Business Studies Essay - Financial Planning and Methods of International Expansion

1637 Words Oct 20th, 2010 7 Pages
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
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Foreign direct investment (FDI) is investment that gains control of the foreign business or assets. It is a method of international expansion that gets a controlling interest in property, assets or companies located in other countries. FDI can also involve a business controlling resources such as mineral deposits, land and other assets in other countries. This form international expansion involves a higher level of commitment by the business because it usually involves a transfer of money, personnel and technology.

FDI grew quickly in the 1990’s. The U.S is the top destination of FDI and China and Brazil are in top five. The reasons for the increased activity were the opening of markets due to trade liberalisation and deregulation, pressure of competition brought about globalisation and technological changes, the importance of size as a factor in creating economies of scale and the desire to strengthen market position.

An example of FDI in Australia today can be The Foreign Investment Review Board (FIRB) which is a non-statutory body established in 1976 to advise the government on foreign investment policy and administration. It examines proposals by foreign interests to undertake direct investment in Australia, and makes recommendations to the government on whether those proposals are suitable for approval under the Government policy.

Since 1996 Govt policy has shifted towards financial incentives for foreign companies to locate
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