Essay on Global Expansion: Taking Advantage of New Markets and Adapting to New Environments.

Introduction

With the growing expansion of boundaries around the globe, it becomes crucial for firms to focus on expanding beyond their national borders. Global expansion can assist business organizations in taking advantage of the capability in global distribution, thereby increasing the firm's market share. A critical success for companies occurs when business operations grow and become adaptable to the surrounding environment. Further, when an organization stands against external forces, including a global financial crisis, it becomes ready to engage in further operations. At this moment, expansion into foreign land remains a primary focus to benefit from the immense rewards that come with global business expansion (Levy, 2016). Today, Amazon has grown from just a website for electronics, books, and kitchenware to become one of the largest and prominent tech firms in the world. The firm deals with software, communications systems, and devices across various consumer and business sectors (Levy, 2016).

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Acquiring a company within the EU or outside

Amazon understands the needs of its customers, as well as the products they need to match those needs. However, the antitrust laws in the European Union (EU) put considerable pressure on the company to explain how it utilizes its enormous data for competitive advantage. According to the competition commissioner in the EU, MargretheVestager, a preliminary investigation stands for the company concerning its dual activity, both as a competitor and partner to firms that transact through its website (Gonzalez, 2018). Strict regulations about violations of the antitrust laws have hit major U.S giant firms in the EU, for instance, Google, which accrued fines of over $7 billion due to examinations made on related violations. The commissioner has in the past become victorious over Amazon in tax case against Luxembourg, which led to settlements of approximately $295 million in back taxes.

While in its early stages, the overall process focuses on making it an official investigation. In case the commission rules against the company, Amazon may opt for other markets, which could mean a sigh of relief for European firms that face intense rivalry from the firm (Gonzalez, 2018). The investigation seeks to determine whether the data gathered for legitimate uses, also gives the company more competitiveness over the smaller firms through collecting information on the types of products needed by customers (Phys Org, 2019).

Amazon sells its product, as well as enabling third-party retailers to sell their products through its site. In this view, a large proportion of the goods sold through the organization's marketplace generate from these third-party vendors (Phys Org, 2019). Currently, the company continues to look into emerging markets, mainly the Asian region, which arises as a fast-growing e-commerce sector (Enberg, 2018). On this note, Amazon has already met significant success in India, where the Prime Video, a substantial offering of the company, stands more popular compared to other substitutes such as Netflix. Moreover, the firm features a vast opportunity in logistics in the Latin America region.

Advantages and disadvantages of selected option

The international expansion of Amazon in Europe shows a growing focus on logistics, and delivery infrastructure with its Prime and Prime Now offers. The company makes deliveries to over 50 nations in Europe, with its Fulfillment by Amazon (FBA) promotion making headlines in over 25 countries (Kim, 2017). Altogether, the firm sees its international fulfillment property with considerable growth over the last few years.

Europe remains the company's biggest global market, with the UK and Germany being the most significant nations after the United States, generating over $23 billion in 2016. Additionally, Amazon intends to extend its operations in Italy, placing an investment of over $500 in the same year, as well as opening approximately 1300 stores in the region (Kim, 2017).

Businesses that trade with EU nations accrue various benefits. The EU's member states include major global leaders in wealth and productivity, with the presence of a huge market to sell products and services, as well as a critical source of suppliers (NI, nd). Further, the single market remains at the heart of the E.U and involves a program of eliminating restrictions in the trade of goods and services, and the movement of individuals between the member states.

To create a conducive environment for conducting business, the EU has designed specific measures aimed at easing the trading process. These include minimal bureaucracy, for example, making records of VAT for any member states; use of similar standards such as safety and technical standards that ensure the business meets the standards of member states; and allowing the movement of people, which eases travel, living and working for citizens (NI, nd).

Advantages and disadvantages of the alternative option

Amazon's global business expansion into the EU accounts for about 30% of its business. In this view, the company seeks to boost its growth by making significant investments in India and other countries within the Asian region. Recently, the Middle East becomes a hotspot for online shopping, getting the attention of Amazon and leading the purchase of Souq, a local online marketplace (Kaplan, 2017). Additionally, the countries in the region show some of the highest levels of per capita income. Nonetheless, the area remains untapped for e-commerce business. There has been an increase in investment by digital commerce players for products, logistics and payment services, which translate to considerable growth for digital commerce in the future (Kaplan, 2017).

