Discuss the factors that an orgaisation should consider when deciding on an location to invest overseas - Essay Example

Factors to consider in investing in overseas counties With the current rate of globalization, businesses hasbeen able to cross borders and open up different branches in various parts of the world. This has been aggravated by opening up borders through removal of tariffs and liberalization of international markets. This has resulted to increased company revenues and competition ability as the companies have diversified their source of revenues. Nevertheless, in order for the plan to set up different branches by multinationals to succeed, different factors must be taken into consideration.

One of the major factors to consider is the level of competition in that country. In case the overseas country that the company is intending to invest in is saturated by competitors, the company must put into consideration other factors that would ensure that the business gets adequate revenue to sustain business operations. One of these factors is the cost of producing products in this country. In some countries, the cost of production is high as a result of high cost of inputs such as energy making the breakeven price to be high and in return reducing the profit margins.

Small profit margins and high level of competition may lead to the collapse of the business (Gilmore, O’Donnell, Carson & Cummins, 2003, pp.195). Second, the management must plan the market entry strategies. In many countries, there exist companies that are offering the same products an aspect that increases the rate of competition. As a result, penetration of the market is hard therefore, creating a need for the management to come up with appropriate strategy to segment this market in order to position the company strategically and increase customer loyalty towards the products offered.

Some of the market entry strategies include exporting. This involves selling of the products either directly or indirectly to the existing consumers. Other entry methods include licensing, joint venture partnering especially with a local company and lastly, investing a wholly owned business in the foreign country (Gilmore, O’Donnell, Carson & Cummins, 2003, pp.196). The size of the market and growth rate is an important factor that any company that is planning to invest abroad must consider.

Market size is not just determined by the number of people in the market but the consumption rate of the target consumers (Gilmore, O’Donnell, Carson & Cummins, 2003, pp.196). In addition to the size, the proximity of the consumer is an important factor that should also be put into consideration. Government policies especially concerning foreign investors is another aspect that management of the companies planning to invest overseas must consider. The company must take into account the previous economic conditions of the country they are prospecting to invest in and use the data to forecast about the future trends.

Other economic policies that are significant for foreign investors are tax rates and structure of the host country. Fiscal incentives create serene environments for transacting business but some countries put high tax rates for the foreign companies. High tax rate reduces the overall returns of the company an aspect that might reduce the company’s competitiveness. Some of these policies are aimed at protecting the local companies from being exploited from established foreign multinational companies (Litvak, & Maule, 1970).

Country’s infrastructure and resources are another important aspect that the company must consider to evade losses. It is crucial for the company to measure the amount of resources that are available. In some areas especially mining companies the management can be deceived by the minerals on the surface only to find out that the quantity of the raw materials is not worth the investment. This leads to losses and in some situations the company might collapse due to poor planning. Cost of transportation of the raw materials should also be considered in order to reduce cost of producing goods.

This aspect can also be used in planning for the location of the plant (Galan, & Gonzalez-Benito, 2001, pp. 271) Country’s political status has a major impact on the success of the business. In order for the business to succeed in its diversification process, it must consider the political wave of the host country. Chaos in the country causes instability in the business environment causing the rate of production to lower. They also changes consumer behaviour an aspect that can make the customers to evade consumption of the products (Czinkota, & Ronkainen, 2001, pp. 32). Before investing in a foreign country it is important to consider the emerging markets, developed markets and frontier markets.

Developed markets are stable and not affected by political situation in the country but on the other hand the level of competition is high with prices in the market being controlled by the forces of demand and supply. On the other hand, emerging markets are lowly developed and have higher potential to grow. In such a market the company has a possibility of segmenting its own customers. Nevertheless the market is faced by high uncertainty. Lastly, frontier markets can be either smaller or even emerging markets.

They mainly exist in countries that put stern restrictions to foreign investors. It is important for the company to weigh the decisions if it will be able to keep up with those restrictions (Litvak, &Maule, 1970). References Czinkota, M. R., & Ronkainen, I. A. 2001. International marketing 6th ed. Orlando: Harcourt College Publishers. Galan,J. I., & Gonzalez-Benito,J. 2001. Determinant of foreign direct investment: some empirical evidence. European business review, Vol. 13, (5), pp. 269-278).

Litvak, L. K. &Maule, J, C. 1970. Foreign investment: the experience of host countries. Praeger Publishers. Gilmore, A., O’Donnell, A., Carson. D., & Cummins, D. 2003. Factors influencing foreign direct investment and international joint ventures: A comparative study of Northern Ireland and Bahrain. International Marketing Review, Vol. 20, (2), pp. 195-215.