...You are the CFO of a U.S. firm whose wholly owned subsidiary in Mexico manufactures component parts for your U.S. assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30 percent against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take? Depreciation is a reduction in the value of an asset with the passage of time, due in particular to wear and tear. When the analysts predicted that peso would depreciate by 30 percent, it would mean that all the assets purchased in peso depreciate by 30 percent in their value correspondingly. If the peso depreciates by 30 percent as expected, relatively, the dollar value of the Mexican subsidiary would decrease as well. With the depreciation of peso, the demand for peso would increase and more consumers would start to buy goods in peso because the same amount of money paid to buy a good carries a lesser value. In contrast, the demand for goods in U.S dollar would decrease. This would result in the decreasing value of the company’s Mexican subsidiary in U.S dollars. With the expected depreciation in mind, the company would want to protect the company by collecting the foreign receivables before the depreciation takes place, so that it would not lose its value. Furthermore, by avoiding major peso-denominated costs until after devaluation, would likely cut down costs...
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...Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) is an Indian multinational automotive manufacturing company headquartered in Mumbai, Maharashtra, India and a subsidiary of the Tata Group. Its products include passenger cars, trucks, vans, coaches, buses, construction equipment and military vehicles. It is the world's seventeenth-largest motor vehicle manufacturing company, fourth-largest truck manufacturer and second-largest bus manufacturer by volume.[5] Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad and Pune in India, as well as in Argentina, South Africa, Thailand and the United Kingdom. It has research and development centres in Pune, Jamshedpur, Lucknow and Dharwad, India, and in South Korea, Spain, and the United Kingdom. Tata Motors' principal subsidiaries include the British premium car maker Jaguar Land Rover (the maker of Jaguar, Land Rover and Range Rover cars) and the South Korean commercial vehicle manufactuer Tata Daewoo. Tata Motors has a bus manufacturing joint venture with Marcopolo S.A. (Tata Marcopolo), a construction equipment manufacturing joint venture with Hitachi (Tata Hitachi Construction Machinery), and a joint venture with Fiat which manufactures automotive components and Fiat and Tata branded vehicles. Founded in 1945 as a manufacturer of locomotives, the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG...
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...Market Entry Mode Strategies – A study of Bangladesh Mobile Telecommunication Market for Foreign Companies Authors: Debashish Barua Examiner: Prof. Anders Pehrsson Marketing, Master Programme Tutor: Prof. Mosad Zineldin Mahmudur Rahman Chowdhury Subject: Master Thesis, 4FE02E Marketing, Master Programme Level and Semester: Master, Spring, 2014 i Acknowledgement We express our gratitude to those people who helped us a lot in conducting the research work successfully. Their cooperation helped us to write a good thesis paper. We are grateful to our tutor Prof. Mosad Zineldin and examiner Prof. Anders Pehrsson who have provided valuable critiques, encouraged and guided us to write the thesis paper in right direction. Moreover, we would like to thank the three mobile telecom companies which have provided valuable information in conducting the research work. Finally, we would like to thank to our family members and friends for their motivational support throughout the study. Linnaeus University, Växjö School of Business and Economics June 2014 Debashish Barua Mahmudur Rahman Chowdhury ii Abstract Title: Market Entry Mode Strategies – A study of Bangladesh Mobile Telecommunication Market for Foreign Companies. Background: Now-a-days, the forces of globalization derive firms to go to international market. When a firm thinks to expand its business outside of the home market, it needs to explore the form of operation through which it will enter into the foreign market. International...
