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The Implications of Operating a Company Within or Outside the European Union

By:   •  January 1, 2019  •  Term Paper  •  1,709 Words (7 Pages)  •  16 Views

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International Expansion

Raed Olla

American Intercontinental University

July, 3, 2018

Professor, Ohanaja

FIN 630

Q2 2018

Abstract

In this paper, we will explore the implications of operating a company within or outside the European Union.There are benefits and drawbacks respectively of each option, and the paper will explain such accordingly. The state of the European Union, both in the political and financial sense, must be considered to get a thorough understanding of the climate one would be entering as company. It is also important to reason why an MNC and other financial institutions would invest funds and provide credit in a foreign country.

1. Would you like to acquire company within the European Union or outside the European Union? I would prefer to acquire company outside the European Union. First and foremost, for anything to flourish, it must be in an environment conducive to growth. And growth is not possible without proper nourishment of course safety. Unfortunately, the aforementioned factors for development are lacking in the European Union. The area is struck by financial crises, more specifically known as the Euro Crisis. These events have created undesirable circumstances for those living and doing business in the European Union. The most prominent source of distress are the frequent shifts in government. The ever changing political structure of the region, has been the perfect incubator for financial instability. A notable example would be that which transpired in Cyprus; the small island country experienced a big bank debacle, which reverberated through the European Union. Deemed as a “ tax haven”, many were keen on Cyprus banks as they presented easy access to the European Union, and had favorable banking conditions such low corporate tax and higher interest on bank account deposits. However, “tax friendly” the banks suffered, as the 2009 recession took a toll on the economy and perpetuated decline through the years. Commercial property values were at an all time low and decreased by 30%, which brought upon non- performing loans and a rise in bad- debt ratios. (O’Brien, 2013). All of this placed heavy pressure on the Cypriot banks, which gave rise to a required haircut and an eventual bailout by the European Union. As a result, deposits were taxed, accounts went awry, and not much was good in the state of Cyprus, And because the European Union functions as a unit, if one member is sick, the disease spreads throughout. The aftermath of the catastrophes such as that of Cyprus, affect the European Union at large. Therefore, the companies operating in the conglomerate, are afflicted by frozen assets and limited to none withdrawal. This presents serious difficulty for a company to progress, as it must first address the issue of safety. If company’s assets are susceptible to theft or damage, then there is little confidence in conducting operations and investing further. Additionally, expansion is contingent on ability to make transactions freely from a bank account with a higher loan limit. Due to the debt crisis, a company would not be able to buy and sell and needed, limiting growth. These unfavorable conditions present obstacles for a company to thrive in the European Union and should be evaluated thoroughly prior to investment.

2. Describe the advantages and disadvantages of the choice you made.

There are many advantages of choosing to acquire a company outside of the European Union, which I will discuss.

By not conducting business in the European Union, one would forego the tumultuous ordeal of political instability that plagues the region. The haphazard ways of the area create an unpropitious environment for company operations. The ever changing laws and expectations to adhere to such policies can become unreasonable and quite burdensome.

Another issue prevalent in the European Union is the matter of communication. Comprised of many countries, the region is home to a plethora of languages which although diverse can present problems in communication exchange. Seeing that every country has its own language, the difficulty of translation arises. Business between countries or even expansion to other countries would require conversion to their respective language, an effort that requires time, money and resources.

Wealth sharing is also a topic of controversy in the European Union. In the region, affluent countries are required to share wealth with those that generate less capital. Said policies of wealth equality are put in place to ensure that all countries have the same amount of power. Being accustomed to free enterprise, a company from the Unites States would not take kindly to such limitations to profit.

A disadvantage of choosing to acquire a company outside the European Union would include missed opportunity. The European Union does not have border restrictions within the territory, which makes business expansion an easier endeavor. Also, if circumstances do not suit the business in country, the option of shifting to another is always there, which can be a great source of solace.

3. Describe the advantages and disadvantages

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