Methods That Could Be Used by an Organization in Order to Expand Overseas - Essay Example

? 3 essays - Finance Contents 3 essays - Finance 1 Assess the various methods that could be used by an organization in order to expand overseas.  3Introduction 3 Body 3 Conclusion 4 2 Discuss the different types of risk that can impact upon an organization trading on an international basis. 4 Introduction 4 Body 5 Conclusion 5 3 Discuss the factors that influence the amount of exchange rate ‘exposure’ for any organisation.  6 Introduction 6 Body 6 Conclusion 7 References 8 1 Assess the various methods that could be used by an organization in order to expand overseas.  Introduction The business organisations in order to expand on both its sales and revenue paradigms focus on expanding into international territories where they would be able to get hold of newer markets and newer customer segments. Body This process of international expansion is made possible by the business corporations depending on certain premises like conducting trades related to exporting of commodities to foreign nations, through rendering investment in business units created in foreign territories, opening up of new production units in the foreign locations. Further the business corporations can also move to conduct business in international areas through the creation of contracts with support firms to gain both managerial and technical expertise. Finally the business houses can also go for selling intangible assets like trademarks and patent rights through effective licensing schemes or can also expand into foreign territories by working on franchising activities. The method of exporting used by business to probe into international markets helps to gain wider recognition in such areas at reduced cost. Business corporations can focus on gaining control over foreign firms through the rendering of high amount of investments in such. Business organizations by focusing on opening up newer production zones help in generating economies of scale. These external business units can work on getting cheap local labour and also get a better understanding of the foreign markets and business territories. The method of forming external business contracts with firms located in foreign soil helps in outsourcing business expertise to these areas in return for an appropriate fee structure. Through licensing activities the business organisations can also gain more revenues and stake in foreign firms by selling knowledge assets top foreign firms. Finally through the franchising activities the business corporations can gain enhanced access to foreign markets where the cost of investments and risks involved is low (Global Business Strategy, 2001). Conclusion The above context describes the different methods which the business corporations can take to expand its business in international markets. Such activities reflect both cost intensive and market expansion strategies which helps the business corporations to enhance both their revenue and market structures. 2 Discuss the different types of risk that can impact upon an organization trading on an international basis. Introduction The potential business risks which the business organisations face while doing business in international markets are related to the transportation of commodities in international zones, risks pertaining to commercial activities, the large amount of political risks pertaining to the different international zones, other risks relating to the financial and economic conditions and other risks owing to the emergence of adverse business conditions. Body The first risk involved relates to the damage to the products involved owing to improper transportation which amounts to breakage and spoilage of the goods involved. Again risks arise from the product interface owing to unavailability of the right amount of payment. Product risks are also involved owing to faulty manufacturing practices wherein production of faulty products leads to loss of business by the seller. The segment pertaining to commercial risks reflect that insolvency position of the buying community leads to loss of business of the seller such that the contract eventually gets affected and terminated. Thus potential business information must be obtained of the international buying community in regards to their solvency position before commencing business with them. Political risks can emerge like wherein the government of the day of a foreign nation can be dissolved or certain trade policies can be brought about obstructing the entry of such foreign firm or firms. These create potential obstructions in restraining the business corporations to conduct further trade activities. Similarly the business corporations can also suffer from considerable financial losses owing to devaluation of foreign currencies. Financial risks also emerge owing to faulty planning rendered by business corporations while allocating the funds to expand their business in such areas. Further the high amount of competition rendered by foreign firms pertaining to the same industry can also be taken to ponder high amount of business risks. (Grath, pp.11, 14-18, 21-25, 28). Conclusion Business corporations need to successfully manage the above business risks to help perform effectively in the foreign markets. Managing business risks helps the business corporations to enhance its competitive position in the global scenario. 3 Discuss the factors that influence the amount of exchange rate ‘exposure’ for any organisation.  Introduction The exchange rate exposure for any business organization is essentially identified into three main type viz. those pertaining to transactional elements, others related to trade fluctuations owing to changes in the currency structure and similar other problems emanating from the operational side. Body Exchange rate exposure pertaining to transactional elements occurs owing to cyclical variations in the rate of currency involved which leads to loss of business and revenue. However such factors are evaluated as considerably of short term nature and can be managed by the financial policies of the business organizations. The second factor of exchange rate exposure is also related to variations in the level of currency involved which affects the value of assets and liabilities of such business organisations. Again owing to currency fluctuations the business organisations fail to get the right amount of payment from their foreign business counterparts. Finally the third exchange rate exposure related to operations emerges owing to the rise of adverse economic conditions pertaining to the site of business units and other competitive forces. These economic factors lead to the rise of exchange rate exposures from the operational side thus affecting the level of cash inflows in the business organisation. In fact, the cyclical variations in trade and fluctuations in the currencies make the business organisation to suffer from loss of potential business value (Nydahl, pp.7-8). Conclusion The exchange rate exposure factors like loss of transactional and translational revenues and business positions respectively must be properly countered through the acquiring of potential information. Similarly the factors like devaluation in the currency structure and potential business competition also leads to be properly administered to enhance trade efficiency. References Global Business Strategy. (2002). The Methods of International Expansion. [Pdf]. Available At: http://zuggs.net/hsc/Bus/Topic%205_Unit2.pdf. [Accessed on May 9, 2011]. Grath, A. (2008). The handbook of international trade and finance: the complete guide to risk management, international payments and currency management, bonds and guarantees, credit insurance and trade finance. Kogan Page Publishers. Nydahl, S. (No date). Exchange Rate Exposure, Foreign Involvement and Currency Hedging of Firms-some Swedish Evidence. [Pdf]. Available At: http://www.riksbank.com/upload/Dokument_riksbank/Kat_publicerat/WorkingPapers/WP_81.pdf. [Accessed on May 9, 2011]. Read More