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...different nations or the people. Globalization is the process of our age in which we live. It affects all aspects, from companies, people and consumers to corporate world and cultural relationships like world views, ideas and other aspects of culture. (Stanley J. Paliwoda 2009). It also includes some other aspects like advances in transportation, telecommunication, infrastructure, telegraph and its breed the internet. Globalisation removes trade barriers and allows free trade in this electronic age which brings reduction in government’s restrictions covering international trade and also increases communication speed. The four phases in the phase model of globalization are, exporting, cooperative contracts, strategic alliances and wholly owned affiliates. (McWilliams 2010) The word export means shipping the goods and services anywhere out of the boundaries of a country. The one who ships the item is known as ‘exporter’ and the overseas buyer is known as an ‘importer’. Exporting is been increasing ever since globalization began. It is estimated that in today’s globalized world the value of global trade in form of exports and imports is expected to be more that $12 trillion. World trade has grown at more rapid rate than world productivity. (BusinessVictoria 2008). There are many advantages of exporting, two of them are it increases sales and profit. Removing the trade barriers allows a company, organisation or an individual to serve their goods and services to a wider reach...
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...2000). However, there is not a lot of consensus among these articles. A few articles mentioned the effect of language distance on entry mode choice. Keywords: Cultural distance, entry mode choice and language distance 1. Introduction In this time of globalization a lot of companies are expanding their international business activities in overseas market. The ways in which firms are expanding their business in overseas market differ per enterprise and country. The hierarchical model of market entry modes by Pan and Tse (2000) shows that there are different choices of entry modes. Entry modes can be seen as equity-based versus non-equity based. Within equity-based modes, there is a division between equity joint ventures and wholly owned operations. Within nonequity based modes, there is a division between export and contractual agreements. Prior research demonstrated that the choice of entry modes rely upon different types of components. Especially, a lot of previous studies focused on the effect of cultural distance on entry mode choices. Most of the articles exposed that as cultural distance increases, firms are likely to choose non-equity modes over equity modes (Arora and Fosfuri, 2000). There is no consensus among the articles about the relationship between cultural distance and entry mode choice. In addition to that, few articles pointed out the influence of language distance on entry mode...
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...consumer habits while Starbuck’s is still trendy: Award 2 points if the student only mentions “lack of control over the licensee” as the main issue QUESTION 2: Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures, to whom it licenses its format, as opposed to a pure licensing strategy? (3 points) ANSWER 2: Award 3 points if the student mentions both: *Starbucks has a larger measure of control * and still can access local knowledge through the JV partner. Award 1 point if the student mentions only one or the other QUESTION 3: (a) What are the advantages of a joint venture entry mode for Starbucks over entering through wholly owned subsidiaries? (2 points) (b) On occasion though, Starbucks has chosen a wholly owned subsidiary to control its foreign expansion (e.g. in Britain and Thailand). Why? (4 points) ANSWER 3(a): Award 2 points if the student mentions both of the following: *A JV gives Starbucks access to local knowledge and local markets, * Starbucks can still exercise a large measure of control, even though it may not be to the same degree...
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...McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Consolidation-Date of Acquisition • The procedures used in accounting for intercorporate investments were discussed in Chapter 2. • These procedures are important for the preparation of consolidated statements because the specific consolidation procedures depend on the way in which the parent accounts for its investment in a subsidiary. • The consolidated statements, however, are the same regardless of the method used by the parent company to account for the investment. 4-3 Consolidation-GAAP • Consolidated and unconsolidated financial statements are prepared using the same generally accepted accounting principles. 4-4 Roadmap—Chapter 4 Roadmap—Chapters 5 to 10 • After introducing the consolidation workpaper, this chapter provides the foundation for an understanding of the preparation of consolidated financial statements by discussing the preparation of a consolidated balance sheet immediately following the establishment of a parent-subsidiary relationship. • Chapter 5 includes the preparation of a full set of consolidated financial statements in subsequent periods, that is, after the date of acquisition. • Chapters 6 through 10 deal with intercorporate transfers and other more complex topics. 4-5 4-6 1 Consolidation Workpapers • The consolidation workpaper provides a mechanism for efficiently...
