Globalization has taken over with advancement in digital technology that has made it easy to facilitate operations ubiquitously. International business has improved considerably as institutions are now able to expand the scope of their operations beyond their local countries. However, penetrating foreign markets can be challenging and it is why some multinational organizations prefer to acquire companies that are currently succeeding. The purpose of this paper is to illuminate the optimal ways that multinational corporations should embrace when investing in foreign markets.
Conception of the European Union was meant to ascertain that countries within Europe work in cohesion for each to prosper because of working as a synergy. For the longest time, the European Union has achieved the objectives that contributed to its establishment in the first place. For instance, this trade group eliminated the excessive border laws associated with importing products from a neighboring country or exporting to a neighboring country. Multinational organizations that venture into countries under the jurisdiction of the European Union are supposed to oblige to the rules and regulations of their chosen organization and will equally benefit from this trading union.
However, there are both pros and cons of working with an organization located in a country under the jurisdiction of the European Union. The last decade has not been favorable to multinational corporations in locations under the jurisdiction of the European Union. Therefore, I feel that it would not be ideal to acquire a multinational corporation in a country that is an EU member. The major issue at hand is the financial crisis that commenced in 2008 extremely affected the European region. The monetary issue is severe in the Eurozone because of the currency that member countries of the European Union use. The Euro is not a legal tender for a recognized European country. Instead, all the member countries of the European Union can use the Euro, especially for international trade.
The disadvantage of using the Euro currency is incongruence with the local conditions of member countries. Countries favored by the Euro manifest low rates of unemployment and consistent growth and development whereas other countries in the rest experience high unemployment and economic regression. I would not recommend acquiring a multinational corporation in the European Union to avert the risk of making losses associated with using the Euro.
The financial crisis revealed how European economies were overly reliant on banking institutions as compared to other economies. The banks and governments of the European region function as a synergy. Therefore, excessive government debt in banks created a dilemma and often coerces governments to re-establish banks and commence from scratch once again. This phenomenon is known as the ‘doom loop’ (Covi & Eydam, 2020). Moreover, the European Union is full of stringent rules and regulations that influence the flexible management of multinational companies in countries under its jurisdiction. These rules and regulations create a sense of inflexibility in regard to the daily management of organizations (Hafner & Raimondi, 2020). The inflexibility created by the strict rules and regulations established by the EU limit the growth prospects of this trading union.
The European Union is made up of numerous countries and each of the members of this trade body have to base their internal environment on the rules and regulations that have been dedicated by the European Union. Thus, the EU limits its member countries from participating in certain actions. The politics that are present in the European Union have a direct effect on the governance of countries and the resultant performance of organizations located in this trade union (Szlachta & Zaleski, 2017). The political interference of the European Union was the reason the United Kingdom ceased to be a member of the EU. Therefore, acquiring an organization governed by the EU will lack some sense of autonomy that results from the stringent political forces present in the European Union.
The advantage of acquiring a company outside the European region is the liberty to operate without the presence of extreme restrictions imposed by the union on mundane business operations. The European Union has a tendency to control business operations within the countries under the jurisdiction, which often makes the EU promote its agenda over the mission and mission of organizations. Companies in countries governed by the European Union have to conform to the stringent rules and regulations in place, which tend to limit freedom. Liberty is an imperative aspect in business because it enables the management of an organization to be flexible and able to apply diverse management techniques.
Moreover, acquiring an international company outside the European Union ascertains that a company is able to maintain autonomy. The European Union offers favorable conditions that help to promote the mission and vision of a multinational organization without any interference. Countries that are members of the European Union follow the cultural practices of the union, and one of these practices is the mandatory requirement to retain employees after acquisition of a particular organization.
Therefore, working in regions outside the European Union enables one to make requisite alterations within the labor force to manifest better results. The greatest disadvantage of acquiring an organization outside the scope of the European Union is the loss of the market that this Union presents (Comai, 2020). There are many member-countries of this Union, and each of them has a great economy and consumer culture. As a result, one will have to negotiate with the official members of the European Union to gain access to the market it offers, and this may be an intricate thing to achieve.
Acquiring a company within the European Union automatically translates to getting hold of the European market. Acquisition of an already existing company means that there is no need to make any registration or incur extra costs, such as litigation and license fees. The only thing that is required is to ascertain the continuity of business. The presence of a ready market and friendly work environment facilitated by the European Union eliminates risks because there is a ready market. In contrast, acquiring an international organization in a country without such a trade body as the European Union is risky (Leblond & Viju-Miljusevic, 2019). The European Union plays the imperative role of offering equal opportunities to all international organizations within the scope of its jurisdiction.
The main disadvantage of acquiring a company under the European Union is the limited level of autonomy. The EU dictates much about the overall direction that an organization will pursue (Cini & Borragán, 2019). For instance, the EU ensures that all companies under its control follow the agenda of the trade bloc. The European Union alleviates autonomy extensively by altering basic fundamental operations. For instance, retaining employees that were present before acquisition of the international corporation in context.
The first reason multinational corporations invest funds in foreign financial markets is to improve an organization’s financial structures (Filatotchev et al., 2019). For instance, a multinational organization that acquires a company under the EU is assured of business continuity and such an organization will increase its aggregate stakeholder value in the long run (Bourreau & De Streel, 2019). International companies may opt to invest funds in financial markets abroad as a way to increase the business scope of companies their business operations and penetrate new markets. Moreover, multinational companies may target countries that have a better consumer culture and assurance of sales (Roy & Srivastava, 2017). For instance, a country such as India offers a cheap source of labor and a large market that will consume products of the particular organization in context.
Some financial institutions may offer credit in foreign financial markets if the country involved has favorable interest rates, which would be a lucrative business opportunity and a chance to expand an organization’s scope. Alternatively, multinational companies may offer credits to organizations located abroad to increase their recognition and reputation in foreign markets (Weder di Mauro & Zettelmeyer, 2017). Doing so may increase the consumer base of the financial institution in the long run.
Acquiring an existing international company is a shrewd way of penetrating foreign markets and becoming a multinational corporation. The paper vividly illustrates the challenges of penetrating foreign markets and how a trade union, such as the European Union could be of considerable help. The points enumerated above compare making company acquisitions in countries under the European Union and making acquisitions in regions outside the jurisdiction of the European Union. The discussion above also gives a rational explanation concerning the reason why financial institutions and multinational corporations make investments in foreign markets.
References
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