The most popular way of international expansion for a local firm is by acquiring foreign companies. One of the main advantages of international development is the possibility of global distribution, which helps to increase market share. This document evaluates the options for a US multinational company to enter the international market. Acquiring a company in the EU is the best option for an American company wishing to do business in the EU, as this strategy opens up access to a broader European market.
This plan is based on several factors, including changes in the market environment, differences in business culture, and the legal consequences of entering the market (Hossain, 114). The main advantage of the company’s acquisition in the EU is that it is a faster way to enter the European market. The acquisition strategy involves the purchase of an existing company. Therefore, it is not necessary to create a new organization to enter the European market. This gives the internationalization strategy an advantage in the speed of market entry (Bostan et al., 17). At the same time, acquiring a company in the EU benefits an American company since it is cheaper than creating a new one in the EU. The EU mainly includes developed countries, which means that the target country will offer enough resources to carry out the acquisition and benefit from it.
The US and the EU are partners, which indicates a positive stigma that may arise if an American firm acquires a European company. The EU has regulations on mergers and acquisitions, including Regulation 139/2004 on controlling concentration between enterprises (Mardiros, 516). These documents are necessary because they contribute to the market’s development by assuming such essential phenomena as balanced trade, fair competition, and elimination of existing obstacles.
Acquiring a company in the EU is a less risky option than other market entry strategies available to an American firm since companies from the EU already enjoy the benefits of working in the European economic bloc. For example, they take advantage of the free movement of goods and services within the borders of the EU and are protected by the trade legislation of the Union (Bostan et al., 9). Thus, this option is less risky for an American firm than the possibility of a new company in the EU. Moreover, if a firm enters the European market, it must be prepared to bear a higher financial burden than working in developing countries.
At the same time, it is reasonable to consider the acquisition of a company in the EU as a disadvantage. These negative traits are side effects of the benefits described above. For example, since most EU countries are developed economies, they have relatively high labor costs (Hossain, 108). Therefore, if a firm enters the European market, it must be prepared to bear a higher financial burden than working in developing countries.
Another available way to enter the market is to acquire a company outside the European Union. Both legal and financial problems and environmental and cultural ones influenced this choice. One of the advantages of getting a company outside of the EU is that the need for retraining employees can be insignificant or not at all. The acquiring organization can keep its activities as they are and possibly, change only some of its aspects without interfering with the basic structure of its activities (Hossain, 111). Another advantage of this strategy is flexibility in the organization’s activities since EU trade laws do not bind it. The company can follow its interests with little intervention from the EU authorities. Global growth remains moderate, with a 5.6% increase in the gross domestic product (GDP) in Asia-Pacific markets demonstrating a higher level of economic viability (Mardiros, 513). That is why this region is the engine of global economic growth.
One of the most significant drawbacks of acquiring a company outside the EU is losing the world’s largest single market, the European Union. The company will have to reconsider the terms of entry of its products and services into the European Union and beyond — a step that could be simplified by acquiring a company from the EU. In addition, significant disadvantages include relatively low market efficiency, high volatility of the stock market, less transparency, and a flawed regulatory system.
Globalization gives companies an excellent opportunity to expand their markets and increase profitability. This explains why some multinational firms invest their funds in financial markets outside their countries. The possibility of improved risk management also encourages TNCs to invest in financial markets outside their countries, as global markets offer stable profits compared to what they can get by limiting their operations to local needs (Nováčková and Peráček, 158). This strategy is supported by modern portfolio theory, the main advantage of which is to encourage investors to diversify their investments beyond a single portfolio. The global market offers another investment portfolio and, as a result, the possibility of more effective risk management. This strategy gives them a good line of defense in case of adverse events in their country. Thus, TNCs could invest in foreign financial markets to reduce their exposure to operational risks.
Some financial institutions may decide to lend to companies, institutions, or governments outside their country for various reasons. Firstly, they can do this to take advantage of the high-interest rates of lending to international firms. Such TNCs can take advantage of this advantage because they can work in an environment bound by a restrictive legal framework. For example, host governments may set low-interest rates on loans, which prevents them from making a profit. Therefore, depending on their legal framework, they can lend money to foreign clients to increase their profitability.
Financial institutions can also lend money to people outside the host countries to increase their local and international credibility. Lending to other parties outside the host country would improve their reputation in the market, as people could start to see them as credible and respected institutions. A positive brand reputation can improve their local ratings and strengthen their international interests since it is a marketing platform, which international borrowers can confirm by working with them.
Access to global financial markets has created many concepts and opportunities for financial institutions. This paper shows that companies may choose to invest in the financial markets in other countries to host and lend their worldwide connections to strengthen their global image, improve their profile of beef and expand their operations. Based on these considerations, an American company needs to adopt market entry strategies that take advantage of some of these advantages. This reason explains why acquiring a company in the EU is essential. Indeed, it is a faster, more efficient, and cheaper way to take advantage of international trade.
Works Cited
Bostan, Ionel, et al. “Effects of Internal and External Factors on Economic Growth in Emerging Economies: Evidence from CEE Countries.” Eastern European Economics, 2022, pp. 1-20.
Hossain, Mohammed Sawkat. “Merger & Acquisitions (M&As) as an important strategic vehicle in business: Thematic areas, research avenues & possible suggestions.” Journal of Economics and Business, vol. 116, 2021, pp. 106-124.
Mardiros, G. N. “The influence of deal value’s determinants in mergers and acquisitions with community dimension: Some empirical evidence from the European Union.” Transformations in Business & Economics vol. 18, no.2A ,2019, pp. 510-522.
Nováčková, Daniela, and Tomáš Peráček. “The Common European Investment Policy and Its Perspectives in the Context of the Case Law.” TalTech Journal of European Studies, vol. 11. no. 1, 2021, pp. 153-169.