Issue Paper

Raising funds for the business development is very important but sources of funding can have a considerable impact on the overall business development. In this respect, it is possible to refer to the case of a company raising funds for the expansion of its business and opening an outlet abroad. In fact, this way of business development is quite popular today because due to the globalization of the world market companies have plenty opportunities of expanding their businesses and entering new markets, including international markets. However, entering a new market, especially abroad is quite a risky enterprise and the company may face difficulties with raising funds for this project. In such a situation, the company has to identify the most efficient way to raise funds to complete the project successfully, minimize risks of financial losses and maximize returns on investments. In this regard, it is possible to recommend partnership as a plausible solution for the company entering a new market abroad, because this method is efficient and reliable.

At this point, it is worth mentioning the fact that the company entering a new market abroad has several options to choose from. For instance, the company can take a bank loan to fund the project and enter the target market. however, this method is quite costly taking into consideration possible risks associated with entering the new target market, which may be China, for example. The lack of democracy and open market economy aggravated by corruption in China is likely to increase risks to the business development in this country. Therefore, the bank is likely to offer a loan but the company will have to pay exorbitant high interest rate. Therefore, the company will have to return the loan at high interest rate that will lead to the substantial loss of profits of the company. Alternatively, the company may consider the possibility of entering the new target market on its own. However, this method is extremely costly and risky. To put it more precisely, the company entering the new market, especially Chinese one, will have to adopt to the new business environment and overcome existing barriers. At this point, it is worth mentioning the fact that the corruption in China is probably the most significant challenge for the company’s business development. To put it more precisely, the company will have to negotiate with the authorities to obtain possibilities to develop their business in China. Hence, the company is likely to be involved in illegal operations since China is the country, where bribery is virtually a norm. in such a situation, China will become a difficult market to enter. In fact, even if the company enters Chinese market, it is likely to face the problem of the unfair competition, when its potential rivals bribe local authorities and negotiate better conditions of their business development. As a result, they can take an advantageous position, while the company investing millions in its new project in China can lose its position and its project may fail because of the unfair policies conducted by the local authorities. In addition, if the company enters Chinese market on its own and slips to bribery and any other illegal activities related to negotiations with the local authorities, the company is likely to deteriorate its public image in its traditional market, the US one. The involvement of the company in the corruption activities raises legal problems because the company has to conduct its policies fair even abroad, according to the US legislation. On the other hand, the company will likely to face the severe criticism from the part of the public because the public is fully aware of current risks and methods of business development in China. As a result, the company may face considerable problems in its target market, not mentioning the fact that such method of raising funds is extremely costly for the company. Therefore, this method of raising funds is unacceptable too.

In such a situation, the partnership with a local company is the best way to raise funds. Firsts, the local company will invest its own funds in the project respectively to the share of its involvement in the project. The current project admits the possibility of 50/50 partnership. The parity of parties will make them equally interested in outcomes of the project and will facilitate the burden of raising funds as much as twice for the company because a half of investments in the project will bring the business partner from China. In such a way, the business partner will share the investment in the project and help the company to raise funds. In addition, this method of raising funds is likely to bring considerable return on investments because the local company, which is the business partners of the company, can negotiate with the local authorities, while the company will conduct its operations legally correct and the public image of the company will remain positive.

In fact, the proposed solution is apparently the best solution of the problem of raising funds. On the one hand, this solution minimizes risks of failure to enter the target market. On the other hand, this solution facilitates the market penetration granting the company with the support of the local business partner, who can help to develop business successfully tackling problems with the local authorities and using its network and infrastructure to launch the production as soon as the partners come to agreement on terms of the partnership.

In my opinion such solution is effective because the use of the bank loan or the company’s own funds are more costly and risky. In such a situation, the business partnership with a local company is more prospective and beneficial because it eases the financial pressure on the company and makes its entering easier. Obviously, the company will be in an advantageous position compared to those companies that enter Chinese market on its own because they do not know the target market and, therefore, they are likely to make errors, which the Chinese business partner of the company is likely to avoid due to the in-depth knowledge and understanding of the local market.

Thus, taking into account all above mentioned, it is possible to conclude that the problem of raising funds may be challenging but, if the method of raising funds is chosen properly on the ground of the detailed analysis, purposes and expected outcomes of the project, then the process of raising funds may be easy and effective. In this regard, raising funds for opening the company’s outlet in China should involve the business partnership with a local company.