Investing in Foreign Markets

Why I would not acquire a company within the EU

Although the prospects of operating a business within the European Union can be enticing to other business persons, individually, I would not even think of the idea of acquiring a company that operates within the European Union. I cannot even try and venture there. It has come to my attention that recently, the European Union is facing some hard times in that it is the middle of a severe financial crisis known as the Euro Zone Crisis (Howard, 2017) . This crisis has brought about challenges that those in the EU cannot begin to fathom. The governments of countries belonging to the European Union have gradually changed bringing about political instability in the EU regions. Indeed this cannot be underlooked for the prospect of financial uncertainty is inevitable. We can take into account the Cyprus banks which as per now we cannot say is functioning. Although there are several benefits of doing business within the European Union, acquiring a company in the EU is tiring and is marred with several uncertainties. For one to buy the assets of a company that operates within the EU, the assets first have to be secured (Howard, 2017) . Additionally, the acquired company has to continue its operations in the EU. 

Moreover, the EU has strict rules that warrantee the freezing of assets of both individuals and companies in the event that they do not comply with the set laws of the EU. In this case, the value of acquiring companies in the EU can be a lost cause if frozen companies cannot be allowed to draw cash from banks. Consequently, in cases where business is unable to carry out standard financial transactions due to the European Sovereign debt crisis, companies will not be able to continue with their operations (Marr, Trimble, & Varma, 1991) . Additionally, all companies doing business in the European Union have to trade using the Euro. Although all governments of countries within the EU decide on their own the laws regarding the use of the Euro, it has come to my attention that they lack a robust federal authority (Geoghegan, 2014) . The lack of a stable central government has therefore brought about large disparities between regulations, taxes, and laws in Eurozone nations which have led to high inflation rates, low growth rates and productivity and budget deficits which are not at all favorable for business operations (Geoghegan, 2014) . Due to this reasons, it is, therefore, no advisable to acquire a company and trade within the European Union. However, there are other nations which offer favorable conditions for buying the company and trading since the problems those companies within the EU experience does not occur in those countries. For example, I can acquire a company in Brazil since it has a stable currency, a growth rate of 4.1 Gross Domestic Product, and a stable financial system, all of which are favorable for business operations.

Describe the advantages and disadvantages of the choice you made.

Advantages

Brazil is a country of regional economic power which makes it an ideal place for acquiring a company. Additionally, Brazil is richly endowed with natural resources, energy, minerals, and a broad spectrum of an industrial base. Furthermore, the economic growth rate and democracy of Brazil is stable, a condition that is favorable for those who want to acquire companies in Brazil and trade there (Alves, 2015) . Moreover, the large and expanding domestic market of Brazil's economy in addition to the low inflation rates, tax exemptions, and strong consumer confidence makes Brazil a right destination of acquiring companies. Consequently, there is substantial internal growth in Brazil coupled with excellent infrastructures that are favorable for business operations (James, 2011) . 

Moreover, over the years, the Brazilian government has made it its duty to ensure that its institutional, economic system is composed of a free press, independence among the legislative, executive, and the judicial branches of the government (Alves, 2015) . In addition to this, the government of Brazil has enhanced transparency among local governments and regulatory agencies. Consequently, the nation of Brazil has adjusted its macroeconomic fundamentals which have resulted in a less volatile climate for business operations. Due to the great emphasis that the Brazilian government has placed on economic growth, it has increased its international trade and globalization and has additionally set policies that favor exports (Alves, 2015) . Consequently, Brazil has a stable and resilient financial and banking system and has controlled inflation for almost two decades. The government of Brazil introduced anti-bribery laws which have raised awareness within its business community on issues concerning governance, risk mapping, transparency in business, internal investigations and internal controls. 

Disadvantages

Although Brazil has undergone through a series of significant economic growth and economic changes, still it poses several challenges for those who want to invest thereby acquiring companies. The regulatory environment of Brazil is so complicated when it comes to issues of tax and labor (Alves, 2015) . The business environment of Brazil is marred by high fees and social charges on sales, payrolls, and income. The fast-changing legislation and multiple taxes can negatively impact business activities and plans in addition to increasing risks on contingent liabilities which eventually blocks the success stock and assists acquisitions (Alves, 2015) . Moreover, transfer pricing and registration rules for foreign capital are complex in Brazil. Consequently, companies in Brazil mostly do not comply with internationally recognized corruption and anti-bribery laws such as the UK Bribery Act of 2010 (James, 2011) . Additionally, companies in Brazil have off-balance sheets, commitments, and transactions that are predominantly undisclosed which often result in loosely applied accounting rules, a factor that can negatively affect business operations.

One significant challenge that may make it difficult to acquire companies in Brazil is in the fact that Brazilian companies often do not organize optimally. Companies in Brazil mostly have it difficult when reorganizing themselves due to the high costs required for termination of workers employment (Alves, 2015) . Moreover, there are vast amounts of bureaucracy and regulations involved in certain industries that have to comply with specific businesses. Another factor that may hinder the acquisition of a company in Brazil is because some regions in Brazil are still in needing further investments in infrastructure and distribution channels. Additionally, the education system in Brazil is too weak to provide companies with highly skilled-labor force, a factor required for increased productivity and industry growth (James, 2011) . Moreover, the lack of sufficient skilled-labor force is in league with the social inequality that exists in Brazil and the uneven distribution of wealth. Consequently, the business community in Brazil is often faced with market volatility, overestimation of restructuring deals and inefficient post-acquisition monitoring which makes it difficult to acquire companies in Brazil.

