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Question:
Municipal Bond Insurance Association (MBIA) is a financial business corporation which provides financial guarantee and services. It is one of the primary incorporation in providing services and products related to investment management. With its subsidiaries, the company offers extensive series of service and focused opportunities for investment to various private and public sector investors, academic bodies, and local and state governments. The headquarters of the company is in Armonk, New York and MBIA majorly functions in the United States (MBIA INC., 2016).
For the business institutions who are seeking for expansion in an established and developed market, Canada is one of such grand place to be. It is recognized as a well-developed country which fascinates investments across the globe due to its policies which are highly investor friendly. From the perspective of Foreign Direct Investment (FDI), it is considered as a destination as well as a major source for that. Canada possesses a stable and a mature economy as well as it holds an environment which is sound and aggressive in trading. During the period of 2000 to 2009, Canada gets hold of an average FDI of around US$400 billion which is considerably more than the Foreign Direct Investment inflows of Russia, India, Mexico and Brazil. Canadian economy is widely popular for being one of the most release economies in the global context which holds an import and export of merchandises amounting nearby 60 percent part of the total GDP(psdglobal, n.d.).
As a developed market, Canada is prominently one of the preferred choices of MNEs as one of the major reasons is the infrastructure of the cities of Canada as it enables performing business at ease. There are number of cities which are well connected with Canada and possess high potential market for businesses to flourish such as Saskatoon, Waterloo Region, Edmonton, Québec City, Winnipeg, Halifax, Ottawa, Calgary, Montréal, Vancouver and Toronto (psdglobal, n.d.).
Following are few of the major reasons behind selecting Canada for the business expansion of MBIA:
There are number of ways through which any business institution can enter into the overseas market. There is no such perfect approach or strategy that would surely work for all the international markets. Each market is dynamic in its own way and that is the reason it requires a strategy which support its dynamicity. In one overseas market may be direct exporting is the best way to enter while in another international market the most appropriate approach could be joint venture or licensing. There is huge number of factors which affects the selection of a strategy to enter an overseas market such as the transportation costs, marketing expenditure, degree of adaptation of the merchandize required, tariff rates any many more. These aspects generally upsurge the overall costs of any business expansion (tradestart, n.d.).
Joint Ventures are one of the most recognized ways to enter into an overseas market. It is a kind of partnership which engages two different companies and involves formation of a 3rd autonomous body managed by it. It is a process of 1+1 is equals to 3. In a joint venture, two business institutions be in an agreement of working together either in the geographic or in the product market and together creates a 3rd corporation to commence this. In normal joint ventures, the profits and the risks are shared equally on a mutual basis. On e of the most prominent example can be the joint venture of Ericsson Cell Phone with Sony and together they started as Sony Ericsson (fao, 2016).
Joint ventures is similar as joining hands with a company operating in overseas, wherein the corporation which is pursuing expansion or going global has an adequate amount of equity to possess an influence in the management but not authorized to sustain a complete control over the overseas operating company. There are number of advantages associated with joint ventures such as it is one of the most recognized means of entering a new market, equal sharing of skills, abilities and risks for combining the overseas partner expertise technology with the domestic in-depth knowledge, possess shared financial strength as well as for any third nation it can come up as a source of supply (fao, 2016).
MBIA operates in the United States, as per this notion the expansion in Canada is a great choice as it is the neighbor market of US and it has the nearest business environment to the country. Canada is considered as the trouble-free entry destination. The Canadian market is considered as a mature market as well as their presents enough similarities between the markets of Canada and US and mainly on the income and cultural contexts. Seeing as most Canadians stay close to the US border, their presents a familiarity for the company too. And so MBIA will require facing a little learning before expansion of its business.
Institutions are the cultural and regulative activities and structures which offer significance and stability to social conduct. The framework of institution comprises of informal institutions and formal institutions which direct behavior of the company as well as individual. A formal institution includes rules, regulations and laws while ethics, cultures and norms are a part of the informal institutions (Peng, 2015).
In Canada, as a target country for expansion, there is a need to find an accountant in overseas market which can offer his help to the owners to have a depth understanding of the various financial issues as well as the concerns related to international tax which may directly affect their venture. It comprises of issues associated with the way of entering Canadian market, financial issues, banking regulations, employment taxes, exchange rates and tariffs. There is a need to understand all rules which can directly or indirectly impact the business (Ford, et al., 2009).
In last few years, a number of changes took place in relation with tax rules and regulations applicable on the transactions held between the Canadian corporations and the investors of US. One of the positive implication experiences by MBIA could be the SRED tax credit program of Canada which is a recognized program for Research and Development incentive support. The tax convention 1980 is also amended for the objective to advance the tax treatment for the investors who invests in the corporations of Canada (Ford, et al., 2009).
Every country has its own unwritten and written laws which are required to be followed b y each and every organization whether domestic or foreign investor. There is a need to understand these laws carefully before commencing the business (westernunion, 2016). In Canadian laws or the revenue agency of Canada, there is a need to provide Business Number (BN) registration which streamlines and simplifies the way in which investors transact with the federal government (edc, n.d.).
As MBIA has its existence from US so there is somewhat similarity between the two nations on the grounds of language. The primary language spoken in Canada is English but then quarter percentage of people spoke French. So to have a better understanding and catch of the market the incorporation needs to have access over French language too (unitednorthamerica, 2013).
The culture is mainly community-oriented; any foreign company needs to adopt the cultural traits of Canadians and must have a big hand towards fulfilling the social obligations and responsibilities for succeeding from long perspective (westernunion, 2016).
The widely present domestic competitors holds a strong network and they also possess a better sense of the business and the market place so it is difficult for any foreign MNE to sustain easily in the foreign country as the domestic competitors will put a coercive pressure over the MNE for the thing for which the overseas investor is dependent upon them for the MNE needs to act in the similar way in which the domestic financial institutions operate so there sustains a dependency in the primary stage (Hawkins and Mihaljek , n.d.).
Entry and expansion in the overseas market is the best way to go global. Selecting Canada is a god choice for MBIA as Canada considerably has been a reliable recipient of Foreign Direct Investments for various reasons. The prime reason is the banking system of Canada which is the strength of the country as among the G7 countries it is recognized as the nation who possesses fastest economy for a significant period of 2010-2011 as per the records of International Monetary fund(psdglobal, n.d.). As a mode of entry, joint venture is considered to be a good strategy as it has number of merits which helps in overcoming the barriers regarding cultural and legal norms as well as attaining an easy access to the domestic distribution system. Times, few issues may arise in relation with control and ownership. It is considered to be one of the most widespread forms of participation (fao, 2016). As Canada and US share similar culture and language, there are very few implications which need to be taken cared of to have a successful venture in Canadian market.
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