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Foreign Market Place- Uncontrollable Environmental Variables
Foreign Market Place- Uncontrollable Environmental Variables
A number of aspect need to be well thought-out by a firm before trading in a foreign market. An example of a firm that has penetrated in most foreign markets is General Motors marketing its products all over the world. It is essential for a firm to strategise before venturing into a foreign market so as to weigh the risk benefit ratio. As discussed by Murray and Walter (1988), a marketing strategy involves selection of a target market as well as offering a marketing mix. Marketing-mix variables are termed as uncontrolled variables or those that are manipulated or influenced by internal managerial decisions. It is therefore the responsibility of the management to control the characteristics of the product by setting the market price, choice of distributors and the media through which they advertise. Uncontrollable variables can not be influence by the firm so it has to be contending with them at least in the short run. These variables include; cultural and social factors, political and legal factors, and economic factors.
Cultural and social factors are the most limiting uncontrollable variables when it comes to international marketing. Culture is shared and affects the boundaries between different groups of people having a profound effect on the other uncontrollable variables (Murray and Walter, 1988). Generally the survival of a company in a foreign market depends on how the company interrelates with the environmental conditions. The cultural setting in any given foreign market includes different areas such as language, religion, education, technology and material culture, law, politics as well as local values and attitudes. It is therefore important to get the guidelines and learn the culture of a country before introducing a product in that market so as to know its receptivity by the foreign culture.
Political environment is the other uncontrollable variable associated with international marketing and it involves interactions between domestic, international and foreign policies. International business as explored by Murray and Walter (1988) includes minor exports as well as total market control by a firm in the foreign country. A stable government with ample business influence will act as a boost to the stock exchange. Any firm in the trading in the international market has to be concerned about the political stability, nationalism and government orientation. Political stability is the most important because it determines the success or collapse of a firm.
Before locating the production facilities in a country, the firm should be well aware of the balance of payment. A country with balance of payment pressures may not be suitable for business since the firm may experience challenges with flow of foreign exchange. International trade is greatly influenced by income, outputs ad expenditure of industrialized countries and therefore, it is important to analyse these variables to understand the trade patterns (Srinivasan 2010).
In this time of globalisation as explored by Srinivasan (2010), international competition is not an option. The expansion of a domestic firm into the international market could be the only survival tactic due to the acquisition of a competitive edge. A firm like General motors has survived in the industry for a long time due to its understanding of buyers and markets in a foreign country. This has been the reason for its continuous in a very competitive industry.
Foreign markets contribute a large share of revenue by many firms including General Motors, Coca Cola and IBM. In fact, most of the international firms sell more in foreign countries as compared to the mother-country. The firm can therefore realize maximum profit even when incurring looses in others acting as a balancing out system.
Once a company has adhered to all the necessary factors involved in setting up of a production firm in a foreign market, then the firm is bound to expand beyond national borders. The exports benefits are obvious bring in higher profits to the firm. The realization of higher profits in foreign markets helps to combat inflation in the mother country (Srinivasan 2010).
References
Murray, T., Walter, I. (1988). Handbook of International Management. Canada: John Wiley and Sons, Inc. Print.
Srinivasan, R. (2005). International Marketing. New Delhi: Prince Hall of India Private Limited. Print.
Foreign Exchange Market Efficiency
Foreign Exchange Market Efficiency
Introduction
An efficient market simple refers to a market in which prices fully reflect the available information. In the foreign exchange market, efficiency implies the presence of zero correlation in foreign exchange rate changes (Fama, 1984, p. 320). In other words, an efficient foreign exchange market is hypothesized to incorporate all information from the past exchange rates in the current exchange rates. As Levich (1983, p. 49) explained, fluctuations in exchange rate are common in foreign exchange markets which lead to uncertainties in the future exchange rates. In many international trade dealings, a forward contract is used as an instrument for exchange rate risk management. A forward contract refers to a customized agreement between two parties to fix an exchange rate for a business transaction that will take place in the future (Levich, 1983, p. 49). In an efficient foreign exchange market, investors are able to make rational expectations, from which they make predictions. A forward exchange rate fixed by the trading parties is used as a predictor for the spot exchange rate in the future. In an inefficient foreign exchange market, the forward exchange rate is a biased predictor of spot exchange rate in the future. It is hypothesized that unlike in an efficient market, investors in an inefficient foreign exchange market are unable to make rational expectations and that they able to enjoy returns for their investments.
