This paper will discuss the advantages and disadvantages of starting a Greenfield Production Facility in one of two places Estonia or Turkey. The paper will then conclude with my recommendation to Acme as to which foreign country is best suited for their investment. International Financial Market As a multinational enterprise that is considering establishing a Greenfield Production Facility in or outside the European Union will represent a major investment in the chosen region.
When considering a potential country make sure that the production facility space will encompass manufacturing as well as office space as to create as many new jobs as possible for the region’s economy. With that said the two proposed foreign countries to choose from will be Estonia a member of the European Union and Turkey a non-member of the European Union. Currency of Estonia and Turkey Estonia is the most northern Baltic State and a member of the European Union as of 2011 it has used the Euro as its form of currency (Europea. u, n. d. ). As with any currency there are advantages and disadvantages.
In this case the largest advantage of the Euro is this form of currency is the only form of currency utilized between the 17 of the 27 countries that make up the European Union. This means that the need for an exchange of currency between the 17 members has been removed. This brought on another great advantage which is no need for an exchange rate between the members. This alone cut down on high interest rates and inflation brought on by exchange rates.
The disadvantages of Estonia and the other 16 members of the European Union sharing Estonia’s Euro as one currency is they are no longer able to alter or adjust economic and monetary policies to remove any economic declines in their individual country. In this disadvantage also comes the exchange rate not being able to be altered to assist in regional economic improvements and expansions. Granted these may seem like great disadvantages, but with Estonia being a member of the European Union there is great increase in stability and promotion of economic collaboration between its members.
Being a member of the European Union and being a member that utilizes the Euro means that there is a common monetary policy. Turkey is not a member of the European Union and utilizes the Turkish Lira as their form of currency (National Geographic, 2013). The Turkish Lira is a convertible currency that in the past has had little restrictions placed on it. This has made for a less stable Turkish Lira due to such a high level of inflation in this economy. There are advantages to Turkey’s currency some being joint investments and tax agreements with the United States.
These agreements warrant the removal of double taxation and promise a return of investment with the Turkish Lira as a convertible currency. On a positive note for Turkey consumer prices rose 0. 30 percent and their annual inflation lessened to 7. 03 percent (Central Bank of the Republic of Turkey, 2013). Trade Policies in Estonia and Turkey Estonia has a great advantage being a member of the European Union as it alone is the largest trader on the globe. The European Union accounts for 20% of the world’s imports and exports (Europa. eu, 2013).
The European Union has one trade policy for all 27 members that aid in opening world trade for the richest and the poorest of the members alike. As the world’s greatest trader the European Union is a member of the World Trade Organization. The advantages are that this organization aids the European Union in creating bilateral trade regulations, trade liberalization, and maintainable growth. The European Union strives through the World Trade Organization to sustain a fairer more stable international trade system (European Commission, 2013).
This kind of trade policy is going to create more jobs in and outside of the European Union, as well as assist them in moving out of their economic crisis. The European Commission that represents the 27 European Union members in international trade works for the Union to make sure any gaps or obstacles that are run into by trade are eliminated. It is easy to see that with a trade policy like this in place the European Commission works to create opportunities for European investments.
Turkey just as Estonia operates on a Free Trade Agreement arrangement and is a member of the World Trade Organization. Turkey has learned from example and aligned its trade policy with that of the European Union’s Common Commercial Policy (Republic of Turkey Ministry of Economy, 2012). Turkey’s foreign trade policy has fortified their democratic system as well as their social and political stage. Turkey is strong and their Free Trade Agreements are critical in the development of their foreign trade with other countries.
Their trade policies make sure that their exporters strive and participate at a more strategic and equivalent condition with other countries exporters (Republic of Turkey Ministry of Economy, 2012). This will help to raise growth in more joint investments. Turkey’s exchange control regime is a liberal one (Yased, 2008). There are advantages and disadvantages to this flexible exchange rate. It can create stable growth, increase employment, and stabilize prices. This type of flexibility can also be a disadvantage as it can create volatility in trade, inflation, thus causing foreign investors to turn away.
Cultures of Estonia and Turkey Estonia has a culture that is rich in diversity. Estonia’s culture has been influenced by its past rulers such as the Danes, Germans, Swedes, Poles, and Russians (Europea. eu, n. d. ). As the most northern Baltic State the Estonian language is very similar to Finnish. This is a place rich in lakes, farmland, and forest which makes is a hot attraction for tourism. For Estonia’s 1. 3 million residents tourism accounts for 15% of Estonia’s Gross Domestic Product (Europea. eu, n. d. ).
As an investor looking in Estonia’s economy is compelled by engineering, food products, metals, chemicals, and wood products. Estonia has worked hard to create a favorable environment for business conditions and their investors. Estonia’s government is very open to public culture, but expects to be treated with respect and trust. As the 2008 crisis affected the entire world Estonia was smart and reacted with an iron fist making cuts that many countries would not even consider. Due to these gusty moves instead of having a budget deficit they now have a surplus of 1. percent as of 2011 (Konwick, 2013). According to the statistics in April of 2012 the debt to gross domestic product was at an all-time low of 6% (Europa, 2012). This number is projected to fall even lower over the next five years. Knowing that their small amount of 6% debt is projected to fall even lower is a great advantage and reason for me to invest in a company in Estonia. Turkey is located in western Asia it is very diverse and much larger than Estonia with a population of 75 million.
Turkey consists of many ethnic groups many of which are Turkish and Kurdish speaking Turkish, Kurdish, and Arabic with 98% Muslim religion followed by Christian, Bahai, and Jewish (Nations Online, 2013). Doing business in Turkey will require a great deal of trust and commitment in constructing a relationship. Turkish people are very visual and enjoy presentations that are eye catching with graphs and charts. Do not expect a fast decision to be made when dealing with business decisions in Turkey as any venture will go straight to the top first and then negotiations will begin.
Conclusion Upon comparing Estonia and Turkey as possible locations for Acme to create a Greenfield Production Facility the most favorable choice that will provide Acme with the utmost opportunities for success will be Estonia. As Turkey does show great signs of economic growth their current political and financial risk do not stand up to the advantages of Estonia. As certain members of the European Union are currently facing a financial crisis along with the rest of the world this union was created to increase stability and promote economic collaboration between its members.
The European Union is the advantage here between the two options. The European Union along with the United States has a very strong and tactical trust and cooperation especially during conflicts, and global encounters. The European Union provides an economic advantage that Turkey just does not have which is a stronger currency, and a larger free trade zone, and easier market access. The possibilities of success for a Greenfield Production Facility are in Estonia with the benefits of this choice far outweighing Turkey.
Courtney from Study Moose
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