Reasons for MNCs investing funds in a foreign financial market

Several limitations exist in financial markets, which hinder the full integration of assets. Such barriers include differences in taxation, quotas, tariffs, limited labor movement, cultural differences, and distinct financial reporting, and high costs of communicating data across nations (SW Learning, nd). On the other hand, these barriers also present unique opportunities for particular geographic sectors that attract foreign investors and suppliers. For instance, tariff barriers can cause economic conditions of a given nation different from others. In this view, investors may desire to conduct business in the country to exploit the improved conditions that become unique to that location. Due to imperfect markets, the globalization of financial markets becomes a key focus in recent times.

MNCs may invest in foreign markets for various reasons: economic factors; exchange rate expectations, global diversification.

Economic conditions

Investors have expectations that firms within a given region or country experience better performance compared to those within their own country (SW Learning, nd). For example, nations in Eastern Europe showed improved economic conditions, thereby attracting foreign creditors and investors.

Expectations in the exchange rate

Some MNCs acquire financial securities that feature currencies they expect would appreciate against their own. The movement of the coins due to investments determines their performance (SW Learning, nd).

Global diversification

For MNCs, realizing the advantages of global diversification becomes apparent with the growth of asset portfolios. An investor's full portfolio relies on both the economy of their home country, as well as cross-border opportunities, which offer more benefits due to the reduction of risk (SW Learning, nd). Moreover, accessing foreign markets allows investors to spread their funds across different sectors relative to local settings.

Reasons for financial institutions provision of credit in foreign financial markets

Various factors determine the drive towards providing credit facilities in international markets by investors and creditors. These include high rates of interest; expectations of rates of exchange; and global diversification.

High Rates of Interest

Given high rates of interest in foreign markets, there exist shortages in loans available for business growth and expansion. For foreign creditors, efforts to take advantage of higher interest rates lead to the provision of capital to overseas sectors. Usually, high-interest rates become perceived as depicting a potential rise in inflation in the given country. A country's expected level of inflation and movements in the domestic currency remains vague (SW Learning, nd). Nonetheless, other aspects can affect these movements in money, with some creditors assuming that the accruing benefits from the rate of interest in a given country remain unbalanced by the depreciation of the domestic currency over a given period.

Exchange rate expectations

Given exchange rate expectations, creditors may opt for other nations with currencies that stand stronger compared to their domestic currencies. In this view, creditors stand to benefit more when foreign currencies appear stronger relative to the local currency, which means more significant opportunities for credit provision in those markets (SW Learning, nd).

Global diversification

Creditors can take advantage of global diversification to address issues of bankruptcy. Here, the connection between the economic conditions of countries primarily affects the success of creditors. Diversification becomes effective when concerned countries experience different business cycles.

References

Enberg, J. (2018). Amazon around the World: 'Primed' for International Expansion, but Faces Challenges from Alibaba, MercadoLibre, Flipkart and Others. Retrieved from https://www.emarketer.com/content/amazon-around-the-world

Gonzalez, G. (2018). E.U. Antitrust Commission Sets Sights on Amazon. Here's Why. Retrieved from https://www.inc.com/guadalupe-gonzalez/amazon-margrethe-vestager-preliminary-investigation.html

Kaplan, M. (2017). Ecommerce in the Middle East: Small but Promising Market. Retrieved from https://www.practicalecommerce.com/ecommerce-in-the-middle-east-small-but-promising-market

Kim, E. (2017). This map shows how quickly Amazon has expanded in Europe. https://www.cnbc.com/2017/08/30/amazon-in-europe-citi-map-shows-rapid-expansion.html

Levy, A. (2016). Amazon's global expansion is intensifying. Retrieved from https://www.cnbc.com/2016/12/14/amazon-.html

NI. (nd).Trading in the European Union: Benefits of trading in the European Union. Retrieved from https://www.nibusinessinfo.co.uk/content/benefits-trading-european-union-0

Phys Org. (2019). EU opens investigation into how Amazon uses data. Retrieved from https://phys.org/news/2018-09-eu-amazon.html

SW Learning. (nd). INTERNATIONAL FINANCIAL MARKETS. Retrieved from: http://www.swlearning.com/pdfs/chapter/032416551X_3.PDF