Extensive investigations have been conducted on whether the foreign exchange market is efficient or not. However, as Lee & Sodoikhuu (2012, p. 216) explains, economic analysts are currently undecided on whether the above facts should be interpreted to mean that the foreign exchange market is inefficient and hence, they do not reach the same conclusion on whether the foreign exchange market is efficient or not. This paper critically evaluates the hypothesis that “the foreign exchange market is economically efficient and forward exchange rates are a strong indicator of exchange rate movements and that the international business needs no additional exchange risk management systems.”
Efficient foreign exchange market and forward exchange rate
As explained earlier, a foreign exchange market is said to be efficient when forward exchange rates forecast future spot rates accurately (Levich, 2001, p. 128 ). Investors in such a market will not be able to earn unusual gains without exploiting unavailable information. They will base their decisions on the observable prices and hence ensure efficient allocation of resources. In other words, an efficient market needs to be in equilibrium. As Salavatore, (1993, p. 403) explained, all tests of market efficiency focus on testing joint hypothesis that defines expected returns or market equilibrium prices and the hypothesis that investors in such a market are able to set actual prices to reflect their expected results. When the market is in equilibrium the expected returns in the future and correlated with the actual returns in the future, making it an efficient market. This implies that in an efficient market, the actual returns are correlated around the equilibrium, meaning that the expected returns are zero.
The forward exchange rate, as noted earlier, reflects expected changes in spot exchange rates in the future (Salavatore, 1993, p. 403). For example, if the inflation in the UK is expected to rise by 5% in the next one month, then the UK pound will be expected to decline in value by about 5% relative to the value a US dollar after one month. Taking this into consideration, a forward contract expected to take place after one month will fix the selling price of a pound in exchange for a dollar at 5 percent lower compared to the current price. This is a forward contract and its purpose in international trade is to help in eliminating possible exchange rate risks associated with transactions that will take place in the future.
To illustrate this better, suppose, Arcways, a UK construction company signs a contract with the government of France to build section of a road in France for six months. The Government of France then agrees to pay 10, 000,000 Francs upon completion of the work. This amount is consistent with Arcways minimum revenue of £8, 000,000 at the exchange rate of £0.8 per Franc. Arcways signs this contract and then agrees in writing with a bank of France to fix the exchange rate at £1 per Franc as per their expectations of the spot exchange rate after six months. This forward contract entered into with the bank constitutes a legal agreement and it imposes obligations on both parties. By signing the forward contract, Arcways is guaranteed of an exchange rate of £1 per Franc after six months irrespective of what happens to the spot Franc exchange rate. In an efficient foreign exchange market, the exchange rate will be equal to £1 per Franc after six months, as log as the parties to the forward contract made rational expectations. However, if the value of pound were to appreciate or depreciate after the six months, the market would be termed as inefficient (Salavatore, 1993, p. 403). Some economic analysts have suggested that the foreign exchange market is inefficient for a number of reasons.
Evidence against Market Efficiency
Lee and Sodoikhuu (2012, p. 216) refute the hypothesis that the foreign exchange market is efficient given that rational expectations have not been upheld in the past. Assume the foreign exchange market is efficient and the annual foreign interest rate in UK is expected to rise by x percentage points above the domestic interest rate, the US dollar will then be expected to decline in value at an annual rate of x percent. Lee and Sodoikhuu (2012, p. 216), noted that, however, these expectations have not been upheld in the past. According to Lee and Sodoikhuu (2012, p. 216), there has been numerous cases where a rise in foreign interest rates above US rates the foreign currency tends to rise in value, rather than to fall. At the same time, when the US interest rates rise against a foreign interest rate, the US currency tends to rise rather than fall in comparison with the foreign currency. This implies that if an investor, for instance, puts his funds in the short-term government securities in the US during a period when it pays a high interest rate, he is going to make extra returns over time. This calls into question the efficiency of foreign exchange market.
