BUS 629 DISCUSSION WEEK 6 RESPONSES SEE ATTACHMENT ANSWER ALL RESPONSES.
150 WORDS TO EACH QUESTION. RESPOND TO ALL BELOW. MUST HAVE AT LEAST 1 REFERENCE AND MUST BE CITED IN THE RESPONSE WHERE THE REFERENCE WAS USED.
When a business undergoes expansion, change, both good and bad, is an inherent factor that must be considered. International expansion requires a great deal more of consideration than domestic development due to foreign laws and regulations entering play once boarders are crossed. As described by Block, Hirt, and Danielsen (2019), company acquisitions and mergers are popular methods of corporations for reducing risk, obtaining tax carryforward benefits, and gaining access to new markets and greater financial opportunities. Clear differences between international and domestic expansion include geographic responsibilities and structure of personnel; however, international expansion requires greater levels of consideration for many reasons. In reference to Hohenthal, Johanson, and Johanson (2003), discovery of foreign potential markets requires a firm to first understand how to handle the opportunity in order to effectively exploit it; furthermore, the firm will ultimately undergo changes, such as pace of operations, culture, and geographical extensions. Domestic expansion allows for smoother business developments because while operations may expand geographically, laws and regulations remain constant.
When determining the most viable route for business expansion, C-Level executives must use a broad scope in considerations for domestic or international actions. As illustrated by Block, Hirt, and Danielsen (2019), many industries have experienced consolidation due to mergers. Effects of this increasing merger trend include mitigation of redundant services, arousing developments in technology, and heightening competition and global presence. For a C-Level executive, one must consider the size of their competitors to ensure they remain competitive and less susceptible to a potential takeover.
Business development is the core focus of expansion. Reaching a broader range of consumers invites increased revenues and additional fuel to continue developments. In regard to Block, Hirt, and Danielsen (2019), risk mitigation techniques for business expansions include: acquiring firms with a higher P/E ratio to ensure stockholder wealth maximization; personnel restructuring to eliminate redundant positions; and strategic foreign exchange rate attention. International expansion poses much greater risk due to its inherent complexity, but can provide for much greater and longer-lasting success.
A foreign investment differs from a domestic investment in many ways. The main and most concerning difference is the currency exchange rates. If a domestic country invests in a foreign asset, and the foreign asset generates income, the foreign asset will earn the income in the currency of the country the asset resides in. Depending on governmental and economic factors, the currency exchange rate may go up or down which causes transactional exposure and the gains and losses from assets and liabilities due to currency exchange are called translational exposure.
C-level executives need to keep an eye on the market and choose which strategy works best for them given current circumstances. Given the tax changes in 2018, the deferral taxation of foreign earnings was granted exemption from US tax but, there were also changes in the new tax law to encourage domestic investments. (Block 2019) This means that a C-level executive should weigh out the pros and cons of staying domestic or expand foreign. Foreign investments can put your company in a position where it will be cheaper and easier to acquire resources but, it may end up costly in the long run due to governmental limitations and external costs such as tariffs.
For avoiding currency exchange losses, C-level executives must research the country’s interest rates and the purchasing power of the currency. Along with that, there should be analytical research of the country’s balance of payments and how much this specific country depends on trade. Some governments maintain an undervalued currency to promote cheap products and this may hurt or help an organization depending on their goals. When exchanging foreign currencies for the dollar, the spot rate should be looked at to see if it will be beneficial to translate the currency at the spot rate of work with a bank to get the currency at a forward rate to eliminate a certain level of risk due to the volatility of the country’s currency.
Question 3 (Diana)
My choice was to invest in United Kingdom government bonds. Since the British economy has been growing steadily ever since former Prime Minister Margaret Thatcher’s reforms in the 1980s, it is the world’s fifth-largest. The good relationship we have with them at this time has led us to choose the United Kingdom. Britain formally left the European Union on 31 January 2020, after voting to leave the EU via referendum in 2016. There were no other countries with a higher coupon rate (0.13%) or yield (0.37%) than this. Despite having a higher coupon rate at 2.75, Australia’s yield was only .01%, which is significant. The pandemic has wiped out their markets the past year and they are not expecting much of an increase this year. It may be due to the impact that the country faced with several lockdowns. Similar to Australia, Japan, and Germany. In addition, I have taken into account that we are not on the best of terms with Germany. In comparing the U.S. and U.K. rates, the yields were the same, but the U.S. rate was lower. As a country, the U.S. has done better than the U.K. in the past year. It is also nice to see that the United Kingdom has achieved higher performance on their 5- and 10-year products. I believe these rates will remain steady or even get a little higher in the year ahead. Consequently, there will be little investment risk. Besides having similar rules and regulations with this country, the United Kingdom had an easier time figuring out the currency exchange. I thought it was the safest option.
Question 4 (Samuel)
After reviewing the countries off the Bloomberg website Markets: United States Rates & Bonds, I had chosen Australia as the country for running as a manager of an MNC. Australia shows higher yields that appear to be more attractive from an investment standpoint. According to Bloomberg, two-year yields are at .63%. Japan and Germany are showing yields of -.12% and -.71%, respectively. According to Charlton (2020), Australia is currently the 13th strongest economy, with 28 years of consecutive annual growth. Additionally, the market is secure and safe with relatively low risk, due in part to government regulation and the ease of doing business.
When taking the pandemic into account, Australia’s market is still fairly doing well considering the discussion of vaccinations and the plan to administer these vaccinations to the younger population in a phased approach. Although the economy is not where it was in pre-pandemic levels, the discussion of the countermeasures to ‘win back’ the economy has sparked growth in an array of different sectors, such as healthcare and technology. According to Kruger (2019), the negative interest rates of Japan’s slow growing economy is a cautionary tale of what happens when developed countries stall. According to Charlton (2020), this this is yet to be of concern for Australia.