Advantages of acquiring a company in the European Union

All countries that are within the EU financial activities are mostly regulated by the central bank (Marr, Trimble, & Varma, 1991) . Moreover, their economic system is diversified with favorable foreign exchange rates, conditions that contribute to stable financial systems in the EU regions. Because the EU is a supranational entity, it offers its members a broad reach outside their states by allowing the free movement of goods and services, a factor that will enable for substantial commonality of contingencies between economies within the European Union (Howard, 2017) . Consequently, all countries that are members of the European Union with high per capita incomes and high GDP often create their regulatory policies to remain competitive in the EU open market. These self-regulatory policies allowed each nation makes the EU free market an ideal place for acquiring a company (Howard, 2017) . 

Additionally, the Euro, which is the common currency within the EU, has only been adopted by eleven countries, meaning that there are other few countries where a financial manager seeking to acquire a company will find high valued companies that are pegged to the Euro (Marr, Trimble, & Varma, 1991) . Nations such as Bulgaria and Denmark are amongst the few who are not only pegged to the Euro but are also regulated by the Currency board. Furthermore, the European Union and the European Central Bank are amongst the financial institutions that offer financial markets for MNCs that are seeking to invest in the EU. Therefore any corporation that seeks to acquire a company located within the European Union will thus be able to profit by setting prices that are higher than those set for the local average pricing of products and services. Furthermore, due to the substantial improvement of EUs resources, technologies and innovation, the steel, coal, agricultural roots have also expanded. Therefore as a result of the creation of dominant products with the potential of creating economic opportunities, it is lucrative to acquire a company within the EU (Howard, 2017) .

Disadvantages

The business markets within the EU are often faced with risks associated with credit swaps in the markets, contract laws and liabilities that set drawbacks for any investor seeking to acquire a company within the EU (Marr, Trimble, & Varma, 1991) . In the event that the European Union economy experience a default in its credit, the entire market within the EU will collapse, a fact that is stated by many economists who think that the governance of the European Union is a disadvantage and a risk to those who want to acquire companies operating within the EU (Mason & Abridged, 2007) . The host government in the EU often imposes differential discriminatory border taxes on corporation seeking to acquire companies within the EU while at the same offer subsidized credits as a way of counteracting cross-border subsidies. This action is a significant threat to those corporations since they have to understand organizational tolerance for acquiring risky companies that might bring about M& A crisis that involves big loans or negative cash flows, even if they hold a significant amount of finance. Consequently, contracts that are negotiated under the new jurisdictional rules or the dark-triad executive management in the EU are some of the factors that make the strategies for entering financial markets as unprofitable for acquiring a company as they pose losses for the acquiring company in the future (Howard, 2017) . 

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

A multinational corporation may decide to invest funds in other financial markets because it would be able to earn higher interest rates on those funds (Mason & Abridged, 2007) . Moreover, since the exchange rate of currencies involved in the financial transactions often appreciates, MNCs may find it lucrative to invest their funds in financial markets outside their country of operations. 

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

Since there is an always higher chance that there are higher returns associated with providing credit to foreign financial markets, financial institutions are still up to give credit to these financial markets if the interest rates involved are high. Moreover, they may do this if the economic conditions in these financial markets are stable in that the risk of default associated with the provision of credit is always low (SWlearning, 2014) . These financial institutions consequently prefer to provide credit outside their countries to diversify their loans to avoid being exposed to economic conditions of a single nation. 

References

Alves, F. (2015). Doing Deals in Brazil. Retrieved June 2018, from PWC: https://www.pwc.com.br/pt/publicacoes/servicos/assets/deals/.../Doing_Deals_17.pdf

Geoghegan, S. (2014, September 17). The Euro: Advantages and Disadvantages Of A Single Currency. Retrieved June 2018, from Currency Solutions: https://www.currencysolutions.co.uk/news/daily/the-euro-advantages-and-disadvantages-of-a-single-currency

Howard, W. (2017, May 31). Multinational Corporation Expansion: European Union. Retrieved June 2018, from Linked In: https://www.linkedin.com/pulse/multinational-corporation-expansion-european-union-william-howard 

James, G. (2011). Business Basics in Brazil. Journal of Accountancy , 1-6.

Marr, M., Trimble, J., & Varma, R. (1991). On the Integration of International Capital Markets. Journal of The Financial Management Association, 20 (4), 30-47.

Mason, O. H., & Abridged. (2007). Investing in International Financial Markets. International Financial Management , 87-97.

Pettinger, T. (2016). Disadvantages of EU Membership. Retrieved June 2018, from Economics Help: https://www.economicshelp.org/europe/disadvantages-eu/

SWlearning. (2014). International Financial Markets. Retrieved June 2018, from SW learning: www.swlearning.com/pdfs/chapter/032416551X_3.PDF