Hopper (1994, p. 18) noted that the behavior of forward exchange rates also presents challenges to the hypothesis of market efficiency. Suppose it is October 1 and the spot exchange rate is 0.8 pound per US dollar. On October 1, an investor can exchange 0.8 pounds for 1 US dollar. Similarly, the investor can look into a one month forward exchange rate for a business transaction that will take place one month from now. For instance, an investor might be able to buy 1 US dollar in the forward market at 1 pound on October 1. The forward exchange rate is known and agreed to on October 1. One month from then, the investor is obliged to trade 1 pound for 1 US dollar. In an efficient market, the parties to the transaction should be able to set the forward exchange rate equal to what they expect the spot exchange rate to be after one month. Otherwise, the foreign exchange market will be allowing for exploitable profit opportunities (Hopper, 1994, p. 18). For instance, suppose the parties to the transaction set the forward exchange rate at 1 pound per US dollar, but the market set the forward exchange at 0.8 pound per US dollar. Then the market would be allowing for a profitable opportunity. However, if the market had set the forward exchange rate at 1 pound per US dollar, no return would have been possible. Hopper (1994, p. 19) explained that expectations about future events usually prove incorrect and thus, it is impossible to rule out extra returns in the future. If the spot exchange rate in the future turns out to be greater than the forward exchange rate, an investor will earn extra returns. Similarly, if the spot exchange rate in the future turns out to be less than the forward rate, the investor would incur losses. Hence, Hopper (1994, p. 19) explained that as long as the expectations are correct on average, the positive returns, over many months, are going to cancel out with the negative returns. In other words, the average return in the long-term will be zero. Hopper, 1994, p. 18 thus suggested that though extra returns appear randomly in some months, the foreign exchange market should be efficient in the long-term. However, Hopper (1994, p. 19) explained further that this would only happen if the forward exchange rate is an unbiased predictor of the future exchange rate.
According to Hopper (1994, p. 19) the notions that expectations are correct on average, in the long-term, and that the foreign exchange market is efficient can be combined into one idea: that a one month forward exchange rate is an un-unbiased predictor of the spot exchange rate one month ahead. In such a case, the one-month forward rate will be equal on average to the market’s estimation of one-month-ahead spot exchange rate. The forward exchange rate will thus be an efficient predictor of the spot exchange rate in the market. As noted, the forward rate prediction may not be correct for specific months but the average ought to be correct in the long-term. In some months, the forward rate may predict a one-month-ahead spot exchange rate that is too high compared to the actual one-month-ahead spot exchange rate. In other months, the predicted value may be too low. When expectations are correct on average, the high predictions ought to cancel out with the low predictions such that the predictions will be unbiased either on high or low sides. Therefore Hopper (1994, p. 19) argued that the forward exchange rate can be termed as an unbiased predictor of future spot exchange rate when expectations are correct on average and foreign exchange markets are efficient.
However, Lee and Sodoikhuu (2012, p. 216) noted that the past data on spot and forward exchange rates casts some doubt on the fact that expectations are correct on average and the market is efficient. It provides evidence that the forward exchange rate is not an unbiased predictor of the future spot exchange rate. If the forward exchange rate was an unbiased estimator of one-month-ahead spot exchange rate, the forward rate should fluctuate randomly around the one-month-ahead spot exchange rate. By fluctuating randomly, the forward rate would over predict the one-month-ahead spot and Sodoikhuu (2012, p. 216), “the forward exchange rate does not fluctuate randomly around the one-month-ahead spot exchange rate, but rather, it tends to stay below the spot rate for extended periods when the spot rate is rising and to stay above the spot rate for extended periods when the spot rate is declining.” Lee and Sodoikhuu (2012, p. 216) concludes that the forward exchange rate is a biased estimator of the future spot exchange rate. Given that the forward exchange rate is a biased estimator of the future spot exchange rate, it can be suggested that the foreign exchange market may not be efficient and that it is possible to earn extra returns in the long-term. According to Lee and Sodoikhuu (2012, p. 216), however, some economic analysts are not convinced that this is enough proof that the foreign exchange market is inefficient. Consequently, they have come up with explanations that allow for the bias in the forward exchange rate while maintaining market efficiency at the same time.
