Global Finance Final Paper

Global Finance Final Individual Project

Global Iron & Steel Services, LLC

Abstract

In the wake of globalization, the companies are making acquisitions around the world increase their revenue as well as a customer base. The purchase in other countries facilitates the companies in gaining a ready market and new resources and competencies in a less risky and cheaper manner. Europe has always been a sweet spot for acquisition due to its low energy price and competitive exchange rates. But the ongoing financial crisis and tumbled financial condition of some of the countries is worth analyzing before making any acquisition. I have analyzed and compared the pros and cons of making an acquisition in the European Union or outside it. The analysis reveals that, at present, the financial positions of the European Union is not worth making an acquisition and recommend to make a purchase in another country outside it.

This paper focuses on the present financial condition of European Union countries and analyzes that, is it worth making a purchase in those countries. The paper gives an overview of the advantages and disadvantages of investing in the European Union Countries. In the current scenario, the multinational companies are making an investment in financial markets. The paper throws light on the multinational corporations investing outside their home country in financial markets and discusses the rationale behind such investments. The financial institutions are providing credit in financial markets outside their countries. The paper also discusses these financial institutions and tries to find out the reasons or the advantages that the financial institutions derive from the way of making such credits.

Keywords: The European Union, Multinational Companies, Financial Institutions, Eurozone, Globalization.

Introduction

In the current era of globalization, the companies around the globe are expanding their operations worldwide to increase their revenue by way of increasing market share. The companies find it easy to increase their revenue by acquiring companies in other countries. The acquisition is the key to growth by taking advantages of synergies in a quicker, cheaper and less risky manner. The primary benefits of purchase are that the company gets a ready market with an efficient workforce, new resources, and competencies.

In the given case I am analyzing Global Iron and Steel Services, LLC on the acquisition of another company in the European Union or outside it. I have investigated the political, economical as well as the financial condition of the European Union as well as the countries outside it. I recommend that the company shall make an acquisition outside the European Union.

About Global Iron Steel Services, LLC

Global Iron and Steel Services, LLC is a manufacturing company engaged in the production of iron and steel products. The company was founded and incorporated in 2011. The company is headquartered at 2151, Astoria Circle, Suite 403, Herndon, VA 20170, United States. Mr. Russell Francis Smith is the Chief Financial Officer of the company. The primary products of the enterprise are home decor, kitchen furniture, office furniture, home improvement, etc.

Purpose

The primary objective of the acquisition is to increase the revenue, market share and customer base of the company. Acquisition of an existing company facilitates a ready customer base, available resources and ready workforce in the other country.

Process

I have critically examined the current financial position of the European countries and the countries outside it. I have also reviewed the state of the economy of the country, taxation structure, trade and tariff barriers, availability of raw material, availability of resources, bureaucratic structure, etc. to conclude my research. After extracting all of this information I have investigated the advantages and disadvantages of both the options and made my recommendations.

Findings

My study reveals that the present condition of the European Union is not fit for making an acquisition. The countries are undergoing financial crisis and are trying to recover. The recovery cannot be achieved all of a sudden and will take some years. The banks are shuttering down, the assets are frozen, and the companies are not allowed to withdraw their money from banks which prove that the European Union is not worth making an acquisition.

On the other hand, the reviewing the condition of Brazil, India, and China, I suggest that these countries are worth making an purchase. The GDP is growing at fast rate, the raw material is available in abundance, and the working force is available in plenty and at low cost. Looking into these attractions, I recommend making an acquisition in these countries.

Accession of the European Union or outside it

I chose to make an purchase in the countries outside the European Union. The European Union had always been a “sweet spot” and perfect business destination in the past. Robust demand in the US and the UK, lower energy prices, and competitive exchange rates have always attracted MNC’s for investments and acquisitions. But in recent past years, European is facing challenges in economic and GDP growth. As per the report published by ey.com (October 2015) “The systemic risks facing the Eurozone – widespread fiscal crisis and deflation – are fading, while the recent agreement between the Eurozone and Greece suggests renewed appetite to compromise on both sides. But the legacy of debt will mean the recovery will be slower than households and firms have been accustomed to.”

The European Union is in the mid of financial crisis and is striving to recover from it. Some problems have been created due to the crisis. Vitor, C. (September 19, 2013) is of the opinion that crisis is mainly the banking crisis. Although, the recovery is visible and positive signs are perceptible, then also it will take few years to gain momentum. Due to political instability, the ruling governments have changed in few countries. Greece crisis is known to everyone. The country is on the verge of insolvency and is demanding bailout package. As per The New York Times (October 31, 2015), four biggest banks of the Greece suffered heavy losses and were locked this summer are struggling to raise $16 billion to overcome the losses they suffered due to the crisis. Bonatti, L. And Fracasso, A. (November, 2013) cited that “With the global financial crisis, the market sentiment has changed, and capital has left the periphery countries suffering from debt and growth problems due to their failure to bring price–wage dynamics into uniformity with those of the more disciplined countries.” The financial condition of Cyprus is deteriorating day by day, and the banks have ceased functioning. The government has frozen assets of few companies as well as individuals. Volz, U. (February 23, 2012) opines that the crisis has shown the problems and tensions which will arise in an unwanted manner when the balance declines and become unsustainable. If the companies are not allowed to sell their assets or to withdraw funds from their bank accounts, then the purpose of acquisition gets defeated, and the investments in another country become zero. “And in the meantime, the other crisis countries in the Eurozone, like Portugal, Ireland, and Spain, have taken steps to overhaul their economies and are much less vulnerable to market contagion than they were a few years ago.” The New York Times (October 31, 2015).

Where to Make Acquisition?

I am of the opinion that looking into the uncertainties prevailing in the European Union it is advisable, for a company like Global Iron and Steel Services, LLC, not to make acquisitions in the European Union. The company is small in size and any financial setback to the company can land it in trouble. It is advisable for the company to make acquisitions in the countries where there is no financial crisis and the businesses are running smoothly. Excellent opportunities for the enterprise to make acquisition are Brazil, having a sound financial system, a stable currency and a GDP of 4.1%. The other acquisitions destinations can be India, China, where the financial system is sound, and the GDP is nearing 5%.

Advantages and Disadvantages of Making An Acquisition in Brazil, India or China

The benefits of my choice in making an acquisition in Brazil, India or China are that these countries have become regional economic power during last twenty years. The financial infrastructure, as well as the economic support of these countries, has improved a lot. They have a rich base of minerals, resources and energy. They have a productive labor base of skilled as well as unskilled population. The economic growth of these countries is stable and in themselves as they are large economies. They are getting auspicious day by day and have a huge potential market for remarkable growth regarding GDP as well as per capita income. According to a report published by CNN money (March 23, 2015), the growth rate of Indian economy would be 6.5% by 2016, which is faster than China’s expected