Share
Explore BrainMass

Global Finance: Organization

# 1 How should an organization decide on a mode of entry when expanding internationally? Which mode(s) of entry has your organization used? Why? If your organization were to enter a foreign market, which mode of entry would be most appropriate? Why?

# 2 What are some implications of currency depreciation, devaluation, and appreciation? How does a strong U.S. dollar affect the balance of trade? Why?

# 3 How do the ethical considerations of agency costs differ between a domestic and an international organization? Why do these differences exist? What role does cultural sensitivity and awareness play in the success of a global expansion effort?

# 4 Should all organizations become global organizations? Why or why not? What are some of the factors that may discourage an organization from expanding globally? What are some benefits of expanding globally?

Solution Preview

# 1 How should an organization decide on a mode of entry when expanding internationally? Which mode(s) of entry has your organization used? Why? If your organization were to enter a foreign market, which mode of entry would be most appropriate? Why?

The stages of organization's evolution is first of all the organization will start exports of the goods and services because it involves low commitment of capital and in turn low risk and return. Export is the legitimate transportation of domestic or nationalized goods and services from a country intended for use or consumption rendered abroad. Exports can be any good that is shipped out of a government's border for commercial purposes.
Overall it involves low commitment of capital and in turn low risk and return. It is low risk, as it does not involve long-term capital investment in foreign location.

Then next step can be of joint venture or franchising/ licensing route. A joint venture (often abbreviated JV, and sometimes known by the older term joint adventure) is a strategic alliance between two or more parties to undertake economic activity together. The parties agree to create a new entity together by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture. A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence.

Internal reasons
1. Spreading costs and risks
2. Improving access to financial resources
3. Economies of scale and advantages of size
4. Access to new technologies and customers
5. Access to innovative managerial practices
6. Taxation as a partnership (in the case of unincorporated joint ventures)

Therefore it involve medium risk and medium return strategy.
It can have franchisee or technology licensing across the border
Licensing is a form of strategic alliance, which involves the sale of a right to use certain proprietary knowledge (so called intellectual property) in a defined way. The intellectual property may be registered publicly, for example in the form of a patent or trademark, as a means of establishing ownership rights. Or, it may be retained within the firm: referred to as know-how, it is commonly based on operational experience.

Know-how for licensing purposes may include commercial and administrative knowledge as well as technical knowledge. The licensing agreement is the legal agreement setting out what is to be transferred from licensor to licensee and under what conditions.

The licensee usually pays a lump sum (front-end) payment. Additionally there is normally a royalty rate, which tends to vary around a 'rule of thumb' of 5%, depending on the type of industry and rate of technological change.
Therefore it involves low commitment of capital and in turn low risk and return as compared to the all the strategies as majority of the risk is taken by the licensee.

Franchising involves selling limited rights to use of a brand name and service know-how
Thus its advantages are that the franchisor do not bear the costs and risks of investment.
Next step can be Acquisition of a local firm. An acquisition can involve a cash and debt combination, or just cash, or a combination of cash and stock of the purchasing entity, or just stock. The completion of acquisition involves higher commitment of capital and involves higher risk. As acquisition may not ensure the success of the resulting organization; indeed, many (in some industries, the majority) it may result in a net loss of value due to problems. Correcting problems caused by incompatibility?whether of technology, equipment, or corporate culture? diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities at one of the partners.
The benefit of acquisition of local firm is that it will have local know how, which will help in achieving the results quickly. It's a high risk and high return strategy.

In the end there can be direct investment in production and distribution assets (Greenfield project)
In Greenfield Projects: A private entity builds and operates a new facility for the period specified in the project contract.
It will involve high commitment of resources as it involves capital investment like purchasing its own assets in an international country. It involves the highest risk and in turns the chances of highest return.

Thus the change in government regulation, market growth, internal growth, external environment will need to consider a different mode of entry.

For our organization, Exporting will be the best strategy. This is because our organization is a small one and exporting involves low risk and low investment, which is suitable for our organization.

# 2 What are some implications of currency depreciation, devaluation, and appreciation? How does a strong U.S. dollar affect the balance of trade? Why?

The foreign ...

Solution Summary

How should an organization decide on a mode of entry when expanding internationally? Which mode(s) of entry has your organization used? Why? If your organization were to enter a foreign market, which mode of entry would be most appropriate? Why?

$2.19