From a financial point of view what are the major strategic and operational issues which should be considered when entering into overseas markets?

Essay by woomisterUniversity, Bachelor's February 2004

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INTRODUCTION

According 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 OVERSEAS

Foreign 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 INVESTMENT

While 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.