Considerations to Entry in the Proposed Foreign Market - Case Study Example

Introduction Entry of firm to a new market is a technical and challenging undertaking that requires a well-organized strategy. A firm should research the new market opportunities carefully before deciding to invest. In essence, enormous benefits can be reaped from making wise and informed investment decision. The modern financial markets, especially the banking sector, have experienced diverse dynamism in the recent past (Barth, Lin and Wihlborg 72). Therefore, it is necessary to conduct effective preliminary research before deciding on where and when to invest. The modern technology has eased investment in the international market since several platforms for monitoring the progress of subsidiary firms are available online. Before entering the foreign markets, the BFIS should consider several factors to avoid suffering huge losses as discussed below. Considerations to entry in the proposed foreign market Competition The level of competition in the international market is a fundamental consideration for making a foreign investment. Investing in the foreign market is an expensive venture that requires maximum caution. BFSI should assess and evaluate the level of competition in the international market to identify the techniques that need to be put in practice before initiating any investment. It is imperative to note that the level of competition influences the profit margin of an enterprise. In this regard, market competition should not be overlooked when investing in the foreign markets (Hiles 141). In most cases, business enterprises develop marketing techniques that are aimed at driving competitors out of the market. For this reason, BFSI requires to assess the nature of competition in the various foreign markets before establishing any investment. Government policies The government is usually involved in the money market for regulation and maintenance of ethical standards. In addition, the governments of various countries impose taxes either to encourage or discourage foreign trade. Some policies enforced by the governments of various countries may be harmful to BFIS’ foreign investment plan. For instance, high tax rates may lower the profit margin and eventually limit further expansion of the industry in the international market. Some countries are quite conservative and are usually not welcoming to new investors. Essentially, government policies might favor further expansion of an enterprise or discourage its dominance in the foreign markets. Market composition The international financial market is highly influenced by the nature of customers in particular countries. The groups of people participating in the international financial market are quite influential in making investment in foreign countries successful. For this reason, cognitive survey should be conducted before making a new investment in foreign countries. Actually, the enterprise requires to identify whether the market is accommodative to the proposed investment. In essence, a new investment should always focus on attracting attention from specific segments of the market. Market segmentation is an effective mechanism for developing a new investment in the market. In this regard, BFSI should stratify the potential investment areas into various section to enhance critical scrutiny and eventually avoid ambiguous decision-making. Actually, BFSI should adopt a comprehensive strategy to navigate through the foreign markets. Different banks across the world adopt varied measures in raising funds and managing their operation. As a result, BFSI should purpose on using a variety of vehicles to source funds and manage various financial transactions between the subsidiary and parent firm. Technology The adoption of modern technology in various fields such as banking and insurance has aided in boosting efficiency and effectiveness. People can monitor financial transaction from any point as longer as they can access the technology in use (Tarantino 156). However, use of modern technology is not an enough prove that an enterprise is better placed compared to others. For instance, the banking institutionss use almost a similar technological path in transacting their various transaction in this regard, modern technology is ceasing from being an added advantage for firms. For this reason, BFSI industry should undertake numerous reforms to improve the usage of modern technology. Countries suitable for an immediate establishment of a BFSI subsidiary Among the various countries in consideration, the most suitable countries for BFSI to establish a subsidiary are; The People’s Republic of China, Canada, Argentina, Switzerland and South Africa. The highlighted countries share some common characteristics that favor the establishment of a subsidiary for FBSI. For example, China is a densely populated country. In addition, the country’s economy is currently growing at a tremendous rate, which means that a lot of investment capital is required. The use of modern technology in China’s has grown to be one of the best technologies in the world. In this regard, establishing a subsidiary in China would be very profitable to the FBSI. The dense population of the country would facilitate immediate absorption and, therefore, reduce operational delays. In addition, since almost everyone in China has access to modern technology, conducting daily businesses would be easy and cheap for FBSI (Madura 677). Canada is yet another suitable country where FBSI can establish its subsidiary. Canada has a large number of cultivatable land and a substantial number of residents. It is important to note that agriculture in Canada is highly mechanized. In this regard, the demand for capital goods such as machinery and other agricultural equipment is in high. For this reason, farmers and agribusiness firms require reliable sources of capital through loans or leasing. By establishing its subsidiary in Canada, FBSI will reap enormous returns from interest charged on loans and acquisition of capital goods. Switzerland is yet another potential location for FBSI to establish its subsidiary. Switzerland is a capital economy whose progress depends on agriculture, trade, banking and other investments. The country’s economy is open for foreign investment especially in the banking and insurance sector. Establishing a subsidiary in Switzerland would result in huge benefits for FBSI in terms of leading and broad economic base. Argentina is a favorable country for establishing a FBSI subsidiary. The country’s economy is at its pick of development and growth. In this regard, foreign investment is welcomed, and there are limited barriers to entry in the money market. The country’s economy depends on agriculture and investment in the money market. For this reason, capital goods such as machinery and other farming equipment are in high demand (Sercu 553). Therefore, establishing a subsidiary in Argentina will serve as a source of financing for the country’s economy. South Africa has a promising economic base for development. The country relies on diverse sources of capital to finance its developmental projects. In addition, the country has experienced a calm political atmosphere in this recent past. For this reason, establishing a FBSI subsidiary will not be affected by any political upheaval. Countries not suitable for immediate establishment of a BFSI subsidiary According to Rugman and (Verbeke 240), establishing subsidiaries in the developed countries such as Germany and the United Kingdom is not very favorable for FBSI at the moment. The level of competition in developed economies in developed economies is very high. The expected returns after establishing a subsidiary in first world country may take a long time to be achieved. It is wise to note that the time value for money should be considered when estimating future cash flows of an investment. The longer the time an investment takes to regain its initial cash outlay, the higher the risks involved. In this regard, FBSI should focus in erecting subsidiaries in countries that are accommodative to foreign investment and whose foreign policies do not limit the freedom of conducting business. Research has shown that most developed nations are conservative when it comes to foreign investment. Actually, the portion left for foreign investment might not allow for expansion or full entry into the economy. Conclusion Entry into the international market is a costly undertaking. In this regard, preliminary reset is required to ensure that wise investment decisions are made before committing funds. Establishing a new investment in a middle-income economy is easier and profitable than in a developed economy. Firms should always conduct comprehensive research before committing resources to a foreign investment. Foreign investment can either lead to poor or good performance of on firm depending on the course of action adopted. Work Cited: Barth, James; Lin, Chen, and Wihlborg, Clas. Research Handbook on International Banking and Governance. Cheltenham, UK, 2012. Print. Hiles, Andrew. The Definitive Handbook of Business Continuity Management. Hoboken, N.J: Wiley, 2011. Print. Rugman, Alan, and Verbeke, Alain. "Subsidiary-specific Advantages in Multinational Enterprises." Strategic Management Journal. 22.3 (2001): 237-250. Print. Sercu, Piet. International Finance: Theory into Practice. Princeton, N.J: Princeton University Press, 2009. Print. Madura, Jeff. International Financial Management. Florence, KY: Cengage Learning, Inc, 2011. Print. Tarantino, Anthony. Operational Risk Management in Financial Services. Hoboken: John Wiley & Sons, 2010. Print. Read More