Business Studies Essay - Financial Planning and Methods of International Expansion

Topics: Investment, International trade, Foreign direct investment Pages: 6 (1631 words) Published: October 14, 2010
There are a number of strategies that a business wishing to expand their operations internationally can use. These include Export, Foreign Direct Investment, Relocation of production, Management contracts and Licensing & Franchising. Generally there are two main sources of funds to finance the global expansion of a business. These are debt and equity. Debt finance refers to the money borrowed from outside of the business and can be divided into short-term and long-term borrowings where as Equity finance is the money invested in the business by its owners and arises from two sources , Owner’s Equity and Retained Profits. * METHODS OF INTERNATIONAL EXPANSION:

* Export:

Exporting refers to the selling of goods and services in overseas markets. The recent global trend for businesses to move away from mass production to concentrate on a lower volume, quality, and customized product has caused businesses to search for global markets. In doing so, many businesses have developed niche markets, targeting particular groups of customers. This has emphasized the need to export because quite often the domestic market is not large enough to purchase these sophisticated products in any large quantity. Smaller businesses have taken the opportunity to become involved in global business as the scale of production has changed from large volumes to the smaller, higher quality volumes preferred in today’s export markets.

Once an export market has been established there will be a progression to the establishment of a sales office located overseas. Next, the business will establish an overseas production facility, with a final move being to shift Australian production to the overseas location.

Not all businesses get involved in exporting activities to the same extent. Some businesses, usually sole traders and SME’s, use intermediaries to get their products to other countries, known as indirect exporting. Another type of export intermediary is the export management company which acts as an export department for clients. They will have knowledge of the legal, financial and logistical details of exporting as well as advice and market information. A third major export intermediary is the export trading company for instance, Mitsubishi, Samsung and Daewoo. It can buy products, distribute, offer international services such as warehousing and finance as well as manufacturing its own products.

This is clearly shown through Austrade which was established by the Federal govt to help Australian exporters becomes successful in overseas markets and aims to improve Australia’s international competitiveness. Austrade administers the Export Market Development Grants scheme (EMDG) which begun in 1974 and is the Australian govt’s principal financial assistance program for exporters. The purpose is to encourage small and medium-sized Australian businesses to promote themselves overseas, so that export markets and sales of their products grow. The EMDG scheme:

* Addresses market imperfections.
* Encourages small and medium-sized Australian businesses to seek out and develop global markets. * Offsets export marketing costs incurred both in Australia and in-markets. * Builds an export culture.

Businesses that have been recipients of these grants are:
* Small to medium-sized exporters. Seventy percent have a turnover of less than $5 million, 65 percent have fewer than 25 employees and 93 percent have annual exports of less than $5 million. * From across Australia. While most grants go to businesses in metropolitan areas, more and more rural exporters are receiving grants * From all industry sectors. Examples range from broccoli growers to high performance motorcycle parts manufacturers to boat builders to tourism service providers. The scheme has proven to be a catalyst for businesses to enter the global marketplace, develop long-term self-sustaining exports, and diversify markets. * Foreign Direct Investment:...
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