Global Diversification: International Investing

Historically, the United States has been “narrow-minded when it came to investment opportunities” due to geographic isolation, dominant political and economic positions, and strong market returns (Financial Web, 2009). As a result of these culminating factors, diversification has not been highly sought, however, in our recent turn of events, there has been a dramatic shift in international markets outperforming. The contributing factors to the international transformation include “the widespread adoption of democracy, capitalism, and the rule of law among these nations” and as these “trends continue, the emerging markets will continue” on their upward trajectory (Financial Web, 2009). In addition to these preceding factors “overseas companies are typically subject to less government regulation” whereas “U.S.-based businesses face a formidable amount of government regulation” and while regulation is necessary and protective in some regard it can create competitive disadvantage relative to foreign competition (Financial Web, 2009). Foreign competitors with less governmental regulation benefit from lower operating costs and lower labor costs. Government regulation (i.e. trade embargos) for U.S. organizations prohibits them from playing in the field and leaves them sitting on the bench while the game is played by foreign competitors who step in, in their stead to reap the profits and score big.
Reference:
Financial Web (2009). Global Diversification. Retrieved January 29, 2009 from http://www.finweb.com/investing/global-diversification.html.