Question

When expanding globally, under what conditions might it be in the best interest of the firm to buy an existing company in the host country?

Answer 1

When expanding globally, it is important that we acquire firms and get our hold in that country. If a firm wants to acquire another firm, it must look at certain factor to gauge the profitability of this investment. Conditions to look at before buying an existing company.

• The goodwill of the company: the goodwill of the firm to be bought must be checked. If the firm has a goodwill , it will be easier to attract people and customers as the firm already posses the focus of attraction.
• Calculating investment risk and return of before buying the firm.
• Looking at , if the firm has say (technical knowhow), or something that the buyer firm doesnot have but the seller firm has. It can help in reducing outsourcing from other company and being self reliant with the help of the firm acquired.
• The potential of the firm to be acquired. It is often seen that many firms has the ability but due to lack of management or organisation it fails to grow. Such firms can be acquired at low cost. So potential of the firm must be analysed.