The Ways Organisations Expand (Research Paper Sample)

Finance
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Abstract
The revenue generated by the company is proportional to the size of an organization. To increase the size of an organization so as to increase revenue, the management needs to select the financing method that will be beneficial to the organization. The three common methods of expanding the operations of an organization include through going public. This is achieved through floating a company’s shares. The other method is through mergers and the last method is through acquiring already existing organization. The paper evaluates the features associated with each method of expansion.
IPO
Expanding the operations will enable the organization to increase its profits and compete adequately in the global market. The virtual organization under evaluation is privately held and needs to expand its operations. The choice to merge, acquire or issue an IPO may pose some benefits and challenges to the organization. After weighing the options available, the use of IPO has proved to be the best way for the privately held virtual company to expand. This method provides the organization with adequate funds and control of the organization compared to other methods. An IPO also provides the company which free advertisement which will increase the company’s sales (Pride, Hughes & Kapoor, 2012).
The use of an IPO will provide adequate funds to finance the organization expansion process. An IPO provides free marketing for the company and promotes the organization's brand name. Using the IPO, the organization can control the allocation of shares, thus maintaining the control of the organization to the founders. The weakness of the method is that the cost of floating shares and the time taken to float the shares is high. The threat associated with the method is the issue of control and take over of the company. The method provides an opportunity for the organization to gain more resources compared to competitors in the market.
The method may favour a globalization decision as increased investments will result to the expansion of the company’s operations to other nations. Expansion to other nations involves the risk of differing exchange rates which may affect the profitability of the organization. Mitigation against the risks of foreign currency may require the organization to use a common currency across its international branches. The organization can also incorporate a margin to the cost of its products to cater for the exchange risks associated with foreign currency. The organization can consult with the local banks to evaluate how they can reduce the exchange rate risks (Pride, Hughes & Kapoor, 2012).
Acquisition
The privately held company can acquire a company in the same industry in its expansion bid. This is where the organization buys out a company which is established within the same sector. This method is expensive and depends on the financial capability of a company. In the event that the owners of the privately owed company have adequate funds, the company can acquire a successful company in the market. In the case where funding is limited, the company will buy our less successful or even collapsing companies in the market. In the global market, the laws of the country also govern the acquisition process (Gaughan, 2011).
The merits of acquiring a company is the ease in operation continuity, the process of acquisition is cheap and will enable the organization to continue with production. There is no need for advertising since the company has its own client base. Acquisition maintains the organizations control over the company acquired this there is no loss of power. The weakness of the method is the new organization having a slow start to the market. The opportunity associated with the method is the probability of growth of the new organization using the funding and expertise of the acquiring firm. The threats facing the method include the collapse of the organization if the factors affecting the market are not addressed (Gaughan, 2011).
Globalisation will enable the organization to expand its operations in the global market. Since the organization is acquiring, control over financial decision is controlled by the management. The factors that contribute to exchange rate risk include the financial transactions within the international branches. To control the risks that may arise from the exchange rate risks, the organization can use a standardized currency in all its branches. The organization can also maintain a margin above its product prices or consult the local banks for assistance.
Merger
Mergers are another option the management of the privately owed virtual company can use to expand their operation. In mergers, the company will look for a company conducting similar operation and sign an agreement to combine efforts. The control over the merged organization depends on the finan