Transforming into a Multinational Corporation in Foreign Markets
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Companies that are successful in their local markets may choose to venture in the foreign markets to exploit the opportunities in those areas. This process, however, may not be secure and since there are multiple adjustments needed to fit the status of a multinational company and as the opportunity comes with benefits, and so does it with risks (Eun & Resnick, 2015). Foreign direct investments give a firm multinational status and to establish production facilities across the borders. Companies can seek to undertake mergers and acquisitions of foreign companies as an internal expansion of the primary corporation. Regulations in some countries may lure or push away other businesses to investing within their borders.
Market imperfections are the key driver to foreign direct investment, and the benefits that an organization achieve in multinational status is much (Eun & Resnick, 2015). When a firm establishes in the local market of a foreign country, it is moving against the barriers relating to foreign companies importing or exporting to that country. The company can easily trade in such a country freely against the trade barriers and reduce the transportation cost of bulky valuable products to maintain or achieve a higher profit margin. The companies can also take advantage of lower labour costs in the foreign markets and forge to protect their intangible assets to prevent competition from other firms producing similar products. The company can achieve vertical integration and get to maintain the product cycle close to the customers (Eun & Resnick, 2015).
The direct investment gives shareholders diversification portfolio offering the chance to invest directly in foreign markets (Eun & Resnick, 2015). The risk of the price differentiation and competition from local firms of the foreign countries may present advantage over the firm. There are also aversive political risks (Eun & Resnick, 2015) in terms of policy and controls that a company is likely to experience in a foreign country. The company can initiate budgeting for all the segments from the parent company angle and make adjustments as per the projected risks.