International Production Strategies
The purpose of this paper is to discuss the emerging strategies of companies moving their facilities offshore and going more international with their strategies. What are the reasons behind this trend? Who are the companies following this strategy? Is it beneficial? We are going to discuss the answers to those questions in details.
There are multiple factors that contribute in the decision making of moving facilities abroad; the major ones are lowering taxes paid, finding cheaper labor abroad and seeking less crowded markets for some industries. This provides a larger profit margin for the companies and open up new opportunities. On the other hand, the downside of this strategy (from the state`s own point of view) is an increase in the unemployment rate and an increase in the cost of taxation as offshore operations are considered to be tax dodging. There are several tycoons and multinational companies that are following this methodology such as; Apple, Google, General Electric and many others that prefer to move their production lines or at least some their facilities offshore for higher profits.
The latest attempt for going offshore was performed by Pfizer. It wasn`t just an offshore attempt of moving their production facilities abroad. On the contrary, Pfizer was keeping most of the production and R&D facilities as they are in the US. However, it was planning to do a merge with the Irish Allergan company and moving only the headquarters which makes this action fall under the inversion category according to taxation. This act would lead to a significant decrease in the tax payment from 35% in the US to 12% corporate tax in Ireland which is one of the driving factors behind the call for the merge. Yet, the US Treasury released two rules; the first was to reduce the eligibility of foreign businesses for inversions by not counting the number of recent purchases for US companies towards a deal. The second was limiting businesses to accept loans from their parent companies along with a deduction on the interest rate which will lead to reduced tax payments. "For the rules to be changed after the game has started to be played is a bit un-American, but that's the situation we're in," According to Brent Saunders, the CEO of Allergan (RT, 2016), as an indication that those rules were released just to spoil the merge deal. The release of these rules resulted in an unsuccessful merge between the companies and it was stated that no further attempts would be performed as it will be faced by further implications from the federal government. Pfizer will pay Allergan a $400 billion penalty as per the merger agreement (DiChristopher & Faber, 2016). This is not the first time that Pfizer loses the approach to go offshore; earlier in 2014 it tried to buy AstraZeneca PLC. Yet the approach reached a dead end too and that was before trying the second approach with Allergan (Rockoff, Hoffman & Rubin, 2016).
In conclusion, I guess that not trying to go offshore was a wise decision to be taken by Pfizer as it would raise unnecessary conflicts with the government and will may cause distractions that would affect the company`s productivity and growth progress.
References
RT. (2016). $160 billion Pfizer-Allergan mega merger falls apart after US tax-dodging rules hit. Retrieved from https://www.rt.com/usa/338680-pfizer-allergan-merger-collapse/
DiChristopher, T, & Faber, D.CNBC. (2016). Allergan CEO: Merger with Pfizer was targeted by US government. Retrieved from http://www.cnbc.com/2016/04/05/pfizer-allergan-will-mutually-terminate-merger-over-inversion-rule-changes-sources-say.html
Rockoff, J, Hoffman, L, & Rubin, R. (2016). Pfizer Walks Away From Allergan Deal. Wall Street Journal. Retrieved from http://www.wsj.com/articles/pfizer-walks-away-from-allergan-deal-1459939739
