Foreign Direct Investment Strategy

Foreign Direct Investment Strategy

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Coca-Cola Company Background

Coca Cola Company is a multi-national company which deals in production of drinks of different kinds which is consumed in most countries of the world. It has been operating and performing well in the industry where it has faced very little competition in the market. It provides many brands to the market which has helped it to remain in the marked for a longer period of time as compared to other competitors like Pepsi. Its products are highly differentiated and this helps in maintaining a high market share for many years now. Many countries have been enjoying its products and brands with few other companies managing to hit the market. The company has had an attractive financial performance thus providing attractive returns to the owners and its country of origin. Substitute’s drinks have been developed in different countries where it extends to, but its popularity extends as time goes by.

Coca cola company shares are quoted in the stocks exchange where it is ranked as a well performing company internationally and locally. During cold seasons, its products are consuming in small quantities while in warm seasons high sales are made accompanied by high returns and benefits. It is also a high contributor of tax to many governments where it operates in many countries of the world. The products and brands of this company are not consumed in Iraq which has been an enemy to America where few and less developed companies operate that deals with this kind of product. No initiatives have been made to introduce the company in Iraq for as long as the company has been in operation due to some challenges which have been acting as a barrier of entry (Pendergrast, 2013).

Challenges of Coca-Cola FDI in Iraq

Foreign direct investment of the company to Iraq could face many challenges that are more evident in the history of the two countries. These challenges have been the stumbling block to its entry for more than a century now which has denied it profits and high returns from that region. Political climate has not been favorable for American company to enter Iraq countries since they have been enemies for a long time as compared to other countries where the multinational have been in operation. This has been the highest barrier to entry and has denied Coca Cola Company the chance to enjoy the benefits from Iraq’s market.

Financial factor is another barrier or obstacle which coca cola company can experience it its decision to enter the Iraq’s market which has a high population of people who can be potential consumers of its products. Entry to a new market requires more finances which are meant to buy shareholding in existing company, acquire existing company or even put up facilitate the provision of its products like it has happened in other counties in the world. Currency used in Iraq is different from the American dollar which also creates a barrier to trade for coca cola Company (Fornés, 2009).

Another challenge that coca cola company would face in Iraq in its initiative to undertake foreign direct investment is competition from the existing companies in Iraq. Existence of numerous companies providing the same product in Iraq, as coca cola Company, would mean a lower output than expected per unit. Competition would make the entry initiative to remain more costly since ways and means must be put in place to gain a substantial proportion of market. Penetrating the Iraq market would be an issue given that there are many companies that have rooted popularity in its market.

Foreign direct investment in Iraq by Coca Cola Company would be an issue since it would require more personnel for better coordination and control of the product in a new market. To train more people from Iraq would cost the company more which could eventually be reflected in its profits or returns at the end of its financial period. It would be a challenge to use expatriates to work in a subsidiary since it could be against the Iraq’s policies in international trade. This could create a barrier to entry for coca cola Company which has made it to put off its initiatives to invest in Iraq.

Advantages of Investing in Iraq

Foreign direct investment to Iraq by coca cola would create a chance to enjoy markets which were not available initially, and therefore, more profits for the company. FDI in Iraq would help to create new marketing channels for coca cola Company which could be way for it to make more sales than it has been able to do before. Without a good marketing channels, accompany cannot be able to make high sales and attain high market share. This is enabled through FDI being put in place through subsidiary, purchase of an existing company or even putting up facilities to facilitate the investment (Nayak, 2008).

FDI would be a way out for the company to acquire new technology which exists in the host country since it is automatically exposed to all benefits. Coca cola company would also have a chance to enjoy new skills and financing from institutions existing in the new environment which would assist it to perform more efficiently. FDI would also be a highway to provide a cheaper facility for production purposes since it would advantage of the existing company or facility used for production which would be cheaper.

Minimizing Foreign Exchange Risks

Risks are barriers to high performance for multi-nationals which enter foreign market for trade. Managing risks involved in foreign exchange is necessary for a better end which can be done by using local currency to negotiate foreign loans which coca cola company has access to in the new environment. This will help the company to have a better bargain for the resources which would make the loan financing to be less risky. Activities of the company should also be well measured and monitored to ensure that appropriate actions are taken before things go wrong beyond control (Fornés, 2009).

Coca Cola Company could also be compelled to operate a reserve account to make deposits which would be necessary in case the company develops a need for finances to fund activities at a time when no loan facility would be appropriate. Hedging would also be an alternative which is a known way of minimizing risks in foreign exchange. This would be through options or forward contract. Hedging helps to set a price ahead of a given transaction in the future, or just gives a chance to a client to decide on a rate on which to operate on for given transaction. This is the best means to help in minimizing such risks involved in foreign exchange.

Leveraging of Government Policies

Government policies could favor an MNE or act as a barrier to its operations. A MNE can take advantage of the allowable deduction offered by a given country’s government so as to avoid paying more tax and eventually make more profits from investment. All governments have their own way of maintaining and motivating tax payers so as to remain in operation for their benefits. The amount of tax not paid would be used for further production and investment thus making more sales in the future. The MNE should, therefore, look for loop holes where the government seems not very sure of the repercussions of its policies and maximize on it for future benefits. It is difficult to just do against the government policies, but where a space is left to operate from; a company can get hold of it and make returns more favorable (Fornés, 2009).

Financial Management

Finance management is the propelling factor in FDI since without proper management of the financial resources no much can be attained since it would lead to deficit in operation. Financial management in FDI is to be done by experienced personnel who are able to align the goals of the FDI with the available resources. Marketing and other operations of the company depends upon the available financial resources which enhances actions.

Operations and Marketing

Operations of the FDI depend on the agreements done with the plans established for providing the best service and products to the market. The knowledge held by the company, having been in operation for many years, will enable the FDI to be more efficient in operations since it works from known to more developed methods of operations. Marketing in FDI in more important since it makes the people aware of the existence of a given new product which could be better than the existing products which they are used to. Marketing should be aggressive to facilitate penetration which is meant to be lasting and more effective for better returns.

Human Resources

FDI will require experienced personnel who would be important assets to the MNE. MNE can get expatriates from its home country that have knowledge, and skills in the company to take up the management of the new establishment leave the lower positions for the host country’s people so as to control the cost of labor. This will go a long way in ensuring that the human resources offer the best to the MNE and less is paid as labor cost (Fornés,2009).

Marketing Strategy

Marketing is a key factor in a company’s operation since it act as the outlet to the production and an avenue to income entry to company. The products of the MNE should be available in every mall and favorite position of sale to the public with the best package than the others that exist in the market. The company should ensure that the marketing is done through any available way including media and online pages. Sales promotion should be enhanced in the process of making awareness for the product where different packages of surprises are made to the public including free samples and after sales services which are important in business. Interaction with the community through social responsibility is also an important factor to consider ( Nayak, 2008).

References

Fornés, G. (2009). Foreign exchange exposure in emerging markets: How companies can minimize it. Basingstoke [England: Palgrave Macmillan.

Nayak, A. K. J. R. (2008). Multinationals in India: FDI and complementation strategy in a developing country. Basingstoke [England: Plagrave Macmillan.

Pendergrast, M. (2013). For God, country and Coca-Cola: The definitive history of the great American soft drink and the company that makes it. New York: Basic Books.