Methods to Conduct International Business – Part 2
Acquisition of Existing Operations
The company often acquires other companies abroad as a means of penetrating foreign markets. Such acquisitions give companies complete control over their foreign business and allow mncs to quickly acquire a large share of the foreign market. The acquisition represents DFI because MNC directly invests in foreign countries by purchasing the operations of the target company.
Alphabet, the parent of Google, has made massive international acquisitions to expand its business and improve its technology. It has acquired businesses in Australia (search engines), Brazil (search engines), Canada (mobile browsers), China (search engines), Finland (micro-blogging), Germany (mobile software), Russia (online advertising), South Korea (weblog software), Spain (photo sharing), Sweden (video conferencing), India (artificial intelligence), Belarus (computer vision), and the United Kingdom (reliability of graphics processing units).
Sometimes, however, the acquisition of an existing company can lead to huge losses due to the large investment required. In addition, if foreign operations underperform, it may be difficult to sell them to other companies at reasonable prices. Some companies are engaged in partial international acquisitions as a means of gaining a foothold or shares in foreign operations. On the one hand, this approach requires smaller investments than is required for full international acquisitions, which limits the company’s potential losses if the project fails On the other hand, the company will not have full control over foreign operations that are only partially acquired.
Establishment of a New Foreign Subsidiary
Companies can also penetrate overseas markets by establishing new overseas operations to manufacture and sell their products. Like foreign acquisitions, this method requires a large DFI. Establishing a new subsidiary may be preferable to foreign acquisitions because operations can be tailored to the needs of the company. In addition, smaller investments may be required than are needed to purchase existing operations. However, the company will not reap any rewards from the investment until a subsidiary is built and a customer base is established.
- Madura, J. (2020). International financial management. Cengage Learning.
- Madura, J., & McCarty, D. E. (1989). Research trends and gaps in international financial management: a note. Management International Review, 75-79.
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