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Firm Acquisition in the European Union

Autor:   •  January 12, 2018  •  Research Paper  •  1,882 Words (8 Pages)  •  399 Views

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As the precincts that bound businesses continue to expand on a daily basis, it has become important for companies everywhere to formulate and implement strategies that allow for expansion in areas outside of their homeland. The success of an acquisition duly depends on the long-term strategy set forth by the company in matters concerning foreign trade and the implications it has on its profits. International expansion can prove to be advantageous as it enables the company to distribute its goods and services on a global scale thus leading to the expansion of their market share. Even though the idea to expand is entirely profitable to the company, one has to take note of the fact that there are a number of risks and disadvantages that are associated with a foreign acquisition.

Firm Acquisition in the European Union

In the case that I was the head of US-based firm then the idea of acquiring a company that was within or outside the confines of the EU would not be a good idea. Most past acquisition cases have been known to impact the growth of the company with some making it slow down. There are a number of hazards or risks that can affect a company that deals with remote acquisitions. In the first case, there's always a sizeable danger of the organization's esteem being oversold. It is evident that different nations evaluate their companies using different methods which mean that when an organization is sold, then its key players will be offloaded. This leads to the creation of a gap in the customer relationship administration of the company. The same representatives may be tempted to take licensed innovation to other ventures thus lessening the overall esteem of the organization. (Harry G. Barkema, 2014). Companies in the European Union have been faced with the existing major-money based problem called the Euro Zone Problem.  The changing of governments in a number of countries has led to political instability and a strong viewpoint on the uncertain future of any financial prospects. If a company is set to be acquired then it is important that all its assets become secured in order for it to efficiently carry on with its operations. The EU has a strict practice of freezing all assets belonging to individuals or companies. If a company is restricted from drawing cash from a bank then its value depreciates. It is therefore prudent to avoid any acquisition prospects in the EU. One can, however, go for companies in countries where such problems are non-existent. A good example is for a company located in the nation of Brazil which has a sound financial system, a 4.1% GRP rate and a strong currency (Culp, 2010).

Advantages and Disadvantages of Non-Acquisition of firms in the European Union

The main advantage with the choice made in not acquiring companies in the European Union is the cost incurred in the process. The expenses meted in the enrollment of a company in the European Union are about 15bn net Euros which translate to about 0.07% of the GDP. Such an enrollment expense and also the existence of insufficient policies cause the firm to provide high prices to consumers which are risky for them (Cengage, 2010). The European Union has over time insisted on the use of a single currency which has also caused problems for many companies and the acquisition of a company would lead to high rates of unemployment and also a low economic growth. Firm acquisition in a country like Brazil would definitely be a successful venture as it is a regional economic power. The company is riddled with natural energy, minerals and it also has a broad industrial base. The economic growth in the country is stable and the local market is growing by the day. The selection of Brazil as an investment opportunity is because of how it handles taxes, the state of inflation, strong consumer confidence and also excellent infrastructure.


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