Explanations for seeming market inefficiency advanced by some economics
Several explanations have been advanced for seeming market inefficiency. One of these explanations is the presence of statistical problem called peso problem. Some economists argue that the forward exchange rate may be a biased predictor of the spot exchange rate in the future, but the foreign exchange market remains efficient. According to MacDonald and Taylor (1990b, p. 54), this can happen when investors expect an event to take place in the future and affect exchange rates, which has not taken place in the past. A good example of such situation is the behavior of the Mexican Peso in 1970s. The government of Mexico used to fix the spot peso-dollar exchange rate at a constant value. However, it was expected that sometimes in near future, the government of Mexico was going to lower the exchange rate so that the peso would be worth less in terms of the U.S dollar. In fixing the forward foreign exchange rate, trading parties acted in line with the expectations. They had o take chance that the government was likely to devalue the peso (MacDonald & Taylor 1990b, p. 56). Consider the situation prior to the changes in the fixed exchange rate, assuming that the changes would take place in a month’s time. Investors in an efficient market will set the value of the peso while fixing the one-month forward rate to be worth less in terms of the dollar. Therefore, the one-month forward rate will be a biased predictor of one-month-ahead spot exchange rate until the government makes the changes, even though the market is efficient. The economists thus argue that it would be a mistake to conclude that since the forward exchange rate is biased, the foreign exchange market must be inefficient. They argue that the forward rate is biased merely because investors expect an event to take place that would affect the exchange rate, that has not occurred before. According to MacDonald & Taylor (1990b, p. 56), this kind of statistical problem is known as peso problem.
A second explanation relates to the seeming lack of rational expectations. MacDonald and Taylor (1990a, p. 91) explained that in the assumption of rational expectations, which pervades both international finance and most branches of economics, seems to be plausible. However, it is difficult to verify the rational expectation, given that it is not easy to directly observe people’s expectations. MacDonald & Taylor (1990a, p. 95) noted that “there is tendency by some researchers and analysts to attack this problem indirectly by using surveys of market expectations to represent the true market expectations.” Consequently, they end up making the wrong conclusion, that the investor’s expectations never follow a systematic pattern. MacDonald & Taylor (1990a, p. 95) argued that though investors make mistakes in estimating future exchange rates, they eventually learn to estimate the average exchanges rates in the future. Precisely, investors have an incentive not to make systematic mistakes I the estimation since this can lead to great losses. They thus learn to make rational expectations. Generally, economists supporting this view agree that the absence of rational expectations can lead to foreign exchange market inefficiency, but they are reluctant to discard the notion of rational expectations given its inherent plausibility (MacDonald & Taylor (1990a, p. 91) They thus defend the foreign exchange market efficiency hypothesis on this base.
The possibility of time-varying risk premium is another potential explanation for the seeming foreign exchange market inefficiency. Some economists agree that the forward exchange rate is a biased predictor of the future spot exchange rate and thus, extra returns are available in the foreign exchange market. However, they argue that the extra returns can simply be termed as compensation for bearing the risk that the investors are exposed to in the market (Peel & Pope, 1995, p. 69). They suggest that investors in the foreign exchange market are risk-averse, meaning that they must be compensated for the risks they are exposed to, given that future exchange rates are uncertain. In other words, investors require a risk premium to compensate them for holding risky investments.
If for instance the UK Treasury bills are judged riskier than the US bills, the UK bills must pay a higher return than the US bills. Conversely, if the US bills are rated to be riskier, they should pay higher returns tan the UK bills. Under the risk premium hypothesis, the return on such investment can either be positive or negative (Peel & Pope, 1995, p. 69). The risk premium on UK Treasury bills tends to be positive when the UK Treasury bills interest rates exceed the US Treasury bills interest rates and tends to be negative when the US Treasury bills interest rates exceed those of UK Treasury bills. Since interest rates on assets such as the treasury bills in a foreign country moves above and below the domestic treasury bills rate, the risk premium varies frequently between positive and negative values. It is for this reason that economic analysts supporting this view talk of time-varying risk premium (Peel & Pope, 1995, p. 69). They conclude that the risk premium is present in every risky market, though the market may be efficient. Therefore, according to these analysts, investors in the foreign exchange market get risk compensation called risk premium, though the market remains efficient. However, Lee and Sodoikhuu (2012, p. 216) explains that there is no statistical evidence on the existence of time-varying risk premium.
