ACME International Business MNE: Financing

ACME

International Business

MNE: Financing a new production facility overseas

The first possible source of revenue to fund Acme's overseas production facility is perhaps the simplest -- to solicit loans or direct financing for the endeavor from domestic or international sources. Given the fact that interest rates remain at historically low levels in the U.S., this might be advantageous. But credit has been tighter given the shaky economy. Thus loans from banks would likely not cover the costs of the entire enterprise.

Venture capital is another potential source of funding for some although likely not all of the enterprise. Also, depending upon the percentage of his or her investment, the investor may desire a certain level of direction over the project. Thus for Acme to continue to have control over the endeavor, venture capital should only finance a small percentage of the costs. Furthermore, given the wariness of investors in this economic climate, it is unlikely that venture capital alone could finance the entire project.

Asset-based financing is another possibility in which the business' assets are used to secure a loan. However, if the company defaults, its assets can be seized. Given the wide-ranging investments of Acme, the risk of losing valuable collateral seems too great to rely upon this source of financing.

Another possibility is to sell equity in the company in the form of shares to the public. However, this can dilute the control over the company if done on a mass scale. Selling bonds might be a better way, given that bondholders merely owe money to the company and do not own the company.

Leasing inventory is occasionally used to generate cash flow. "Leasing fixed assets conserves cash for working capital (to cover inventory), which is generally tougher to finance" (Dileep 2010). However, it remains uncertain if there is enough demand to lease Acme equipment at a price sufficiently high enough to justify the wear and tear generated upon the equipment.

A joint venture with companies in the homeland of the new facility is a distinct possibility. The great advantage of joint ventures is that the home company knows and understands the cultural environment better than that of a MNE. "Each member of the joint venture retains ownership of his or her property. And each member of the joint venture shares only the expenses of the particular project or venture… Joint ventures enjoy tax advantages over partnerships, too. Capital Cost Allowance (CCA) is treated differently. While those in partnerships have to claim CCA according to partnership rules, those in joint ventures can choose to use as much or little of their CCA claim as they like" (Ward 2011).