Most entrepreneurs would desire to expand their businesses beyond their boundaries and across the world. The European Union is one of the bodies that govern international businesses. It is a multinational organization that regulates economic activities in Europe and countries that are a part of the European Union. Global expansion has its advantages and disadvantages. While an entrepreneur receives the chance to expand their business and reach a wider scope of customers, they also face the challenge of running a venture in a country with strict regulations and tariffs for foreign investors. Besides, it is difficult to operate in a country with a different organizational culture. One has to adjust their performance to the culture of the foreign country they decide to invest in to meet the tastes and preferences of the target consumers.
Decision to Acquire a Company Within or Outside the European Union
I believe the best decision is not to acquire a business outside the European Union. Some of the countries within the European Union that can be considered are Germany and France. On the other hand, I decide to invest in a country that is outside the European Union, I would go for country such as China or Japan. When expanding a business globally, a business person is often faced with a dilemma in making either the wrong or right decision. An entrepreneur either retains the supply chain in their country or move it to another one (Berggren, 2019). There are several ramifications of both decisions that dictate the choice to or not to invest internationally. If a corporation decides to remain operating in the original stare, it will struggle to gain the trust of the locals after the collapse of its initial distributor’s building (Gooderham et al., 2019). A decision to venture into another country would also mean the corporation would lose a customer base that had been making it a sizeable amount of profit. There are several pros and cons of both decisions that determine whether or not a businessperson will expand their operation globally.
Advantages and Disadvantages of Investing Locally
One of the positive attributes that could be gained from the decision to invest locally is reduced expenses and convenience. The cost of operation in the country is cheaper compared to starting a new manufacturing firm in another state. A country like Germany as a part of European Union offers a competitive tax profit meaning that a non-resident company is only taxed for income source or acquired in Germany. In this case, when viewed from a cost-effective perspective, resuming operations in the original nation would be the better option. Besides, the country offers cheap labor and transportation hence cutting on the costs of expenditure that would be incurred in setting up the business in a new country. Specialization is also one of the factors that should attract the firm into foreign investment. In Germany, all the factories are clustered in one small area hence creating a pool of customers.
Moreover, the quality of products manufactured in the area is relatively good. Most consumers of the company’s products from the nation are mainly attracted by the quality of goods produced by our firm in comparison to other manufacturers in the country producing the same product. Furthermore, the current state where the business is established has duty-free access for business within the European Union (Berggren, 2019). If the business is started in a country such as China, which is not a member of the union, duty-free access would not be provided; hence the organization will have to pay duty fees. On the contrary, investing in a country within the EU such as France will exempt the company from some taxes. France has signed a Double Taxation Treaty with nearly 100 countries. Some forms of income are exempt from tax or qualify for reduced rates.
On the contrary, one of the consequences of the decision to retain the business within the borders is that the firm will suffer a bad reputation. It will be difficult to convince customers to shop on the same premise or different one with the name of a company unless the corporation rebrands or moves to a different location or state within the country to win new customers back. Winning the trust of the clients in the same country that a tragedy occurred will be difficult. In this case, if it decides to stick to the local market, it will miss a chance of expansion. Although both choices have negative and positive consequences, I will recommend our company maintains its operations in the state of origin as well as expand its activities globally to build a wide customer base.
Besides, maintaining operations in the local market allows more targeted advertising that is based on the tastes and preferences of the locals. Since it uses advertising as its main tool of connecting with customers, it allows the company to connect and communicate its competitive advantage to the clients in a way that relates to their needs (Gooderham et al., 2019). It gives companies the opportunity to customize and tailor their products to meet the tastes and preferences of the target consumers. However, one of the cons of using this approach is that it can be expensive to execute. It is also time-consuming as it will take much time to do research on the local market.
Advantages and Disadvantages of Investing Internationally
On the other hand, international expansion is where a company takes one product and sells and promotes it in the same way across all its markets in the world in different countries with distinct consumers (Sirkeci, 2013). It also involves the merging of the products with the tastes and preferences of the locals. When a firm decides to do a business in the international market and wants to retain the same product it produces without altering, then the most effective approach is the transnational strategy. In this case, the corporation has to adopt a personalized approach to selling and marketing its products and services. A good example of a transnational firm is McDonald’s (Sirkeci, 2013). It is one of the leading brands of food across the world. The fast-food chain relies on its same brand name and the same menu of food around the world. Besides, the company also makes provisions and reservations for local tastes too. For example, McDonald’s has made reservations for its clients in China by providing them with vegetable made burgers. Chinese are known for being vegetarians; it is the common and most consumed product in the country.
One of the benefits of international expansion is that it facilitates the expansion of a business. Since a company does not need to rebrand to enter the international market while using this strategy, it is effective for both small and medium businesses. It helps a company expand its operations globally, reaching a wide scope of customers hence making more profits. It is also cost-effective since it does not need a corporation to develop a new product. However, it can be difficult to manage and control the operations of the business in markets in different countries.
When a company wishes to expand internationally, it can adopt a global strategy. It is an approach that a corporation takes when it wants to compete and expand and join the global market (Gooderham et al., 2019). It is the process of adjusting and adapting to the culture and market of other countries. A global firm is one that has invested and is present in different countries. It is the ability to use the same products and methods in other countries. Therefore, the organization has to customize its products and services to meet the tastes and preferences of different countries. However, one of the challenges of investing in a country that is outside the European Union such as Japan is that proprietorship and partnership are not allowed for the nonresidents. In this case, it is not favorable for foreign investors seeking to start a business in the country since sole proprietorship and partnership are the most common forms of entrepreneurship.
MNC and Financial Marketing
A perfect example of a Multinational Corporation (MNC) that uses the above-mentioned strategy is Red Bull. The company product is one of the leading beverages across the world. Since it is a global firm, Red Bull has been able to produce its drinks with references to the culture and norms of its consumers in other countries. One of the advantages of the strategy is that it can accommodate small and medium enterprises seeking to spread its operations in other nations (Gooderham et al., 2019). If a company decides to venture into a country outside the EU such as China, they need to have is permits to do business in the foreign space. It enables businesses to expand their customer base. However, due to differences in cultures in these nations, the approach may be challenged by culture shock. Borrowing from Red Bull’s case, it is clear that a company may choose to invest in another country because financial markets in these countries are favorable for business. Financial institutions prefer to provide credit in financial markets outside their own country because of factors such as low taxation, tariffs, and operation costs. In most cases, they are highly taxed in their countries as compared to foreign states.
Conclusion
In the end, it is evident that it is more beneficial to expand a business internationally. However, this comes with an array of challenges that might discourage some entrepreneurs from doing it. To overcome the complications, a business person seeking to invest in the international market ought to seek partnership and funding in foreign countries.
References
Berggren, C. (2019). Introduction: Between globalization and multidomestic variation. Being Local Worldwide, 1-15. Web.
Gooderham, P. N., Grøgaard, B., & Foss, K. (2019). Global strategy and management. Edward Elgar Publishing.
Sirkeci, I. (2013). Transnationalisation and transnational marketing strategy. Transnational Marketing and Transnational Consumers, 1-23. Web.