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Factors that influence acquisition of an existent corporation
A green field venture means starting off an enterprise from scratch, which is from a green field (Klimek, 2011). Acquisition of an existent corporation as opposed to Greenfield venture, has several merits. Firstly, it is faster. If the investor wanted the company to take a shorter time for their presence to be noted as well as compete well at entry level in the market, then this would be the best option. Greenfield ventures demand a longer period of physical construction and developing the company.
The acquisition is one of the cost-effective means for the investment to realize a competitive mileage in technology, brand name, distribution and logistical advantages as it gets rid of the local competitor. International political, economic and foreign exchange state may cause imperfections in the market thus causing the target companies to be underestimated. Several MNEs in Asia have been targeted in the recent past due to the economic crisis in the region that consequently impacts on their financial wellbeing.
Acquisition of an existent corporation
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This has left many companies in a state of desperation for capital injections to survive competitively. The acquisition is the best strategy to solve such challenges as maneuvering through the local distribution channels, recruitment of the local employees, and it also creates a platform with a readily established market with a customer base. Such factors shorten the time needed for the venture to break even. On the other hand, cross-border acquisitions have their shortcomings that the investor needs to consider before making the bold step.
The costs of acquisition and financing are relatively too high. It can be difficult to mesh diverse corporate cultures. It may force the management to consider slimming down in order to up the economies of scale. The outcomes of such a step may not be productive to the firm since there is a tendency for individuals to try saving their jobs. Other difficulties may emanate from the host nation’s interference with financing, pricing, market segmentation; employment guarantees favoritism and overall nationalism.
An investor may decide on acquiring a joint venture. In such a form the investor accesses the local partner’s experience and skills, the government contacts and the knowledge about the local market. A joint venture is thus regarded the best way of investment (Becker & Fuest, 2011).
References
Becker, J. and Fuest, C., 2011. Tax competition-Greenfield investment versus mergers and acquisitions. Regional Science and Urban Economics, 41(5), pp.476-486.
Klimek, A., 2011. Greenfield foreign direct investment versus cross-border mergers and acquisitions: the evidence of multinational firms from emerging countries. Eastern European Economics, 49(6), pp.60-73.
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