Every year, the grass on the other side of the fence looks greener and the opportunities for growth promising for entrepreneurs. In case an entrepreneur discovers that a business is not doingas expected as in this case, there may be a need to relocate and tap into a new market with higher stakes for such an entrepreneur. Relocating a business to foreign settings usually include costs beyond those of physically moving the business apparatus physically. Consequently, some entrepreneurs may resolve to use foreign capital such as private investors, loans, savings, or grants to fund their relocation. However, this may not be the best solution due to the various risks associated with foreign capital in funding businesses.
Why is Foreign Capital Not the Best in Funding the Business Relocation?
Foreign capital is, of course, an option for various business ventures such as international expansion.In case foreign investors, for instance, perceives goods from this company as carrying potential, there may be several available choices of foreign capital to fund the relocation and establishment of the company. While foreign capital is a suitable means of financing the relocation process, the uncertainty posed by foreign markets may disqualify this as a favorable means. Relocating to a foreign country may derive new challenges in terms of adapting to the foreign markets and the legal sanctions associated with a new location for the ethanolproducts. As such, a business may take longer than anticipated to stabilize, thus the risk of accruing arrears of the foreign capital in case this is in the form of a loan (Nielsen, Asmussen&Weatherall, 2017). This also creates a strong sense of commitment to repaying the loan, which may sideline the economic aspirations of the business.
Again, the success of using foreign capital is usually dependent on one’s knowledge of high integrity sources of foreign funds. In this case, if the entrepreneur is not well informed on a person who can vouch for the integrity and effectiveness of the benefactors outside their networks, this may pose a new challenge for the business slowing down the process of the establishment(Nielsen, Asmussen&Weatherall, 2017).Companies that have successfully used foreign capital in expansion tasks, for instance, reports being tasked with moving slower than they may need since they have to handle the foreign capital carefully and use this time to establish in the foreign markets successfully.
What is the best way to finance this new project if foreign capital is used?
However, there have been success stories written by people who have taken the chance and succeeded. In case foreign capital is chosen as the means of funding this business, the best way of financing such an initiative is through the use of joint ventures under foreign direct investment. Selecting the best method of foreign capital to fund a business is essential in determining the implications this will have on the organization (Prasad, Rajan& Subramanian, 2007).A joint venture between companies from the same industry may be crucial to generate a competitive advantage over other players in the market. Evidently, engaging in business activity in a foreign country may pose high risks inherent from the uncertainties of business suitability with the host country’s culture. Undergoing a joint venture with foreign companies will help the ethanol company utilize possible advancements in these and form a synergy relevant in ensuring a company’s success. A foreign company may possess a characteristic that the ethanol company may be lacking. Undertaking a joint venture will, therefore, work on economies of scale to give a cost advantage. Additionally, this will reduce the risksposited by other forms of foreign aid such as loans and, in return, open vast markets for the organization to grow. In the new location, the company will also enjoy a low cost of production as well as improved innovation levels.
Nielsen, B. B., Asmussen, C. G., &Weatherall, C. D. (2017). The location choice of foreign direct investments: Empirical evidence and methodological challenges. Journal of World Business, 52(1), 62-82.
Prasad, E. S., Rajan, R. G., & Subramanian, A. (2007). Foreign capital and economic growth (No. w13619). National Bureau of Economic Research.
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