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...Sony Corporation and affected by changes in the values of these currencies 5.0 FINANCING INTERNATIONAL TRADE 6.11 Types of payment methods to pay for imports 6.12 Types of trade finance method 1.0 MULTINATIONAL FINANCIAL MANAGEMENT 2.1 MAIN BUSINESS OF THE SONY CORPORATION Sony is engaged in the development, design, manufacture and sale of various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets as well as game hardware and software. Sony’s primary manufacturing facilities are located in Asia including Japan. Sony also utilizes third-party contract manufactures for certain products. Sony’s products are marketed throughout the world by sales subsidiaries and unaffiliated distributors as well as direct sales via the internet. Sony is engaged in the development, production and acquisition, manufacture, marketing, distribution...
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...and equity methods - Exhibit 5.16, page 205 Impairment testing for intangible assets with definite useful lives: two step process (page 176): o step 1: is the asset impaired? o step 2: if so, calculate impairment loss as the difference between the recoverable amount f the asset and its carrying value Impairment testing for intangible assets with indefinite useful lives (example: goodwill): as singlestep process; i.e., if the recoverable amount is less than carrying value, asset is impaired by the difference – note that goodwill is no longer amortized but tested for impairment. Key Objectives: Prepare consolidated financial statements for the first and subsequent year ends after acquisition for a parent and its wholly owned (or non-wholly owned) subsidiary when the parent uses the cost method or the equity method. Resources Text pages 170 - 206 Practice Exercises within the unit iStudy Website Unit Assignment Before you begin your reading, review the key points, learning objectives and unit overview/notes. It is useful to keep the learning objectives in mind as you proceed through the required readings of each unit. The unit overview will provide additional detail. You may find it helpful to read the assigned chapters more than once, in order to fully grasp the concepts. Once you have finished reading each chapter and reviewing course notes, complete the indicated practice exercise and any applicable assignments prior to moving on to the next unit of study...
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...FINS Group Negotiation Strategy Report Megatronics Inc. Recommendation Megatronics Inc. the world’s leading producer of microanalyzers is looking to continue its growth utilizing foreign market entrance strategies of either a wholly-owned subsidiary or a highly advantageous licensing agreement. The markets that we will be targeting aggressively for this expansion are the emerging markets of China and Brazil. Our primary goal is to establish a wholly owned subsidiary within the Chinese market with our secondary goal being to do the same for the Brazilian market. Entering these markets in this fashion will allow us to upkeep our management preferences of maintaining full ownership control to integrate our marketing and manufacturing strategies on a global scale. Financially it should provide an approximately 11.4% return on invested capital (See Appendix 2 for NPV calculations). This will help Megatronics to increase the financial health of the business by gaining new revenues from high growth markets. These measures will proactively ward off competitors Eurodata and Tanaka who are attempting to encroach on Megatronics market share and lead to wealth creation for our firm. Support The foreign markets which have been seen as worthwhile to pursue are the Chinese and Brazilian markets. These markets are projected to have 180% growth over a six year period (See Appendix 2). This high growth rate makes these countries appealing to enter. Additionally, we are looking not only...
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...is different from Germany’s cultural environment. China has a strong structure where an order by a superior is expected to be obeyed fully and any questioning of that order would show disrespect. Seniority and age have a strong place in the power structure and Adidas must respect that know that the decision making process will be lead on the older and more senior workers whose orders are expected to be obeyed completely. China has some legal issues that are important and Adidas must recognize them. Adidas should be aware how disputes are legally handled, property protection through patents and trademarks, and needing representation. China is similar to Germany in some legal issues, but greatly varies in other aspects. Adidas is a wholly owned subsidiary in China since the nineteen nineties. Adidas also has licensing rights to Reebok in China since it bought out Reebok’s joint venture in China. Adidas can improve in China in a few ways. One example would be to buy out a few more companies in China who have a strong market presence since Adidas does have competition in China and needs a bigger market share. Adidas operates with a low cost strategy in China to try to get a bigger market share. Adidas has to compete with Nike and other Chinese companies who have large market shares. Nike sells shoes at a high price that many Chinese can’t easily afford. Adidas...
