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Why the Best Companies Expand Internationally

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Why the Best Companies Expand Internationally image 190613 PC leongThere are only two methods to drive revenues: a company can increase its price to the consumer (but this doesn’t always come across as being prudent, especially given the current low interest rate and inflation period), and then there’s the more viable way, which is to expand into foreign markets.

Companies can expand nationwide or internationally like many of the world’s multinational companies. Just take a look around and see how many American companies are found outside of our borders and spread across Europe, Asia, and Latin America.

Whole Foods Market, Inc. (NASDAQ/WFM) has the majority of its stores in the United States, but also has a small presence in Canada and the United Kingdom. The company just made its first foray into Detroit, Michigan. Now at first glance it doesn’t seem odd but, as my stock analysis suggests, given that the “Motor City” has a massive unemployment rate of 17.5% (source: U.S. Bureau of Labor Statistics, last accessed June 18, 2013) and Michigan has more people looking for work than the national average, you have to wonder why the company has decided to expand there. While there may be more economically viable places for expansion, the reality is that the company is searching far and wide for places to expand, as it doesn’t want to face growth issues down the road, as my stock analysis indicates.

The need to expand internationally has made many American companies into global brands and has rewarded shareholders along the way, as my stock analysis suggests.

Expansion is what companies need to do in order to grow and become much bigger companies. Maintaining a market within America’s borders alone means limiting your market to 300 million people and ignoring the other 500 million people in the eurozone and 2.4 billion people spread across China and India, based on my stock analysis.

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My stock analysis indicates that U.S. companies tend to expand internationally into our neighbor to the north, Canada, as a first move.

McDonalds Corporation (NYSE/MCD) is now a global powerhouse and one of the most recognizable brands in the world, according to my stock analysis. The company first moved into Canada in 1967. (Read “The Secret to Success in the Fast Food Sector.”)

In the home supplies sector, The Home Depot, Inc. (NYSE/HD) expanded into Canada in 1994, which was followed by Lowes Companies, Inc. (NYSE/LOW) in 2007.

Retail giant Wal-Mart Stores, Inc. (NYSE/WMT) expanded into Canada in 1994 via its acquisition of Woolco Canada. The company has become a retail icon in Canada and is expanding aggressively into China and Brazil to drive revenues, based on my stock analysis. And it’s odd that it took nearly two decades before Wal-Mart’s rival Target Corporation (NYSE/TGT) launched its first stores in Canada this past April. Target still doesn’t have any exposure outside of North America, which makes the company an inferior stock to Wal-Mart and its aggressive foreign exposure, based on my stock analysis.

I favor companies that look outside of their base country’s borders for growth. As my stock analysis suggests, other stocks that fit this profile include The Gap, Inc. (NYSE/GPS), Starbucks Corporation (NASDAQ/SBUX), Chipotle Mexican Grill, Inc. (YSE/CMG), and YUM! Brands, Inc. (NYSE/YUM).

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