Acme Acquisition Decision
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As part of its international expansion program, Acme, a U.S. multinational enterprise (MNE), is currently in the planning stages of establishing a greenfield(see text glossary for definition) production facility overseas. You have been asked to present a proposal to the steering committee comparing the advantages and disadvantages of starting operations in one of two selected foreign countries.
The steering committee has determined that one alternative must be a member of the European Union (EU) while the other cannot be a member of the EU. Subject to these conditions, choose any two foreign countries, except China, for comparison. Include, among other topics, a discussion of the different countries' currencies, trade policies, and cultural variables that may affect operations and profitability in each country. conclude with a recommendation and supporting rationale as to which country should be selected for the new facility.
Discuss:
Acme has been in acquisition talks with two different European firms. JEL Industries is headquartered in a country that is part of the European Union while DBC Industries is headquartered in a European country that does not belong to the Union and does not use the Euro as their primary currency.
Based only on the knowledge of whether or not the firm is located in a country within or outside of the European Union, recommend one of the organizations and explain why you selected that organization. Describe the implications of running a business in a country that is within or outside of the European Union.
1. Describe the advantages and disadvantages of the choice
2. Would your decision change if the company you acquired primarily sold its products within all countries in Europe? Why or why not?
3. Would your decision change if the company you acquired primarily exported its products to Far East nations and the United States? Why or why not?
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I would have chosen JEL industries.
The main advantage of choosing JEL is that it is located in a country which is part of the European Union and using Euro as its currency. There are many advantages in being part of a large trading block like European Union. Some of the key benefits include:
1) Being part of a large trading block allows a company to take advantage of special treaties, agreements and benefits. Trading blocs are formed for overall development of the member nations and region via increase trade cooperation, promoting free trade between member nations and taking advantage of each other's competitive and comparative advantage.
2) More stabilization of economic and political factors.
3) Greater cooperation among member nations due to cohesive policies and increased interdependency.
4) Improved and better access to a fairly large market such as Europe in this case.
5) Unified currency which makes it easier to firms from other countries to hedge their exchange risk while trading with multiple currencies. For example, it is easier to hedge a single currency such as Euro rather than handling multiple currencies of Europe.
If a country remains aloof from a big union like EU, there might be situations when the member countries try to subdue the aloof nation with their competitive policies and restrictions. From global perspective also, it is more benefical for long term stability of macroeconomic factors.
The disadvantages could be that global economic changes with respect to the whole region will lead to an effect on the situation in the domestic environment of the member nation, even if it is not directly linked to the event. This is due to the fact that its economy is pegged to other member countries and the whole group. Further, there might be few other restrictions in doing trade with other nations.
Would your decision change if the company you acquired primarily sold its products within all countries in Europe? Why or why not? Would your decision change if the company ...
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- BCom, SGTB Khalsa College, University of Delhi
- MBA, Rochester Institute of Technology
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