International Business Expansion Risks

This assignment examines the complexities of expanding a business internationally. It analyzes the vice president's premise regarding overseas operations, delving into various risks like investment diversification, overseas credit, and currency exposure. The assignment also discusses whether foreign projects should always aim for higher returns compared to domestic ones, considering factors like location economies and resource availability.

Managerial Finance
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Table of Contents
What is your reaction to the vice president's premise? True? False? Why? Is it really that simple?
.........................................................................................................................................................3
Describe other types of risk that play a role in making such a decision to expand internationally.3
Investment diversification.......................................................................................................................3
Overseas credit........................................................................................................................................3
Should you always assume that foreign projects need to generate higher returns when compared
with equivalent projects in the U.S.? Why or why not?..................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6
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What is your reaction to the vice president's premise? True? False? Why? Is it really that
simple?
I think the vice president is right because there are many risks and benefits linked with overseas
operations. When the vice president would expand into new markets overseas then there would
be lower cost of cheaper labor and there would be higher rate of returns. Investors would get an
opportunity of engaging in international diversification of portfolio assets since they would assist
in better risk-adjusted returns ("International Journal of Managerial Finance", 2016).
Describe other types of risk that play a role in making such a decision to expand
internationally.
There are lots of advantages of investments in abroad property, but there are lots of things that
the business has to think as there are risks also to be considered when one operates overseas.
Investment diversification
One of the principal advantages of investments in overseas operations is the diversifications that
can be brought to the investments diversifies in terms of assets as well as in terms of geography
(Gitman & Zutter, 2015). Since the rates of property have a tendency to link with the destinies
of the bigger wealth, and thus investment in global property gives exposure to the prosperity or
else of a new economy (or defence from a long-drawn-out recession in the own economy).
Overseas credit
Investors who have overseas investment portfolios have a wider credit base since they can
access credit in overseas nations where they have noteworthy investments. This is beneficial
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when credit sources obtainable at house are exclusive or out of stock because of lots of factors.
The capability to avail credit on encouraging conditions and as fast as possible can decide if a
business carries out a new venture or not.
Whenever a business with a value generating technology: managerial capacity twists overseas,
its shareholders and the host nation’s Public get benefited (Allen, 2011). The businesses which
are involved in International business utilises a few of lawful contracts, insurances and business
in financial instruments for income from investments against price changes on currency changes.
These methodologies provided less protection against policy risks.
The largest barrier to investment in the overseas market is the transaction cost. The relative
globalised and connected world have transfer and cost to be quite low however they still depend
on what kind of market one is investing in. The brokerage commission is quite high in overseas
markets in comparison to the domestic ones. One of the approaches of minimizing production
cost is purchasing the foreign stop by using American depositary receipts. The ADRs trade on
local US exchanges and can usually be purchased with the same transaction expenses as other
stocks which are listed on the US exchanges (Levi, 2016). Since there is a risk associated with
ADRs, it also minimizes the transaction cost. One more race which is inherent in the overseas
market is the liquidity risk. This is the risk of not being capable of selling the stop quickly. It is
important that investor diversifies the portfolio and diversify is that is. The understanding of a
few of the major risk and the various faced in the overseas market allow the investor to position
it and minimize these risks.
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Should you always assume that foreign projects need to generate higher returns when
compared with equivalent projects in the U.S.? Why or why not?
The International finances different from domestic finance in various terms because of the most
vital aspect that is foreign currency exposure. There are various other factors like differing
cultural, political, legal, taxation, environmental and economical aspects. International financial
management has many currency derivate is although these kind of derivatives very lightly
utilised and domestic financial management.
In the domestic business there is no cost advantage but in overseas business there are advantages
of location economies and there are cheap resources available because the business can choose
any location depending on the cheap labour and cheap supplies (Madura, 2017). Even though
the cheap labor is available in overseas market in the first for other supplies and other costs
might be high therefore it is important for the business to generate higher returns to pay off all
these costs. To stay competitive and to stay profitable with equivalent projects in the US, The
business has to generate higher returns and maintain high quality
Conclusion
Investing internationally has usually been the advice provided to investors who want to expand
the diversification and increase their returns for the portfolio ("Differences Between Domestic
and International Business", 2017). The diversification advantages are retained by adding low
correlation assets of overseas markets that provide to lessen the complete risk of the portfolio.
But even though the advantages of investment globally are highly accepted, lots of investors are
quite hesitant to make overseas investments.
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References
Allen, D. (2011). Risk and Managerial Finance. Managerial Finance, 21(1), 3-14.
Differences Between Domestic and International Business. (2017). Tradestart. Retrieved 17
October 2017, from http://www.tradestart.ca/domestic-vs-international
Gitman, L., & Zutter, C. (2015). Principles of managerial finance. Boston [etc.]: Pearson.
International Journal of Managerial Finance. (2016). Managerial Finance, 32(4).
Levi, M. (2016). International finance. [Place of publication not identified]: Routledge.
Madura, J. (2017). International financial management. US: Cengage Learning Custom
Publication.
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