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...Comment on question 1: Many of you launched into a lengthy discussion of why Starbucks began its foreign expansion by licensing its business format. However, please note that the question asks why it STOPPED doing so, so explaining why it began to do so does not count towards answering the question. This student’s answer maximizes its impact by going straight to the point: Starbucks desired greater control over its expansion strategy to move quickly in order to saturate the market and capitalize upon its brand image while it remains trendy. 1. The decision to stop licensing was motivated by the need for greater control of the company’s market growth strategy. Starbuck is known for its aggressive market strategy – it usually focuses on one country and tries to dominate the local market as quickly as possible. This strategy requires a lot of financial resources and managerial know-how. Coffee Partners lacked surely the first and, probably, also the second. The company tried to secure resources from Thai banks, but this strategy failed – the local banking industry was probably very sceptical of the new initiative. As to the managerial know-how required for an aggressive growth strategy, it is part of the company’s culture. It has been created on the basis of a long history of experience and is sustained by the people who are truly committed to the company’s principles. These two elements cannot be enshrined in the licence agreement[1]. Comment on question 2: The key point...
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...fully owned subsidiary be a better choice? 1） wholly owned subsidiary is an overseas operation that is totally owned and controlled by an MNC. This option is often pursued by smaller companies, especially if international or transaction costs, such as the cost of negotiating and transferring information, are high. When MNCs make an initial investment in the form of a wholly owned subsidiary in a foreign country, it is sometimes referred to as “greenfield” or de novo (new) investment. The primary reason for the use of wholly owned subsidiaries is a desire by the MNC for total control and the belief that managerial efficiency will be better without outside partners. Due to the sole ownership, it has been found that profits can be higher with this venture and that there are clearer communications and shared visions. However, there are some drawbacks. Typically, wholly owned subsidiaries face a high risk with such a large investment in one area and are not very efficient with entering multiple countries or markets. This can also lead to low international integration or multinational involvement. Furthermore, host countries often feel that the MNC is trying to gain economic control by setting up local operations but refusing to include local partners. Some countries are concerned that the MNC will drive out local enterprises as opposed to helping develop them. In dealing with these concerns, many newly developing countries prohibit wholly owned subsidiaries. Another...
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...Starbucks FDI Case: Q 1: Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why? Ans: Because this strategy did not give Starbucks the control needed to ensure that the licensees closely followed Starbucks’ successful formula. Note: “Starbucks successful formula” refers to its basic strategy, which was: To sell the company’s own premium roasted coffee, along with freshly brewed espresso-style beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting also providing superior customer service. Q 2: Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures, to whom it licenses its format, as opposed using to a pure licensing strategy? Ans: Starbucks has now selected to expand internationally primarily through local joint ventures rather than using the licensing format because it definitely gives starbucks the control of its success principle they keep following and includes that both owners having the responsibility of increasing the business they created. It is clear that Starbucks strategies had been innovated, in the way that it doesn’t want to upset directly new companies coming up in other countries, Starbucks has been operating in foreign markets by sharing the costs of being international, working on the advantages the foreign joint owner may provide...
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...the different customs, laws and liability issues inherent in such an expansion. Even with China’s history of patent protection and contract enforcement problems, the opportunity to stake a claim in China’s ever expanding economy makes this a risk worth taking. With China’s sometimes problematic approach to international business, it is imperative for NGT to protect itself and its’ interests. Our team spent a great deal of time discussing the extent to which NGT should be liable with this new venture. Wholly Owned Subsidiary Pros: -Enables the owners to maintain the most control over the international venture -Allows for in-depth oversight of operations Cons: -Places NGT solely liable if issues occur Joint Venture Pros: -Immediate market presence with local contributors familiar with the laws and customs of the foreign nation -Allows for decreased liability than a wholly owned subsidiary Cons: -Does not allow for the extent of control inherent in a wholly owned subsidiary, contractors have more input Final Recommendation: Our final recommendation is that NGT would be best served by a Joint Venture. NGT has the best...
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