1. You have been asked, as an economic analyst, to prepare a paper outlining the opportunities and threats of creating a single market in the United States and the EU. What points about the impact on non-EU companies would you include?
The fact that US and EU have signed a new ‘Transatlantic Economic Partnership' shows that a concrete step has been taken towards the creation of a single US-EU market. Harmonized regulatory standards could give a boost to trade and investment while laying the foundations of this market. One of the biggest outcomes could be a boost to trade and a reduction in costs. The Open Skies deal is targeted at reducing fares in order to increase transatlantic flight traffic. A free trade agreement between US and EU could efficiently address the tariff barriers of the two economies. There could be scope for both US and EU to reduce emissions by addressing the human activities that affect climate change. Strengthening of intellectual property rights, securing future supplies, greater cooperation in terms of corporate governance and financial markets, reduced compliance burdens of SOX, increased security controls, facilitation of legitimate trade, creation of technology clusters within businesses and universities, and elimination of barriers for EU companies to operate in the public procurement market of US are some of the other opportunities that a single US-EU market can give rise to. EU could also hope that US would agree to the withdrawal of its VISA requirements for travelers from some EU states.
Concerns relate to diversion of trade, impact on national sovereignty, employment shifts, corporate governance, capital needs, investor protection, non-financial disclosure, auditing standards, and consumer concerns over the economic liberalization agenda. EU, just like US, has an antitrust policy that makes sure that anticompetitive practices by companies don't affect healthy competition. Apart from this, EU has control over big-scale acquisitions and mergers that impact at least one EU state and exceed certain revenue thresholds. EU can fine anti-trust violators and also review mergers that take place between non-EU companies under some high-business revenue thresholds. The GE-Honeywell merger is the only example that involves a US company where EU stopped a US-approved merger. Unlike the antitrust law of US, EU prevents national-authority intervention from affecting competition.
References:
http://news.bbc.co.uk/2/hi/europe/6607757.stm
http://www.oldthinkernews.com/Articles/oldthinker%20news/world_government.htm
2. A Mexican ceramics folk-art firm contracts with an Italian company to deliver 1500 pieces of artwork within the next 120 days. During this time the Mexican Peso strengthens against the Euro. What is the net profitability effect on the Mexican firm? What international market concept is demonstrated in this example? Discuss the risks associated with changing exchange rates and international commerce and provide a scenario demonstrating these risks.
Exchange rate changes can significantly impact the profitability factor of internationally exposed companies. Exchange rate risk is risk that investors get exposed to because of the effect that exchange rate changes produce on the investments made by them. Taking the given example, if the Mexican Peso strengthens in comparison to the Euro, then the Mexican firm would experience profitability effect. In other words, the Mexican firm would experience reduced profit if it completes the deal with the Italian company. When Peso strengthens in comparison to the Euro, its capacity to buy Euros increases. If the Mexican firm was importing artwork from Italy, then this would've been a good thing because the Peso can buy more Euro than before; however, since the Mexican firm is exporting artwork to Italy, it would be receiving fewer Euros than before, and so it would have to endure a financial loss if it goes ahead with the deal. The example reflects the possible advantage of using currency hedging in reducing the impact of foreign exchange fluctuations on profit.
Assume that a Canadian company ABC pays interest plus principal in Canadian dollars on a bond worth $1000 with 5% coupon. If purchase-time exchange rate is 1:1, then the payment towards 5% coupon would be $50 Canadian (and also $50 US because of the 1:1 exchange rate). If a year later, the exchange rate becomes 1: 0.85 then the payment towards 5% coupon would still be $50 Canadian, but only $42.50 US. Despite that this is no way related to the insurer’s paying ability the investor still loses part of his return due to a fall in the exchange rate.
Reference:
http://www.wisegeek.com/what-is-currency-hedging.htm
3. Shared assumptions can help frame how to conduct business and formulate strategy. Discuss how an understanding of culture can help form international strategic alliances. Provide a specific example where knowledge of culture contributed to a successful strategic alliance.
In today’s dynamic world of globalization, the intensity of competition between companies has changed dramatically, meaning that companies would now have to compete against not just domestic players but foreign players as well. As a result of the way companies have been proactive and reactive to changes in the global marketplace, there has been an increase in strategic alliances between companies across national boundaries. The reasons for an international strategic alliance could be one or more of the following factors: capital formation, market entry, expansion, technology advancement, resource acquisition, risk reduction, and optimal resource utilization.
For instance, MNCs such as Nokia have taken their operations to emerging economies like India and have done extremely well. In fact, Nokia is now the biggest MNC in India. Nokia has put a lot of effort in researching and understanding the culturally varying needs of India’s diverse population. It has used its research finding that India places great importance on religion and implemented it in providing religious symbols in its SMS facility for Indian users. Nokia’s understanding of Indian culture has gone a long way in forming strategic alliances with Indian companies like Airtel (mobile services) and driving its success in India.
References:
http://economictimes.indiatimes.com/Features/Corporate-Dossier/How-Nokia-became-Indias-largest-MNC/articleshow/4619036.cms
http://living.oneindia.in/insync/nokia.html
4. You need to develop a strategic plan outlining the steps necessary to successfully export your company's product to Sri Lanka. What actions will you include in your strategy document?
The strategic plan for successfully exporting my company's product to Sri Lanka will include addressing the following elements: export-readiness of the company, feasibility assessment, viability of the product, detailed business plan, operating budget, HR, marketing strategy, customized market research, analysis of the industry, extensive research on regional culture and history, choices and expectations of regional consumers, demographics of the target market, purchasing ability of consumers, existing competition, research on political environment, support from local government, suitability of regional laws and regulations, agreements and negotiations to be made, and trade agreement compliance.
The outline for the strategic plan would be as follows:
Goals
§ Short-term
§ Intermediate
§ Long-term
Purpose
§ Export business plan objectives
§ Specific export business targets
Background
§ Industry details
§ Industry information sources
§ Similar-sized businesses and their role
§ The company’s business potential
Export methods
§ Benefits and drawbacks of direct exporting
§ Benefits and drawbacks of indirect exporting
§ Selection of export methods
Skills
§ Export assistance
§ Service providers
§ Improvement areas in export related skills
§ Plan for addressing required skill areas
Personnel
§ Key personnel
§ Required resources and staff
§ External resources
§ Task allocation
§ Areas that need written policies
Products
§ Internationally offered products
§ Evaluation of offered products
§ Export adaptation
Targeting Markets and Customers
§ Markets with best export sales prospects
§ Identification of target market
§ Distribution methods
Competitive Analysis
§ Major competitors
§ Comparison with competitors
Marketing Strategy
§ Export pricing strategy
§ Methods for sale and payment
§ Promotional strategy
§ Customer service
Overhead Expenses
Financial Strategy
§ International credit check sources
§ Flexibility to extend payment terms
§ Export financing sources
Break-even Analysis
Timetable
Summary
Reference:
http://www.ulib.org.cn:8080/wiki/index.php/Strategic_Planning_For_Export_Marketing