Global Finance
The European Union refers to a coalition formed by twenty-eight countries whose main purpose is maintaining peace in trade, a unified and common monetary system, and the elimination of discrimination in trading activities between the involved countries. The EU also removes barriers to trade, promotes technological and scientific advancements, encourages the protection of the environment, and encourages a competitive market, therefore, leading to social growth. Apart from promoting and enhancing trade, the EU has played a major role in helping its member countries in times of crisis. This would be seen during the post-world war II where it helped booster the economic status and the social wellbeing of the member countries after the war had affected them.
If I were the head of a firm based in the United States, I would acquire a company within the European Union. This is due to the several advantages associated with doing business within the EU. Firstly, the European Union is considered to be the biggest market in the world. Research shows that it is bigger than the combined economies of the United States and Japan. The EU produces a GDP of more than 17 trillion hence making it a strong economy and beneficial for businesses to grow (Dhingra, & Sampson, 2016). Due to the strong economy of the EU, it can help serve as a strong base for the business to grow hence making more profits. The 28 member countries of the EU are also among the wealthiest countries in the world and through this, they can serve as the customers of the business to be acquired within the EU hence increasing profits. More member countries will also make it easy to find suppliers of raw materials needed to run the acquired business hence making growth easy.
Another main advantage of acquiring a firm within the EU is the ease to run it as they use the same currency. All the 28 member countries of the EU use the Euro currency and this makes business more effective and less risky to carry out. By using the same currency, the cost and stress involved in changing one currency to another are eliminated making business more effective. It also becomes easy to compare prices in the different member countries as they all use Euros. Through using similar currencies, the company can be able to look for cheap material needed to run the company, and able to buy cheaper goods from other countries (Dhingra & Sampson, 2016). Another advantage of acquiring a business within the EU is the ease of growth as the movement of people, raw materials, goods, and services among the member countries is allowed. The company can decide to provide services and products in another country without being permanently set there. Through the removal of barriers between the countries, the delivery time of goods and services is reduced and the cost of acquiring products also maintained low. Another advantage that will accrue to carrying out business in the EU is the equal treatment due to one set of rules governing the countries. This is beneficial because the countries must deal with only one set of rules instead of 28 when transporting and doing business activities among each other. This helps reduce bureaucracy, incurred expenses, and paperwork needed to carry out trade. The use of similar rules has helped increase the ease in accessing funding, clearer legislation, and protection of businesses from the creditors and the employees.
However, acquiring a company within the European Union will also have its disadvantages. Firstly, it will be expensive to acquire the company as the EU charges a lot of money for membership. The cost per head of becoming an EU member ranges from 300 to 800 Euros. Although being a member comes with a lot of advantages, sometimes it is wise to gauge whether the advantages are worth the cost incurred. Additionally, many countries operating as one market and following the same rules am lead to a lot of discrepancies. Rules meant to protect the smaller countries can affect the larger countries as the EU tries to protect the interests of all the members and not individual countries.
Although I did not choose to acquire a accompany outside the EU, this choice also comes with its advantages and disadvantages. Acquiring a business outside the EU such as in Brazil is advantageous in that it will give the company an added advantage in terms of money. This is because Brazil has a huge power gained from money. Brazil also has important things from nature such as minerals and energy, and this will help the company set up in this place to increase its industrial base. Additionally, the country has a stable growth in terms of money and local markets that are consistently growing. The low inflation of the country will also enable businesses located in that area to grow tremendously. (Mavridou, 2018) The taxes paid by the companies in the country are also every ow and this will serve as an added advantage to businesses in the region. The confidence of the consumers of products obtained from Brazil is also high compared t other countries and this will increase the demand for the products hence increasing profits.
Setting up a business outside the EU however has its disadvantages too, which may affect the business negatively. There is political instability in the areas surrounding the country and this may adversely affect the business leading to losses. The operating conditions of businesses in the region also change fast and the government departments dealing with business are slow and this may affect companies (Dhingra, & Sampson, 2016). The legal system of the country is hard and complicated and this may sometimes affect the setup and the operation of firms. Also, the level of education of the people in the country is ow and this may make it difficult to get skilled labor to run the company.
A Multinational corporation may like to invest money in a financial market located outside its country due to the profits it may gain. Investing in a market outside its own country will lead to higher interest in the money invested leading to high profits (Dhingra, & Sampson, 2016). Also, investing in a different country may lead to high returns as the exchange rates in the involved countries may appreciate. The interest to invest in a different country can also increase due to the belief that the currency of the country may appreciate leading to more returns. A wide range of markets and opportunities may also be available in the other country where the MNC can invest. Increased opportunities will lead to high profits and return the companies.
Some financial institutions may prefer to give credit to financial markets located outside their countries for several reasons. Firstly, they may take the action due to the belief that the interests in-country may rise leading to more profits. They may also give out credit to outside countries on the belief that most creditors will be faithful and not default on the credit given. The institutions may also do so to avoid the money conditions and the risks that may be involved in giving out money in one country. Investing and giving out money to different and foreign countries can help reduce losses in case the money condition in the country is affected by factors like inflation.
Before one acquires a business, they should evaluate the costs and the profits that will come from it. Before considering joining the EU, they should access the advantages and the disadvantages too. Joining the EU is advantageous as it will provide a wider market for the products and services provided by the company. It is also beneficial as it helps protect the member countries by sharing the same laws. It is however costly to join the EU and this may affect the company. An attempt to start a business outside the EU should also be followed by the risk assessment. This is because political instability and illiteracy of the people in the country can affect the growth of the business. Strict government rules and regulations can also affect businesses leading to failure. Setting up businesses outside the EU is however advantageous as sometimes the taxes can be low helping the businesses grow. The strong money power of the country can also be beneficial to the business.
References
Chalmers, D., Davies, G., & Monti, G. (2019). European union law. Cambridge university press.
Mavridou, A. (2018). The European Union Citizenship and the social benefits of European Union Citizens in the other Member States.
Dhingra, S., & Sampson, T. (2016). Life after BREXIT: What are the UK’s options outside the European Union?.