European Union: Financial Transaction and Expansion of Business Operation

Abstract

The expansion of the business operations is instrumental in giving a greater market share to the business. This study conducts a search on the possibilities of running a business within the European Union by a firm from the United States. This paper will discuss some of the advantages and the disadvantages of being a member of the European Union. This study also discusses the operations of the multinational corporation (MNC) in the European Union. Further, this paper discusses financial institutions and the factors that they consider in having preference to carry credit transactions in the foreign nations rather than have the credit facilities in the domestic nations.

European Union

The European Union is an economic and political union of more than 28 countries existing in the continent of Europe. The European Union has developed measures in in which the member states are able to conduct business operations in the region with much ease. (Peters, 2015) Some of the policies have been meant to ease the flow of the goods from one nation to another thus making the companies that operate in more than one states a relative advantage in handling their business operations.

Advantages of European Union

The existence of the European Union is important in the development of the economic strategies that would ease the business between different countries. The multinationals take advantage of the policies by the European Union to take advantage in the market and expand their operations. The following section describes the advantages of being the member of the European Union especially for the multinationals and the challenges the may face in their operations within the member states in the country. To begin with, the European Union offers the multinationals a chance to operate on a tax-free environment. The taxes between the borders and the duties paid make the company to shy away from the operations at the international stage. (Jolly, 2015) Also, the tax-free zone lowers the cost of operation and by extension, the cost of the goods and services are also lowered in the regions. Additionally, the EU offers a chance for all citizens to work in different countries. The cost of obtaining labor and the process is made relatively easy, especially for the citizens coming from countries that are relatively poor. Furthermore, the use of the common currency makes the business operations easier as well as creates an understanding of the business operations.

On the social aspects, the multinationals operating within the European region are able to operate in an environment where the culture is not lost. While the EU does not have an official language, the cultures in the different nations are not widely apart to affect the business operation in the countries. Similarly, the integration of the European region has also reduced the tension between the countries which makes it difficult for the business operations to stop as a result of the conflict between nations. (Jolly, 2015) The European Union has been at the forefront in the promotion of the peace and creating a sense of unity among all of the nations within the block.

Disadvantages of the European Union

One of the main challenges of operation in the EU is the issue of the language barrier in the continent. While the members are united by the same economic block, they do not have a common language which hampers the operations of the businesses. Furthermore, there is a greater problem with the shared wealth especially when the countries are not in the same wealth scale. (Panke, 2016) The mixing of wealth derails the possibilities of another country developing economic power and as such the business operations are affected. The membership of the EU is a challenge to leave. Despite the disadvantages that the business from a given country may face, it is a difficult process for a country to exit from the union as witness by the Brexit. The MNC are affected by the issues that affect their countries. In the same manner, the process of joining the union is discriminate and effectively locks out potential members from joining. (Panke, 2016) When countries join to together, it is possible that more trading partners would join. The businesses operating the in the EU have a challenge of, at times, having to protect the reputation of the whole continent in other parts of the world. The difficulty in the balance of the operations of the business as well as the interest of the union makes the businesses not have smooth operations in the different parts of the world

Multinational Corporations

A multinational enterprise can be defined as a corporation that involves foreign direct investment (FDI) and carries out its operations in many different countries. All the big multinational corporations were at one-point small companies with few employees. Multinational enterprises’ success is determined by their ability to manufacture products according to consumer wants and satisfaction. (Jensen, 2008) A company needs a capital amount to start a business and usually at the beginning of the business, the corporation is not aware of a product’s marketing strategies, the entire consumer base as well as the consumer’s needs.

Foreign vs. Domestic Investments

A multinational corporation has the option to carry out investments either locally or internationally. Making foreign investments have relative advantages for the multinationals compared to making only domestic investments. For instance, the multinational may carry out foreign investments because of the better market conditions in other countries. When cost of outsourcing for the costs of production in other countries is better than the parent nation, it is easier for the multinational to outsource to main the profit margins. The MNC is able to satisfy the needs of the consumers and at the same time expand its operations to different countries. (Liebscher, 2007) The success of the business depends on the market conditions which can effectively be used in the satisfaction of the needs of the consumers. Companies should be aware of how a product plays into the market and the period the product takes in the market. Consumers are the primary source in any enterprise and so most corporations strive to ensure their products reach all kinds of consumers. They do this through advertising whose costs are relatively expensive. Multinational firms choose to outsource the products hence no advertising costs incurred. Multinational corporations manufacture good quality products in an attempt to expand their businesses globally.