Cavaglia et al (1994, p. 44) and Hopper (1994, p. 19) found that the seeming foreign exchange market inefficiency can be explained by the peso problem, the failure of rational expectations or time-varying risk premium. However, Lee and Sodoikhuu (2012, p. 216) explains that there is possibility that these phenomena may be present in the foreign exchange market, but there lacks conclusive evidence which can be used to support foreign exchange market efficiency hypothesis. The lack uniform agreement on whether the foreign exchange market is efficient and whether the forward exchange rate is an unbiased estimator of the future spot rate makes it difficult to conclude whether the international business needs no additional exchange risk management system apart from the forward rate.
Conclusion
In conclusion, there is no satisfactory answer to the question of foreign exchange market efficiency. Various analysts have refuted the hypothesis on foreign exchange market efficiency, suggesting that investors are always able to earn extra returns from investments in other nations, resulting from inability to make rational expectations. In addition, they argue that the forward exchange rate is a biased predictor of future spot exchange rate. They therefore argue that this implies that the foreign exchange market is inefficient. Other economists argue that the aforementioned phenomena are present but they should not be interpreted to mean the existence of foreign exchange market inefficiency. They use the peso problem to explain the reason why the forward exchange rate is a biased predictor of future spot exchange rate but maintain that the foreign exchange market remains efficient. Additionally, they argue that surveys used to show that investors do not have rational expectations do not produce convincing results. According to this group of economists, investors eventually learn to make rational expectation and hence, the foreign exchange market is efficient. There is also an argument on the existence of time-varying risk premium, which explains the existence of market efficiency, though this argument lacks support from statistical evidence. Generally, the existing literature on foreign exchange market efficiency is not conclusive and hence, there is possibility that this market may be efficient or inefficient. This also makes it difficult to conclude whether the international business needs no additional exchange risk management system other than from the forward rate
References
Cavaglia, S.M., Verschoor, W.F., Wolff, C.C., 1994. “On the biasedness of forward foreign
exchange rates: irrationality or risk premia.” Journal of Business, Vol. 67, Pp. 321–343.
Fama, E., (1984). “Forward and spot exchange rates.” Journal of Monetary Economics, Vol. 14
No. 3, Pp. 319-338.
Hakkio, C.S., (1981) “Expectations and the forward exchange rate.” International Economic
Review Vol. 22, Pp. 663–678.
Hopper, G. P., (1994), “is the foreign exchange market inefficient?” Business preview [Accessed
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Hsieh, D., 1984. “Tests of rational expectations and no risk premium in forward exchange
markets.” Journal of International Economics, Vol. 17, 173–184
Lee, H. & Sodoikhuu, K., (2012), “Efficiency Tests in Foreign Exchange Market.” International
Journal of Economics and Financial Issues Vol. 2, No. 2, 2012, pp.216-224
Levich, R. M., (1983), “Empirical studies of exchange rates: price behaviour, rate determination
and market efficiency.” National Bereau of Economic Research, Working paper No. 1112
Levich, R. M. (2001) International Financial Markets 2nd edition, McGraw-Hil, London
MacDonald, R., Taylor, M.P., (1990a) “The monetary approach to the exchange rate: rational
expectations, long-run equilibrium, and forecasting.” IMF Staff Papers, Vol. 40, Pp. 89–107.
MacDonald, R., Taylor, M.P., (1990b) “The term structure of forward foreign exchange rate
premiums.” Manchester School of Economic and Social Studies Vol. 58, Pp. 54–65.
Peel, D.A., Pope, P.F., (1995). “Time-varying risk premia and the term structure of forward
exchange rates.” Manchester School of Economic and Social Studies Vol. 63, Pp. 69–81.
Salavatore, D. (1993), International economics, MacMillan Publishing Company, New York
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.