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.
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.
Measuring the additional CDBA will be a priority for any business looking to expand internationally. A company that goes global has some costs that are similar to those incurred by companies that remain in their home country, but many of their costs will be unique. Let's look at the disadvantages of competing with an indigenous company.
Liability of Foreignness
The liability of foreignness (LOF) looks at the costs of moving in and competing with businesses that are already established in the host country. These native businesses have certain social and economic advantages that foreign companies do not.
For example, if the NFL were already established in London and just wanted to expand with another team, many of the expected costs listed above would be reduced. And once established in Europe, some of these costs will eventually decline over time. In the beginning, however, we have to look at how to compete with native sports, like soccer.
Let's look at the LOF for the NFL compared to soccer's London Football Association (LFA), which oversees several top English soccer teams. Compared to the NFL, the LFA has much lower production costs because it has local, long-term contracts with suppliers, distributers, marketers, and security firms. The LFA will also have typical insurance, financial, and legal costs, but these will likely be lower because the league is well-established. The LFA will also have minimal integration, communication, translator, and travel costs.
As we can see from our analysis of the NFL's potential expansion, there are a variety of costs to consider for costs of doing business abroad (or CDBA), which are the additional costs incurred by a company when operating internationally. We have to look at production, integration, risk, travel, and financial and legal costs.
In addition, we need to analyze whether we can compete with native companies. This is the liability of foreignness (or LOF), and it looks at the costs of competing with a homegrown business. Most of our CDBA costs will be reduced or eliminated if we are an indigenous business. Both have to be considered when looking to go international.
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