Global Expansion to the U.S. and Asian Markets

Global Expansion to the U.S. and Asian Markets
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Word Count: 2342
Table of Contents Abstract 3 Introduction. 4 Theoretical Framework. 5 Solutions. 7 Mergers and Acquisitions. 7 Lean Approach. 8 Conclusion. 11 References. 12  
Abstract
The simulation challenge that our organization faced was the desire to venture into a foreign market. The United States and Asia present vast opportunities for any business because of plenty of raw materials and skilled labor, as well as a ready market for the products. However, such ventures present major risks for any firm, especially in the modern COVID-19 pandemic recovery phase. As the organization seeks to explore these markets, it would be important to understand the uncertainty involved and take appropriate measures to avoid the risks, as noted in the real options theory. The mergers and acquisitions present one of the potential options that the organization can utilize in venturing into the new markets. The organization can also work on reducing its working capital to ensure that it has sufficient resources for backup in the event that the plan does not go as expected. Besides, it should assess the environment to ensure that there are no hidden rules and adopt a lean approach to reduce its expenses as much as possible. These approaches will give the firm an opportunity to make mistakes and learn from them without paying a huge price.
Global Expansion to the U.S. and Asian Markets
Introduction
Geographic diversification is one of the major strategies that international firms use to reduce their portfolio risk by avoiding excessive concentration in one market. This type of diversification allows firms to bring new foreign operations within their boundaries and can utilize both tangible and intangible synergies. There has been an increasing number of studies analyzing the relationship between international diversification and firm performance. Some of these studies reported a linear relationship, emphasizing the benefits of international diversification (Mendoza et al., 2019). However, other studies have also reported a negative relationship between diversification and a firm’s performance. These studies have often cited high costs as a major determinant of the expansion efforts. Since the geographic diversification on the international scene entails moving into another territory with new rules, events, such as the COVID-19 pandemic, have a significant impact on any institution’s expansion efforts.
The COVID-19 pandemic had a direct negative impact on many economies around the world. According to a news article published in the Bank Post (2020), stock markets around the world suffered the biggest falls in history following the pandemic. Despite the quick recovery that many companies have made, many economies have gone into recession. The virus has resulted in several structural and lifestyle changes as people and businesses have adopted other operational mechanisms, abandoning the traditional ones. The rise in e-commerce and the sudden shift towards online consumption have forced many companies to also shift in their approach toward service delivery (OECD, 2020). The lockdown measures have significantly disrupted the brick-and-mortar businesses, resulting in a significant impact on both global and local economies, especially for those who took longer to manage the situation.
Governments and central banks have explored several fiscal and monetary measures, such as spending a significant amount of money on cushioning the economy and managing the disease. With companies laying off workers and governments diverting funds on relief efforts, companies that seek to diversify their operations to different regions will face challenges in adjusting to the new conditions. Asia and the United States suffered significantly from the pandemic. According to a report on the impact of the pandemic on developing Asia, the virus had a global impact estimated to range from $4.8 trillion to $7.4 trillion, which translated to 5.5% to 8.7% of the global GDP (Abiad et al., 2020). Approximately 28% of these losses were incurred by developing Asia. Therefore, expansion into any country during the COVID-19 pandemic calls for a strategic approach to handling the government control measures and consumers’ new shopping habits.
As businesses consider venturing into new markets, they have to make decisions concerning pricing, research and development, human resources, and several other factors of trade. The path taken determines the outcome for the specific business on the global scene. In the simulation game, our organization desires to establish new factories in the United States and in Asia. The two continents present vast opportunities for our organization because of the presence of a potential market, raw materials, and skilled labor.
Theoretical Framework
As the pandemic eases and governments continue to gradually lift the measures they put in place to manage the pandemic, companies are also evaluating their growth strategies and exploring potential markets for expansion. According to the annual 2020 State of Global Expansion report, a major concern for many companies targeting the United States market is regulatory compliance (Velocity Global, 2020). Concerns over regulatory challenges emanate from the new measures and requirements both at the country and regional levels that have been complicated by the COVID-19 policies. The situation is largely uncertain because the decision on whether to open up the economy is at the discretion of the specific country, and in the United States, such decisions are left to the specific states.
The current state of uncertainty presented by the pandemic requires organizations to make strategic decisions based on the understanding that the future is uncertain. The real options theory guides businesses on how to make decisions concerning investments in cases where the future is uncertain (Song, Makhija & Kim, 2015; Trigeorgis & Reuer, 2017). The theory focuses on assessing the financial options available in the market and the real economy. It has become popular for many businesses around the world as it presents them with more feasible options that expose them to minimize risks. According to this theory, companies have some choice regarding when to invest and that their project has an option and an opportunity as to whether to approve the investment or not (Marketing Business News, 2022). The theory posits that firms should always invest as soon as their project has an NPV that is equal to or marginally greater than zero.
The real options theory suggests that the firm should not invest in the cost of investing exceeds the benefit, either to invest or not to invest if the cost of investing equals the benefit, to invest if the cost of investing is slightly less than the benefit, and to wait when the cost of investing is less than the benefit (Dixit, 1992; Ipsmiller et al., 2019). Asia has been relatively more successful at handling the pandemic than most countries around the world. For example, South Korea has been winning international public trust as a successful role model in managing the pandemic. The South Korean government instituted extensive testing and monitoring policies, which helped reduce the impact of the pandemic on its economy (Goto, 2020). The United States and some members of the European Union have instituted protective measures with the goal of keeping health devices such as ventilators and medical-grade masks for their own domestic needs. Such actions increase the public trust in the government’s role and determination to manage the pandemic.
Solutions
Mergers and Acquisitions
The most appropriate expansion strategy that the organization can utilize amid the uncertainty in the global market is the use of mergers and acquisitions. When an organization ventures into a foreign market, the new market provides various challenges that may be difficult to manage. The company may not understand the local culture needed to drive the demand for its products or services in the right way. As people continue to embrace new shopping approaches, it is important for any company aspiring to venture into a new market to understand any developments that are occurring in its target market. The company will require another partner who is conversant with the recent changes both in the U.S. and the Asian markets prior to setting up new factories in the region. The current economic environment that is being heralded as the “new normal” is still far from normal. It is still volatile, uncertain, and complex (Merow & Urban, 2020; Pak et al., 2020; Romiti & Talerico, 2021). Therefore, before investing in any market, it is important to take appropriate measures to cushion against unprecedented changes in law or other measures. The use of mergers and acquisitions allows an organization venturing into a foreign market to take precautions not to expose themselves to any significant risks.
Several organizations have utilized this approach in venturing into new markets. For example, Disney acquired some of the leading production companies, including Pixar, Marvel, Lucasfilm, and 20th Century Fox, as it expanded into new territories (Patel, 2022). Each of these acquisitions brought the company something to the table. Pixar gave the organization the world’s ...