Organic Growth or Growth by Acquisition? Key Considerations for Global Expansion
Posted August 28, 2017 in Articles
For companies seeking to expand overseas, organic growth and growth by acquisition both offer attractive opportunities. Growing organically allows you to lay your own foundation and continue doing what you do best, while acquiring an established company overseas offers immediate market penetration with the necessary groundwork already in place.
Of course, each comes with its own costs and limitations as well. On the organic growth side, forming a new foreign company means confronting the challenges of doing business overseas head-on. From entity formation and financing to hiring employees, and from selecting a location to negotiating a market lease, setting up a new operation overseas requires time, resources and professional expertise. International acquisitions present their own considerations and risk factors, and buying a competitive position in the marketplace requires a substantial investment preceded by comprehensive due diligence and strategic contract negotiations that take into consideration local economic, cultural and business factors.
Here are some additional factors that require strategic consideration when deciding between organic growth and growth by acquisition overseas:
1. What Acquisition Opportunities Are Available?
First, what acquisition opportunities are available in your target market? From technological and human resources to potential compliance and litigation risks, there are several factors that must be assessed to determine the viability of a potential acquisition opportunity.
2. What is the Local Regulatory Environment?
Local laws, regulations and political factors can all weigh heavily in the decision of whether to pursue a business opportunity in a country, and they can influence the cost-benefit analysis of choosing between organic growth and growth by acquisition. What are the challenges involved in starting a new business as a foreign investor? What are the risks associated with buying an existing company? These are critical questions you will need to answer.
3. What Resources Do You Have at Your Disposal?
Given the resources you have at your disposal, either in-house or externally through professional advisors and access to capital, which option presents the most viable business opportunity? While you may be looking to replace a target company’s executive and management personnel, targeting an acquisition generally means relying on financial resources and engaging professionals experienced in international business transactions, while growing organically means assembling a team that can establish a successful business in an unfamiliar market.
4. How Scalable Are Your Existing Business Model and Infrastructure?
Are your current business model and infrastructure poised to accept a new foreign operation? Or, will you need to rely on an existing business’s products, services and technology to maintain sustainability?
5. What Are Any Potential Target Companies’ Current Relationships and Contractual Obligations?
When considering an acquisition abroad, it is critical to assess the potential target’s current business partnerships and contractual obligations (among the various other due diligence factors that need to be addressed). Is the target in business with one of your competitors? Does it have long-term contractual obligations that are too expensive or that will restrict your ability to make critical changes? These, too, are critical questions that can be more difficult to answer when dealing with a foreign enterprise.
Mithras Investments |Helping Your Global Business Move Forward
Mithras Investments is a global consulting firm that advises corporate clients on global expansion. Our consultants assist clients with due diligence, regulatory compliance, technology and banking issues, and the various other complex issues that arise in foreign business matters. For more information about our services, please call (305) 517-7911 or inquire online today.