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From A Financial Point Of View What Are The Major Strategic And Operational Issues Which Should Be Considered When Entering Into Overseas Markets?

1373 words - 5 pages

INTRODUCTIONAccording to Bartol et al, 1998, organisations must increasingly assume a global perspective in conducting their business for three major reasons. First, businesses are facing more and more global competition. Second, more and more companies are likely to be doing business in other countries. Third, businesses are increasingly becoming globalized in the sense of operating as one company, despite far-flung operations.Parkinsons 2001, ascertains that;"As companies take a more global perspective in their trading activities, investing overseas and the financing of such operations will be given greater consideration"As these trends imply, managers will have to have greater knowledge of international business and an awareness of the issues and challenges of setting up their business overseas.REASONS FOR INVESTING OVERSEASForeign investments are usually motivated by a wider and more complicated set of strategic, behavioural and economic considerations than the domestic investment decision.Reasons for overseas investment include need to expand due to saturation of domestic market, access to scarce resources, improved production efficiency, more cost efficient and political safety. New overseas markets help business minimise its exposure to changes in domestic market demands and overseas investment allows a firm to increase margins through greater economies of scale.Many benefits occur as a result of overseas investment, for example, enhanced functional strategies ie. design, marketing, packaging and distribution, due to a need to ensure success overseas. Gaining of a commercial advantage because of the need for a better or improved design overseas and the development of a financial strategy to ensure that added value is created and that shareholder wealth is enhanced.ISSUES OF INTERNATIONAL INVESTMENTWhile international management opens up vast opportunities, it also presents the challenge of attempting to understand a much broader set of factors than those typically encountered in managing a strictly domestic business. According to John McNamara, National Director, International Assurance Services, for Deloitte, business issues vary from country to country and by industry, but some matters are consistent."Local laws and regulations, the political climate, the local labor market, the availability of financing and natural resources, infrastructure, market conditions, competition, and tax incentives" are some major considerations, he says. "Underlying all these, however, is adequately understanding the local culture and business customs -- knowing how to get things done and whom to trust."GENERAL ISSUESBefore considering specific operational and strategic issues in terms of finance involved with overseas investment in a particular country, the general environment of the country should be assessed. The overall political and economic stability of the country together with any local laws and regulations need to be assessed. The government's...

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