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Introduction
The world has become a global village and the current generation can boast of a rich technological advancement. Communication has become effective and the flow of information is almost instant while moving from one corner of the world to another has become easy, faster, and more affordable due to logistical advancements. In addition, globalization has caused the integration of economies, societies, and cultures. In relation to business, trade, foreign investments, capital flows, and technology have grown maximally in the last few decades due to globalization (Daniells, 1976, p.57).
This paper discusses global integrations and how businesses can source funds beyond borders that are cheaper than within their borders. It describes the dimensions of a strategy to acquire these lower-cost funds and greater availability of capital.
Globalization effects
Due to globalization, borders are only useful to describe national boundaries but every other activity is turning international or borderless. Economic integration has been common with trade blocks being expanded and trade rules being abolished to accommodate other partners. Moreover, trade has become liberal and many ports have been declared free ports to increase the magnitude of business (Madura, 2006 p.183). This has led to businesses seeking capital so that they can expand beyond borders and cash in on the sprouting opportunities.
Access to funds
Due to global integration, many firms have access to new and cheaper sources of funds beyond those available in their home markets. Since there have been new markets, new sources of capital have also come up. In his article “banking services sees no bounds” Lee (2008) explains how multinational financial corporations strive to attract clients in their fold, a situation that has been possible due to a free mature international market. He cites banks as the major institutions that lend money for capital to investors so that they can make returns. Citibank is available in 36 countries and territories (Lee, 2008) globally; though this is a small number of branches it gives an indication that global banking has been on the rise.
Due to this competition between multinational financial institutions, the costs involved in obtaining credit have been reduced and the terms to qualify to obtain funds become less strict. This has led to firms have a wide variety of sources to choose from so that they can access credit. Indeed, firms opt to go for the lowest interests and less strict regulations whenever possible (Brigham & Ehrhardt, 2007, p.127). Some firms even offer to refinance debts that the firms have, making them top-up their cash reserves and have more funds for further investment.
Multinational financial institutions also consider grants and rebates to their customers when the firms are at risk of collapse. These institutions also consider factors such as cost of capital, financial structures, and equity when they issue funds to firms. Acquiring funds from outside borders also needs a firm to consider the corporate strategy, capital budgeting, acquisition and valuation, and the risks adjustments involved (Eiteman, Stonehill & Moffett, 2007, p.396). Such risks may include foreign exchange risks, cultural risks, and political risks among others. Whatever the source of funds these risks must be considered seriously so that the firm maximizes profits and net cash flows and that the market value of the firm never lowers (Palmer, 2002).
Conclusion
Globalization in the world of business can be viewed as dynamic and many investors have invested and reaped maximally. The firms struggling for global competitive advantage over other firms then need to rethink the methods of achieving their costs management and have steady capital availability in order to increase their investments. Moreover, businesses have to lead from the front if the millennium development goals have to be achieved.
References
Brigham, E.F. & Ehrhardt M.C. (2007). Financial management: theory and practice. Ontario: Cengage Learning. Web.
Daniells, L.M. (1976). Business information sources. California: University of California Press. Web.
Eiteman, D., Stonehill, M. & Moffett, M. (2007) Multinational Business Finance. 11th Edition. Boston, MA: Addison Wesley.
Lee, I. (2008). Banking service sees no boundaries. Career Times. Web.
Madura, J. (2006). International financial management. Ontario: Cengage Learning. Web.
Palmer, T.G. (2002). Globalization Is Great! Cato Institute. Web.
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