer sponsorships as a strategic investment. Shipping, lodging, communications, transportation, and food are examples of travel necessities.

There are financial and legal costs to expansion as well. Exchange rates, banking charges, property rights, permits, construction regulations, contracts, tax structures, international bank accounts, labor, and intellectual property will all be required. Legal counsel and consultants can help the NFL navigate these hoops.

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