Introduction
It has been established that the common strategy adopted by companies to attain international expansion is to acquire a foreign company. It is important for a business to identify the most suitable and potential country to acquire a company. In addition to this, it has been shown that there exist diverse implications to run a firm inside or outside the EU. The essay will critically analyze issues related to taking over or establishing a business firm in the EU and outside the EU. Further, the essay will analyze reasons MNC may wish to do business in the currency markets outside their own country and why some financial firms prefer to sell credit in foreign currency markets.
Question 1: Would You Seek To Acquire A Company Within The European Union Or Outside Of It? Why?
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I would not seek a acquiring a company that operates in the European Union , and this is because, in the recent years, studies have shown that the European Union is going through a rough patch of serious financial crisis referred to as the Euro Zone Crisis. Consequently, it has been shown that numerous problems related to trade have come up in this trade bloc. Currently, the government has also changed hence resulting in an increased political instability in addition to the high prospect of the financial uncertainty. For instance, it has been reported that currently, the Cyprus financial institutions are not functioning effectively. Under this circumstances, in an event, a business firm has to be bought or established, and then the assets of the company have to be highly secured and further must be able to continue with the operations and productivity.
Research has further established that in EU, all the assets of firms or individuals are all frozen. If a firm is not allowed to make any withdrawals from the banks, then it will follow that the value of acquiring will significantly get defeated. On the other hand, if the company is not in a better position to conduct a normal financial transaction as a result of the European sovereign credit crunch, the businesses will not be able to carry out their operations. Based on this analysis, it is highly advisable for a business to avoid establishing outlets within the European Union. There exist several nations and blocs across the globe where these issues do not exist making them potential economies for the firm to seek to acquire a company. For instance, a company can be easily acquired in Brazil where it has been established that the economy has a strong currency, a highly sound financial system and further it has a growth rate of about 4.1 percent GDP (Gilson, Hansmann & Pargendler, 2010) .
Question 2: Describe The Advantages And Disadvantages Of The Choice You Made.
Numerous benefits have been associated with acquiring a company in Brazil than within the EU. First, studies have pointed out that Brazil is one of the global economy powerhouse, a great benefit to the business wishing to acquire a company. It has further been established that Brazil is well known for its natural resources, numerous minerals, and availability of various sources of energy in addition to a broad and strong industrial base. All these points out to the advantages that the company stands to enjoy while acquiring outlets in Brazil. In addition to this, it has further been reported that Brazil has a very stable economic growth in the region in addition to a very strong growing local market. In addition to this, Brazil is the most suitable choice in this case because it has very low inflation rates, several tax exemptions that are vital for companies operating in the region and tend to have strong consumer confidence. According to Brainard & Martinez-Diaz, (2009), the Brazil’s economy is large in addition to rapid internal growth and the excellent infrastructure in the region. On the other hand, there are also the disadvantages that can be identified associated with Brazil as a potential alternative to EU for acquiring a company. First, studies have established that Brazil tends to experience a volatile environment that might not be conducive to business operation. Further, political instability is often experienced especially during a change of governance which creates a un-conducive environment for the MNC. Currency fluctuation is another major issue that might affect business operation, and the country has not shown to possess the adequate power to manage this.
Question 3: Describe The Advantages And Disadvantages Inherent In The Option You Did Not Choose.
Acquiring a business enterprise within the European Union has both the merits and demerits of the business. Benefits that the business will enjoy when acquiring a company in EU include: first, the EU has the power to effectively settle all the civil and the international disputes in the most peaceful way hence the company will enjoy a long-term business operation and any international issue that might arise will be settled in the suitable approach. The EU promotes the development of the integrated economy in addition to a single economic area. This will ensure that the business gains ability as a common body to effectively overcome the potential financial crisis and address all issues that might affect the company. EU provides an opportunity for the multinational union to fight against potential global trade related issues hence the company will benefit greatly from this unified effort (Matambalya, 1999) .
