Essay on Evaluation Performance
Acme is a highly prospective company that attempts to expand its market share through entering new markets internationally. In this regard, the expansion of business overseas through the development of its production facility opens larger marketing opportunities for the fast business development and enhancement of the marketing position of the company. However, the company needs to raise funds for the fast business development and development of its production facility abroad. In this respect, the company needs different approaches to raise funds for the development of its business overseas. The company can hardly rise $500M for the development of its production facility overseas. Therefore, the company needs external financing to raise funds for its business development overseas (Breneman & Taylor, 1996). In such a situation, the company should be aware of risks and threats associated with different ways of external financing as well as it should evaluate possible advantages of each way of external financing. In this regard, it is possible to recommend Acme to consider the possibility of issuing equity attracting a reputable and stable investment bank, preferably the one operating overseas, because, in such a way, the company may count on raising funds fast due to the bank’s capital and, in case of financial troubles occurring to the investment bank, the company can count on the support of the local government, which is likely to support the large bank that influences the local financial market and economy at large.
In actuality, ACME may use diverse sources of external financing to raise funds for the development of its production facility overseas. At this point, it is worth mentioning the fact that the company needs to raise funds for the development of its productivity overseas. In fact, rising $500M is important for the business development overseas but the company cannot afford such substantial investments using its own resources. In this regard, external financing is the best alternative for the company to raise funds. On the other hand, the company should make the right choice of the external financing to maximize its effectiveness and to minimize possible risks and threats associated with raising funds externally.
On analyzing possible alternatives of external financing, it is possible to distinguish two major ways of external financing: issuing debt and issuing equity. Issuing debt is an effective way to raise funds because it involves bank loans that are provided for the company to raise funds fast and to fund its overseas production facility (Benfari, 1999). However, issuing debt through bank loans raises the problem of paying off the debt and interests to the bank. In this regard, the company may face the problem of paying off high interest rate because, today, banks raise their interest rates as many companies are unable to pay off their debts and the risks of granting loans to companies are high. High risks force banks to raise interest rates. As a result, if Acme chose issuing debt, the company should come prepared to pay off high interest rates.
Alternatively, the company can use another strategic way of external financing – issuing equity. The company can choose different ways of external financing, including partnership, selling stocks to investment banks or large investors. Each alternative has its advantages and drawbacks and the company should choose the best one.
First of all, partnership is a potentially good alternative for raising funds for the development of overseas production facilities. The partnership with a local company operating in the overseas market, which has well-developed distribution network and production facilities that will facilitate the penetration of the overseas market, while the company can benefit from its brand and loyalty of customers to the local company. On the other hand, the company can face the necessity of sharing the ownership of the business with its partner and the company cannot define its policies in the target market independently of its business partner.
Furthermore, selling stocks to attract shareholders and to raise funds for the acquisition is one of the effective ways to raise capital fast and effectively. At this point, the company can attract an investment bank. The investment bank can provide Acme with funds fast and conduct financial operations to complete the deal successfully. In fact, this way of the external financing is effective because the company will raise financial resources fast. In addition, the company can choose a reputable, large investment bank operating in the target market (Holcombe, 2006). In such a way, in case of financial problems of the bank, the company can count on the government support because the local government is likely to fund its large bank to prevent crisis in the banking industry and financial market. Drawbacks of such external financing are few. The major risk is the financial problem in the bank.
Alternatively the company can deal with a large investor that is ready to invest substantial funds into Acme’s acquisition in exchange for the ownership in the company. However, large investors as well as angel investors will not take interest in the company, if they do not expect high return on investments. Therefore, to attract investors, Acme should be able to provide investors with the high return on investments. On the other hand, large investors can raise funds for the further business development of the company. In such a situation, Acme will need to share profits with investors and shareholders and the company will have to coordinate its further policies and business development with the large investor (Piketty and Saez, 2007). Therefore, the large investment bank is the better choice for Acme because the investment bank is interested in the return on investments in the definite timeline and the bank will not push on the company as much as other large investors usually do. The main point of the investment bank is to gain profits from the deal and the bank does not oblige the company to maintain their business relations after the completion of the deal, while other large investors may be unwilling to sell their shares, for instance, and they may attempt to influence policies of the company or its business development.
Thus, taking into account all above mentioned, it is important to place emphasis on the fact that Acme can raise funds for the development of its overseas production facility using external funding. In this regard, issuing equity and attraction a large investment bank operating in the target market is the best option for the company to choose because this way of external financing provides the company with needed funds fast and does not impose strict obligations on the company in terms of its further business development and policies conducted in the target market. Instead, the company just needs to complete the project successfully and pay off return on investments to the bank.
