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International Expansion

International Expansion

International Expansion

Would you seek to acquire a company within the European Union or outside of it? Why?

I will not seek to acquire a company within the European Union. The European Union is in the midst of a severe financial crisis called the Euro zone crisis. This has created several problems in the European Union. The governments have changed leading to political instability and there is a strong prospect of financial uncertainty. For example, in Cyprus banks are not functioning. If a company is to be acquired, its assets must be secured and it must be able to carry on its operations. In EU, assets of companies and individuals are frozen. For example if a company is not allowed to draw cash from the bank the value of acquiring the company gets defeated. Similarly, if the business is not able to carry out normal financial transactions because of the European Sovereign debt crisis, then the company cannot carry on its operations. It is advisable to avoid acquiring a company in the European Union.

There are other countries where such problems do not exist. For example, a company may be acquired in Brazil where there is strong currency, a 4.1 % GDP growth rate, and a sound financial system.

Describe the advantages and disadvantages of the choice you

The advantages of acquiring a company in Brazil are that it is a regional economic power. It has natural resources, minerals, energy, and a broad industrial base. It has stable economic growth and a strong growing local market. Brazil has been selected because it has low inflation, tax exemptions, and strong consumer confidence. The economy is large, there is internal growth, and excellent infrastructure.

The cons of the alternative that I have suggested are that there is a volatile political environment, the business conditions change fast, and there is a heavy bureaucracy. The other cons are that the legal system is slow and difficult. The general level of education is not high and a small part of the population has higher education.

Explain why an MNC may invest funds in a financial market outside its own

An MNC may invest funds in a financial market outsize its own country to avail itself of a better investment opportunity. The MNC may perceive opportunities that are more lucrative or more secure in a foreign market outside its own country. The second reason is that there may be financial crisis or slow economic recovery in the home country. So an unattractive economy at home may encourage the MNC to invest abroad. In addition if there are disheartening economic factors in its own country the MNC may decide to invest in a financial market outside its country. If the stock market at home is uncertain, if the currency of the home country is likely to weaken, or the home country runs up a huge budgetary deficit, the MNC may decide to invest in financial market abroad. Several MNCs select countries for investment where the local currency is likely to appreciate. Higher returns are an important factor that attracts MNC to invest in financial markets outside the home country.

Explain why some financial institutions prefer to provide credit in financial markets outside their own

Financial institutions prefer to provide credit in financial markets outside their own country because they get higher rates of returns than in their own country. Competition from other financial institutions and government regulations may depress the interest rates in the financial markets in their countries. For example, the very low discount rates by the Federal Reserve in the United States depress the interest rates including the long term interest rates in United States. If the financial institutions want to earn a higher interest rate they lend through their international branches in countries where the interest rates are higher. This lending (giving credit) brings a higher rate of interest to the financial institution. The profitability of the institution increases. From a different perspective if the supply of funds in the home market is very high. For example, the Fed in the US ensures that the level of liquidity among banks is high and this pushes down the rates of interest at which banks can lend in the United States. The financial institutions seek markets where the supply of funds is low.

Globalization of financial markets makes it possible for financial institutions to provide credit in such countries where the interest rate is high and the security of funds is also high.


Globalization – The Juggernaut of the 21st Century Jan-Erik Lane Ashgate Publishing, Ltd., 2013

Globalization and Social Change: People and Places in a Divided World Diane Perrons Routledge, 2013

The Limits of Globalization Alan Scott Routledge, 2013


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The most popular way for international expansion is for a local firm to acquire foreign companies. One of the most benefits for international expansion is global distribution capability that helps expanding the market share.

International Expansion

International Expansion

There are different implications of running a company that is within or outside of the European Union. If you were the head of a firm based in the United States, please answer the following questions, providing the rationale behind your answers:

  1. Would you seek to acquire a company within the European Union or outside of it? Why?
  2. Describe the advantages and disadvantages of the choice you made.
  3. Describe the advantages and disadvantages inherent in the option you did not choose.
  4. Explain why an MNC may invest funds in a financial market outside its own country.
  5. Explain why some financial institutions prefer to provide credit in financial markets outside their own country.

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