Assignment 2: International Market Expansion

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 Assignment 2: International Market Expansion

Using the same multinational company that was chosen in the Assignment 1 prepare an analysis that will examine key strategic risks and a financial strategy for your supervisor to consider for possible expansion into this new international market.

Write a 6 pages paper in which you:

  1. . Examine possible risks of foreign currency exposure for your company and prepare a strategy for how each of these risks can be managed
  2. Evaluate the basic functions of the international banking system and financial market (such as bonds, equity, and money markets) and provide a plan for using these financial markets to finance your global operations.
  3. Present a financial strategy to support long-term financing of operations for possible expansion of your MNC (taking into consideration portfolio management, capital budgeting and foreign direct investment decisions).
  4. Provide final recommendations based on both your findings and your initial assessment of opportunities and risks on the three dimensions of international finance, economic trends of the country, impact of globalization, and the monetary system.
  5. Use at least five (5) quality references. Note: Wikipedia and other Websites do not quality as academic resources

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA or school-specific format. Check with your professor for any additional instructions.
  • Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required page length. 

Assignment 1 

ITB400_multinational_corporation_expansion.doc

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Running Head: MULTINATIONAL CORPORATION EXPANSION Assignment 1: Multinational Corporation Expansion 1 MULTINATIONAL CORPORATION EXPANSION Expanding into a new international market is no joke. Before a company decides to move into a new country where they have never been before, they must do a lot of research about the country. They have to do the research in order to make sure that they don’t get into the new market and begin making losses. Dimensions of international finance can affect the venture of the MNC as you choose the new international market. Airbus is considering venturing into Kenya, an East African state that has the largest economy in the region. Airbus however has to consider the three major dimensions of international finance (Lauter, & Dickie, 1975). One such dimension of international finance that has to be considered is political risks. Political risks can affect the company when the government introduces new policies in the system or changes the existing policies. The policies might affect Airbus negatively especially if the policies will bring about issues like trade barriers which might serve to limit or prevent trade. The government may also decide to introduce quotas or tariffs which are used to protect the domestic companies. Another dimension that can affect Airbus in Kenya is market imperfection. Usuallyit is not possible to have a perfect market; the market will always have something that is making it imperfect. An imperfect market is where data is not immediately revealed to all members in it and where the coordinating of purchasers and vendors isn't prompt. As a rule, it is any business that does not hold fast unbendingly to the flawless data stream and give in a split second accessible purchasers and vendors The final issue is expanded opportunity set. According to the financial dictionary opportunity set is; the possible expected return and standard deviation of all portfolios that can be developed from a given arrangement of assets. Here the company will locate production in MULTINATIONAL CORPORATION EXPANSION lowest cost area to increase in profits this will enable it to raise capital where cost is lowest. As an investor in Kenya Airbus will have increased diversification and new choices. Despite Kenya been one of the largest economy in Africa they have some issues that would affect the operations of Airbus. Airbus has to come up with techniques that could assist them deal with this issues which are brought about by economic trends and globalization. Economically, they have been slow progress towards regional integration. If Kenyans and its neighbors integrated then the market of Airbus will be larger since integration comes with high population. Infrastructure would also affect the operations of airbus. Energy for example might not be enough to carter for operations that Airbus does, it might mean that some people be kept off the grid. Kenya has to generate more power to enable operations run without hindrance. Rising inequality is also another issue that comes out some parts of Kenya are so developed and others don’t even have tarmac this affects the market numbers (Thurner,2005). Globalization may also have effects on operations. Spread of telecommunication and information in Kenya may assist Airbus to simply start their company in any part of the Nation and not only in the capital city, this will have a huge advantage especially because of creating new opportunities and advantages in many other fields e.g. agriculture in rural areas. Globalization in Kenya has led to the promotion of the role of private sector thus encouraging the people there to be profit oriented. With such kind of thought airbus will find human resource that is ready to work hard since they know they are doing it for themselves. Transformation and creation of institutions has also been brought about by globalization: Kenya has created institutions that deal with issues MULTINATIONAL CORPORATION EXPANSION such as fair competition, corruption and even counterfeit products. With institutions in place Airbus will be ready to go since the rule and regulations are clear all they need to do is follow. They will also have channels to air their grievances if any come up. Kenya uses a flexible exchange rate hence the value of the Kenya shilling is controlled by its supply and interest in international currency markets. This kind of system is going to affect Airbus in several ways. Flexible exchange rates like the ones in Kenya create conditions of instability which reduce the volume of international trade and foreign investment this may be a big problem to Airbus which is a foreign investment on the Kenyan soil. Airbus cannot therefore invest for a long period of time. The system of flexible exchange rates has serious repercussion on the economic structure of an economy. Fluctuating trade rates reason changes in the cost of foreign and exported goods which, in turn destabilize the economy of the country. Another huge implication that flexible monetary exchange has is the immobility factor. Immobility of various factors of production deprives the flexible exchange rate system of its advantages arising from the adoption of the monetary and maintaining internal stability. Another problem that Airbus might face in their new market