Business free essay: Company Expansion
Huffmn Trucking Company
Expanding the operations of the company entails raising additional capital in order to support the extra capacity envisioned in the objective. Apparently, outsourcing of funds is the main option and the mandate of the management is to determine the most appropriate channel that guarantees maximum returns from the expansion. The other challenge in expansion includes the choice of a suitable investment to increase operations. Three most commonly employed channels that the management at Huffmn Trucking Company has to consider are through an Initial Public Offer (IPO), acquisition of another company and merging with another company. The admissibility of the above options can be done from the following considerations.
The advantages of an IPO may attract the attention of the management with respect to the inherent opportunities and strengths. Firstly, the inclusion of the public to invest in the business spreads the ownership and risks among many hands thereby reducing the difficulty. This also enables future expansion using the same channel possible such as through rights issues. Additionally, an IPO achieves an advertising opportunity since the advertising has to be addressed to the public. Such publicity is likely to attract an opportunity to raise the market share in the competitive trucking business. Alternatively, if the current owners want to sell out the business, it is a vital exit strategy (Balasubramaniam, 2006).
Weaknesses of the IPO option include the requirement to make the books of accounts as open to the public as possible since ownership is transferred to the public. Apparently, there are several compliance requirements by the securities exchange authorities, which are expensive to implement. In addition, the close watch of the shareholders with a higher ambition pressures on the management makes the operations to continue under intense pressure than in a privately owned company. The IPO presents the best option for expansion strategy, if the company is appealing enough for the public to have a share of ownership in it.
Despite the fact that the challenge of obtaining capital proves to be a problem in expansion, the manner of implementing the expansion still stands. In making an acquisition of a company in a similar line of operations, Huffmn has the benefit of continuity when compared with starting a brand new company (Gilan, 2010). Additionally, integrating the successes of the acquired company into the new operations at Huffmn is beneficial for sustainability of the expansion. As an illustration, taking over resources such as experienced human resources also contributes to a better opportunity than staring a new branch. The disadvantage of an acquisition is the transfer of weaknesses of the acquired company including liabilities and inherent risks.
Merging with a successful company in the trucking business presents Huffmn with an opportunity to raise its brand name and increase market share. Sharing of risks between the merged companies presents an incentive to companies considering merging. Specializing in areas where each company performs well under the merger reduces weaknesses among the companies. One major disadvantage is the sharing of successes, which would rather be owned by a single entity if efficiency and capacity were separately and singly enhanced. Legal complications of entering and exiting mergers may tie and limit companies’ potential.
Within an overseas location for the IPO consideration, the effects of globalization on financial decisions will depend on international pressures on the local economy, which directly affects public willingness and ability to invest in stocks. Negative global pressures may discourage investment if the rating and value of Huffmn shares do not match with the public’s propensity to invest. Additionally, fluctuations in foreign currency attract exchange rate risks that may affect the valuation of Huffmn stocks offered in an IPO. Fluctuations of local currency exchange rate are increasingly facing external forces as the globalization factors continue to establish in the market. Mitigating exchange rate risk for Huffmn would entail the registration of the company in an overseas territory as a local company and encourage exclusive local operations (Gilan, 2010). However, this may not be sufficient to shield off fluctuations of the local currency.
The acquisition of a foreign company is under a different set of factors, including the local investment environment and if Huffmn is flexible to fit in the setting. The investment environment in an overseas market is defined by the status of the specific market targets as well as regulatory requirements for foreign investment. The exchange rate fluctuations during the acquisition may affect Huffmn the currency of the country under consideration is suddenly stronger than the US dollar. The consideration of a merger with a foreign-based corporation may however be slightly differently since the decision of the branding of the merger may take a locally beneficial setting (Pietersz, 2012). The globalization impact on financial decisions in a merger may facilitate the operations of the expanded business if the local face of the merger partner absorbs the exchange rate risks.
Balasubramaniam, K. (2006). “What are the Advantages for a Company Going Public,” Retrieved from: http://www.investopedia.com/ask/answers/06/ipoadvantagedisadvantage.asp#axzz1qVEWhyDn
Gilani, S. (2010). “Exchange-Rate Risk: The Unseen Enemy of US Investors,” Retrieved from: http://moneymorning.com/2010/09/29/exchange-rate-risk/
Pietersz, G. (2012). “Exchange Rate Risk,” Retrieved from: http://moneyterms.co.uk/exchange-rate-risk/
Among the free essays you will get at scholarlywriters.com is Business free essay: Company Expansion please visit us now for more free essays as we are a cheap essay writing company