Material Adverse Change

CHAPTER 4The Opportunities and Risks of Expanding Your Business Globally

What we know about the global financial crisis is that we don't know much.

—Paul Samuelson

As regional economies continue to globalize, expanding into foreign markets is a natural progression for companies that currently do business exclusively in their home markets. Access to new products and new customers allows firms to continue growing, particularly if they have already achieved a high share of their existing markets. There are many terrific examples of large firms that have successfully transitioned from purely domestic companies into global players. Companies such as General Electric, United Technologies, and Goldman Sachs have become truly international, not by vacating their domestic markets, but by taking their core competencies and expanding them overseas.

Firms often use an acquisition, partnership, or joint venture to expand globally. The idea is that by having a local partner it will be easier to understand each market and how they do business. What better way to understand the local customs and norms than by hiring people embedded in the country? An acquisition of a quality overseas company can be a quick way to gain scale in new markets in a prudent way. This is arguably a lot easier than trying to start an overseas business de-novo (i.e., from the ground up).

Think about what is required to start a business in a new country from the ground up. You first need to hire local employees. Many ...