due to flexible exchange rate system would be failure of flexible rate system. It was developed between the world wars and it flopped. In entering the Kenyan market a lot will change the international business operations drastically. Considering that Airbus is a plane making company their competitors in the international market will feel the effect. This will be the case because the countries that in the region around Kenya will now have a nearer place to purchase planes, it will be cheaper for them to transport the planes from a neighboring state as compared to shipping them from other MULTINATIONAL CORPORATION EXPANSION nations. The foreign currency will also impact business considering the weakness or the strength of the Kenyan Shilling (Lucas, 1974). Airbus will be required to use the Kenyan currency which is weak compared to the currency that they originally use. Business operations internationally will be affected considering the cost of operations and production in Kenya. If the cost of production is cheap then the cost of the items produced will be cheap in the market this will prompt other player in the market to bring their MNCs in Kenya. If the cost of production is expensive then the vice versa will apply. Airbus has numerous financial opportunities they may decide to broker a deal with the government of the state. That way the government can own a certain percentage of the company. Airbus might also consider talking to a bank and they get into an agreement with the local bank. The bank can give the MNC some money which will be paid within certain duration of time and with the interest agreed. The multinational however needs to convert a lot of money to other currencies hence they should find a reliable foreign market participant. Balance of payment is a statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments is also known as balance of international payments, it includes all exchanges between a nation's residents and nonresidents people including goods, service and income; monetary cases on and liabilities to the remains of the world. The balance of payments characterizes these exchanges in two accounts– the present account and the capital account. The present account incorporates goods, services, investment income current exchanges, while the capital account mostly incorporates exchanges in financial instruments. MULTINATIONAL CORPORATION EXPANSION An economy's balance of payment exchanges and universal investment position (IIP) together constitute its arrangement of global accounts. With all that balance of payment will play a major role at Airbus. An account deficit can occur during a period of inward investing. This is a good way to create employment to the people of the country. The deficit can be a result of the country trying to fund its economy and this way there will be many opportunities of jobs. Deficits can positively affect the operations of the new Multinational exploring the Kenyan market since it is that time that the government will be in the process of funding the economy and anyone coming up with ideas that will help in the growth of the economy will have smooth operations due to the government support (Tang, 1991). The deficits may also help not only in the growth of the economy but also in increasing the confidence of other countries in Kenya. A deficit of a country may also indicate a strong economy which is growing very fast. With the exchange rate of Kenya a deficit will cause devaluation which will help automatically to reduce the level of deficit. This will be an advantage to Airbus which is investing on the new state. The deficits might also affect the operation if the country fails to pay its debts. This would make the other nations start acquiring assets of Kenya and that would lead to the nation raising taxes and that would greatly affect the operations of the company since it will require more funds to operate. In such a situation, the multinationals will be on a greater disadvantage since the government knows they make a lot of money. Bad laws would be introduced to be able to raise money to repay the debt (Nölke, 2014). Surplus of a country may affect operations positively. This is because the government will not be desperate for money. Airbus can use the surplus they have to do two major things MULTINATIONAL CORPORATION EXPANSION paying down debt or investing the surplus. Paying down any debt Airbus may have is generally the first option considered when deciding what to do with a surplus? Rightfully so because a short-term investment of surplus is not likely to yield a return more noteworthy than the rate of interest you're paying on any of your obligation. It doesn't, for instance, bode well to invest a money surplus at 5 percent when you can pay down a bank loan that is charging interest at 12 percent. Notwithstanding, the choice to consequently pay down debt may not be right in all cases. One of the key advantages of managing flow of cash is the ability to predict the future cash requirements for your business. That is, it should help in determining when your business may need to depend on outside financing as a source of money. The requirement for outside financing may be the aftereffect of expanding your business, buying new property or equipment or only getting you through an ordinary regular down period. Before investing in cash surplus it is wise to consider a number of things like risk, maturity, liquidity etc. Each of these factors plays an important role when it comes to determine the rate of return you receive on the investment you have made. Before making investment Airbus should consider all the risks that come along. All multinationals come from the developed world. Today they are trying to invest in the developing world even as they compete with each other. They have their critics however. They are those who say they are out to create jobs and make economies of nations better. They say they create jobs and wealth. However there are those who feel like multinationals have influence over governments especially the third world governments. They are accused of exploiting them by creating jobs and leaving jobless people in their own nations (Demirbag, Yaprak, and Edward Elgar Publishing, 2015). MULTINATIONAL CORPORATION EXPANSION References Demirbag, M., Yaprak, A., & Edward Elgar Publishing. (2015). Handbook of emerging market multinational corporations. Cheltenham: Edward Elgar Pub. Ltd. In Nölke, A. (2014). Multinational corporations from emerging markets: State capitalism 3.0. Lauter, G. P., & Dickie, P. M. (1975). Multinational corporations and East European Socialist economies. New York: Praeger. Lucas, A. E. (1974). Multinational corporations and imperialism in Latin America. Austin, Tex.. Tang, C.-K. (1991). The expansion of the Japanese multinational corporation into world markets. Thurner, M.-O. (2005). Foreign expansion under uncertainty: The case of multinational companies in China.
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