MNCs Must Carefully Weigh Their Options in Deciding on an International Expansion Strategy - Research Paper Example

For this reason, it is also referred to as an international group. The prime objective of a multinational enterprise is to expand the actions of the business outside the national boundaries in order to enhance its brand equity as well as its corporate image from a global perspective. It also helps in the augmentation of efficiency along with the profitability of the organization. Hence, in order to fulfill these factors, multinational organizations always aim to undergo international expansion strategies. Besides, in order to undertake internal expansion strategies, the multinational organizations must also consider certain financial factors as well, such as foreign exchange rates, conflicting interest rates from one country to the other, foreign tax rates, complex accounting methods for the foreign operators, and foreign government interventions.

Various Financial Factors In this era of globalization, the key motive of any organization is to expand its business operations in order to reduce the risks of the company and augment its market potentials. In order to accomplish these objectives, the foreign exchange rate offers significant influence over the organizational operations. The foreign exchange rate is referred to the rate at which the value of the currency of a specific country is transformed into another (Moles, Parrino, & Kidwell, 2011).

It is also known as the exchange rate or currency exchange rate. The value of the exchange rate is mainly dependent on the local demand of the foreign currencies along with the local delivery of the products to other countries. Thus, it helps in easing the operations of trade among diverse countries. Hence, it can be affirmed that the foreign exchange rate facilitates multinational corporations to engage in international trade thereby reducing their business risks. This is because it offers a detailed view of the currency quotation along with the market demand of a particular international country (Federal Reserve Bank of New York, n.d.).

Besides, the foreign exchange rates might affect the business operations in case of inflation by lowering its profit margins. Similarly, differing or conflicting interest rates of diverse countries should also be considered by the multinational companies while deciding on international expansion. The interest rates can be referred to as the amount charged or paid by a borrower for the utilization of the money. It may vary from one country to the other due to varied reasons namely inflation, political changes, deferred consumption rates, and risks of investments among others.

Due to inflationary prospects, the demand for the products may reduce thereby lowering the profit margin of the international organizations (Hill & Jain, 2009). Political alterations also result in changes in the interest rates of the countries thereby hampering the trade conditions, which is extremely beneficial for any MNC. Alteration in the interest rate lowers the rate of consumption of products, which increases the risks of investments (Federal Reserve Bank of New York, n.d.). Thus, due to these above-described factors, the interest rate differs widely from one country to the other and also offers a significant impact on the business transactions of the MNCs as well.

Hence, it should be considered by an MNC while deciding on international expansion. Apart from the above-stated factors, the other important factor, which also influences the international expansion strategies. Besides, in order to undertake internal expansion strategies, the multinational organizations must also consider certain financial factors as well, such as foreign exchange rates, conflicting interest rates from one country to the other, foreign tax rates, complex accounting methods for the foreign operators, and foreign government interventions.