On the other hand, several disadvantages are associated with a company acquiring a company within the EU. First, the country within the EU tends to lose their sovereignty which will also affect the business and companies since when a country lacks sovereignty; it will imply that these firms will also lose their operational independence . There are instances where EU has been argued to be characterized by increased communication barriers. This is where EU finds it very difficult to effectively communicate with the members since they speak in different languages hence undermining the feeling of unity among the members. The concept of shared wealth has been argued not to be always good since rich countries will be required to share their wealth with poor economies hence preventing some of the countries from becoming powerful. The EU further serves the interest as a whole rather than focusing on a specific country. This addresses certain interests that might not be a priority to some countries meaning that they address issues that do not affect the businesses and people of a given country.
Question 4: Explain Why An MNC May Invest Funds In A Financial Market Outside Its Own Country.
An MNC may decide to venture into in the currency market in foreign territories for various reasons, especially for their own benefits. First, it has been argued that when investing its funds in the financial market outside their country, these MNC will be able to earn high-interest rates on the funds that are invested in the financial market than investing in their own country. This is the case because financial markets outside the country where they are located have diverse opportunities that might not be available in their own country (Enright, 2000) . Further, it has been argued that the exchange rates for the currency involved in the country where these MNC are established may depreciate time and again making their operation and production difficult. Therefore, to avoid this impact related to currency instability, MNC often decide to invest outside their own country to enhance their stability. This is specifically aimed at preventing the MNCC from experiencing potential risks and losses associated with their own country. In addition to this, an MNC may put in interests in the financial market in foreign Nations with a motive of providing credit within the foreign market.
5: Explain Why Some Financial Institutions Prefer To Provide Credit In Financial Markets Outside their Own Country.
Credit in the currency trade outside the countries of the financial institutions has been reported to be the most preferred approach in the recent years. This is specifically because of the diverse opportunities that have been associated with the provision of credit in currency trade in foreign territories. First, in most instances, financial institutions have been reported to strongly believe that they stand a higher chance to earn higher returns through provision of credit in the foreign currency trade sector especially if the interest rates are higher and if the conditions for doing this kind of business are believed to be conducive enough, so that potential risks of default on the credit that is provided is low. This is a greater motivation for these financial institutions across the globe. On the other hand, research has established that the financial institutions might be more than willing to diversify their credit facilities beyond the countries whether they are developed or not to ensure that they are not vulnerable to various economic uncertainties in a single country that might in some ways affect their operations and profitability (Enright, 2000) .
References
Brainard, L., & Martinez-Diaz, L. (Eds.). (2009). Brazil as an economic superpower: understanding Brazil's changing role in the global economy . Brookings Institution Press.
Enright, M. J. (2000). Regional clusters and multinational enterprises: independence, dependence, or interdependence? International Studies of Management & Organization , 30 (2), 114-138. Retrieved from https://books.google.co.ke/books?id=8scbVhTeMmgC&pg=PA172&lpg=PA172&dq=Enright,+M.+J.+(2000).+Regional+clusters+and+multinational+enterprises:+independence,+%09%09dependence,+or+interdependence%3F+International+Studies+of+Management+%26+Organization,+%0930(2),+114-138&source=bl&ots=Ljl5yW9NGs&sig=Dm9ePPxQJzB3ci8DPgNrX2eI5jM&hl=en&sa=X&redir_esc=y#v=onepage&q=Enright%2C%20M.%20J.%20(2000).%20Regional%20clusters%20and%20multinational%20enterprises%3A%20independence%2C%20%09%09dependence%2C%20or%20interdependence%3F%20International%20Studies%20of%20Management%20%26%20Organization%2C%20%0930(2)%2C%20114-138&f=false
Gilson, R. J., Hansmann, H., & Pargendler, M. (2010). Regulatory dualism as a development strategy: corporate reform in Brazil, the United States, and the European Union. Faculty Scholarship Series, 63(3), 475. Retrieved from http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1027&context=fss_papers
Matambalya, F. (1999). The Merits and Demerits of the EU Policies towards Associated Developing Countries. An Empirical Analysis of EU-SADC Trade and Overall Economic Relations within the Framework of Lome Convention (1 st ed.). New York: Peter Lang Science Publishers