Domestic enterprises carry out investments with a country and have no foreign direct investment (FDI) as well as exchange value. National investments have fewer competitors compared to multinational enterprises who have very many competitors. Multinational corporations are obliged to pay fifty percent of funds to their organizations as soon as their businesses start to expand globally. (Liebscher, 2007) Doing business strictly related to a specific product requires the product to be patented. Getting the patent license tends to be expensive, so outsourcing the product(s) leads to a reduction in the patent cost. Obtaining the patent license leads to a global expansion of the business as well as reduction in the export cost.

Significantly, multinational corporations tend to focus majorly on quality of the product, consumer wants and satisfaction as well as the market condition of the product. The corporations export products via distributors or agents because of the exportation cost. The firms achieve great profits by increasing the quantity of customers. The major reasons for outsourcing products are the cost factor. In designing a business, cost is a significant factor to consider. Multinational firms know how to control the overall expenditure and costs. Their primary objective is to manufacture good quality products at low costs. The costs of raw materials are high, and their availability is minimal. With a good number of customer and international market, the form can market the product directly. (Liebscher, 2007) Generally, most companies go multinational, and not domestic, because of the advantages such as a reduced cost of raw materials and cheap labor, which aids them in reducing costs. They get in to the competitive market and strive to improve their business.

Financial Institutions

The financial institutions are in most cases referred to as the banking institutions. These are the types of companies that offer the services to do with the financial markets. In the financial markets, there are three main types of the financial institutions in operation. These include the investment institution, contractual institution, and the depository institutions. The investment institutions are inclusive of the firms like the brokerage firms, investment banks, and the underwriters. (Billod, 2018) Companies involved in the insurance and issue of the pensions can be said to be the contractual institutions. Financial institution under the depository category includes the institutions that take deposits and manage the loans like than banks, credit unions, mortgages, and the trust companies. However, the banking institutions can be said to be either in the cooperative banks and the commercial banks. The following section looks into the factors the financial institutions take before making a preference for issuing of the credit facilities either domestically or in a foreign nation.

Foreign vs. Domestic Financial Credit Preferences

The financial institutions in different parts of the world have challenges in making a choice on whether to invest in the domestic market or the international market. The financial institution should make a comparison on the factors that affect the credit facilities like the portfolio risks, the charges, as well as the economic condition in the countries to be invested. The financial institutions look at the profitability position, both when offering credit in or out of the country. In the point that the financial institution is baling to effectively manage the risk associated with the issues of the credit is critical in the success of the operation of the financial institutions. (Quilli, 2014) Additionally, the financial institutions look into the risky nature of the credit facilities both in the parent country in comparison to the different nations. The evaluation should be inclusive of the bonds, equities, guarantees, loans, and the possibilities of the foreign exchange transactions. The financial institutions should view the source of the challenges in the financial sectors. The awareness of the challenges helps the companies to determine the area in which it can issue the credit facilities. The financial institutions take into account the ability to make credit preference when it has the possibilities of regaining the credit risk environment along with other factors like the ability to carry out effective credit administration, and the credit facilities monitoring process. The foreign investments provide the best opportunity to invest the credit facilities as there are various facilities across the world.

The foreign investments in the credit facilities by the financial institutions are better than the domestic investment as the foreign investments come with positive nature of managing the credit affairs. The foreign investment in the credits provides the financial institutions with the ability to evaluate the operations by the use of the internal and off sites techniques to give an open mind. The differences in the policies in the different nations help the financial institution to be able to evaluate problems that are associated in the credit facilities (Quillin, 2014). The international market also provides the financial institutions with new dimensions in monitoring the transaction. The international market has different stages of operations which help closer monitoring of the operational risks. The banking system of different nations provides the application of the different ways of assessing the credit facilities which solves the cases witnessed by the supervisors of the credit facilities. The factors in the different nations like the exchange rates and the timing of the exchange of the credit facilities may be likely to be beneficial to the financial institutions.