Global Business Issues

1
Global Business - Issues

• Learning Objective/Outcome Understand the
  following-
• ADDRESS THE STRATEGIC OPERATIONAL ISSUES FACING
  A BUSINESS WHEN OPERATING GLOBALLY, INCLUDING
  ADDRESSING THE ISSUES COMMONLY FOUND IN SUCH A
  VENTURE.
• STRATEGIC ISSUES TO BE ADDRESSED

2
Global Business - Issues

• NEW OVERSEAS MARKETS HELPS BUSINESS MINIMISE ITS
  EXPOSURE TO CHANGES IN DOMESTIC MARKET DEMAND
• FINANCE STRATEGY REQUIRES THAT ADDED VALUE IS
  CREATED, ENHANCED SHAREHOLDER WEALTH.
• COMMERCIAL ADVANTAGE GAINED VIA NEED FOR
  BETTER/IMPROVED DESIGN

3
Global Issues - Setup

• ENHANCED FUNCTIONAL STRATEGIES NEEDED TO ENSURE
  SUCCESS OVERSEAS EG. DESIGN, MARKETING,
  PACKAGING, DISTRIBUTION
• ALLOWS A FIRM TO INCREASE MARGINS THROUGH GREATER
  ECONOMIES OF SCALE
• PRODUCTION COSTS SHOULD BE LOWER DUE TO GREATER
  VOLUME/LOWER COST PER UNIT

4
Global Business - Issues

• OPERATIONAL ISSUES RELEVANT TO FINANCE
  GRANTS/FINANCIAL ASSISTANCE
• BUSINESS LINKS INITIATIVE
• ASSIST BY ENHANCING COMPETITIVENESS OF LOCAL
  BUSINESS BY IMPROVING DELIVERY OF
  SERVICES/INFORMATION/DTI ASSISTANCE.
• AIM IS TO PROVIDE SERVICE AT SUPPORTING GROWTH IN
  LOCAL AREA

5
Global Issues - Setup

• CONCENTRATES ON O/SEAS TRADE/EXPORTING FINANCE,
  DESIGN, EU AND REGULATORY MATTERS, HR ISSUES,
  MGMT. DEVELOPMENT, THE EXPORT PROCESS AND AGENT
  CONTACTS
• EU FUNDING ADMINISTERED BY D.T.I.
• MANY SECTORISED GRANTS, TECHNOLOGY, TRANSPORT,
  AGRICULTURE ETC.

6
Global Business - Issues

• SOURCES
• EUROPEAN INVESTMENT BANK, NON PROFIT MAKING,
  PROVIDES LOANS FOR MEDIUM TO LONG TERM CAPITAL
  INVESTMENT PROJECTS
• EUROPEAN INVESTMENT FUND VENTURE CAPITALIST
  ORGANISATION AIMED AT SMES.

7
GLOBAL ISSUES-SETUP

• EIF GUARANTEES FOR DEBT FINANCE
• PROVIDES GUARANTEES TO SUPPORT MEDIUM/LONG TERM
  INVESTMENT, GUARANTEEING UP TO 50 FINANCE/LOANS
  REQUIRED TO FINANCE INVESTMENTS OR SME FINANCE
  SCHEMES

8
Global Business - Issues

• EUROTECH CAPITAL NETWORK OF 14 EUROPEAN VENTURE
  CAPITALISTS AIMED AT SME INVESTMENT AND
  TRANSNATIONAL HIGH-TECH PROJECTS
• CHECK FOR EXPORT LICENCES
• CHAMBER OF COMMERCE CONTACTS LOCAL BUSINESS
  ADVICE/CONTACTS/REPS GLOBAL TRADE
  SERVICES/MISSIONS

9
GLOBAL ISSUES-SETUP

• CREDIT ARRANGEMENTS CREDIT CHECKING ESSENTIAL -
  NEED INFORMED JUDGEMENTS ON NEW/CURRENTCUSTOMERS
• CO. ACCOUNTS - ONE SOURCE
• CREDIT INFORMATION PROVIDERS AVAILABLE, BUT SUCH
  INFO. COSTS MONEY.

10
Global Business - Issues

• PAYMENTS
• EXPORTS GIVES RISE TO RISK
• AIM IS TO MINIMISE THIS RISK
• INSURE AGIANST FIRE/THEFT/NON-PAYMENT
• CREDIT INSURANCE PAYS UP TO 95 OF INVOICE VALUE
  IF DEBTOR HAS GONE OUT OF BUSINESS

11
GLOBAL ISSUES - SETUP

• 2 TYPES OF RISK COMMERCIAL POLITICAL
• PREMIUMS COVER RISK FOR AGREED PERIOD AND A
  NOMINATED VALUE
• PAYMENT DELAYS OVERCOME BY FACTORING

12
Global Business - Issues

• CURRENCY ISSUES
• DECIDE ON CURRENCY/FUNDING STRATEGY
• EXPOSURE RELATES TO TRANSLATION AND TRANSACTION
  EXPOSURE
• RISK THAT CURRENCY FLUCTUATIONS WILL DEVALUE
  PROFITS
• DECIDE HEDGING STRATEGY VIA PUTS/CALLS, OPTIONS
  AND OTHER FINANCIAL INSTRUMENTS AIMED AT
  MINIMISING RISK

13
Global Business - Issues

• MARKETING/MARKETING RESEARCH ACTIVITY COLLECT
  EXPORT MARKET DATA
• CONTACT EXPORT MARKET INFO. CENTRE.
• EMIC CONTACTS, PHONE/FAX/EMAILS ETC.
• STATISTICAL/MARKET REPORTS/COUNTRY REPORTS

14
GLOBAL ISSUES-SETUP

• GUIDES TO DOING BUSINESS/VISITOR GUIDES
• COUNTRY MARKET DESKS AT D.T.I./TRADE MISSIONS
• MARKET EXPLORER BENELUX/NORDIC
• TRADE FAIR EXPLORER CENTRAL EUROPE

15
Global Business - Issues

• MARKETING ACTIVITIES - CONTD
• VISIT ORGANISOR
• COUNTRY BRIEFING/LOCAL MARKET OVERVIEWS/NAMED
  CONTACTS/RETURN DEBRIEFING
• COMMERCIAL OFFICES AT EMBASSIES
• REPORTS PRODUCED AT A COST

16
GLOBAL ISSUES-SETUP

• CAN INCLUDE
• MARKETASSESSMENTS
• POTENTIAL AGENTS
• MARKET APPROACH
• ADVICE/LOCAL BUSINESS CONTACTS/
• LOCAL INVESTMENT OPPORTUNTIES

17
Global Business - Issues

• CULTURAL/LANGUAGE ISSUES
• DTI LED NATIONAL LANGUAGES FOR EXPORT CAMPAIGN
• SERVICES AIMED AT ENABLING INFORMED CHOICES
  REGARDING LANGUAGES, CULTURAL AWARENESS NEEDS
• TRAINING/SERVICES LANGUAGE TRAINING
  PROVIDERS/TRANSLATORS/INTERPRETERS
• GRANTS AVAILABLE FOR SUCH ASSISTANCE

18
Exchange Rates

• Function of Foreign Exchange Market common
  meeting place for buyers/sellers of foreign
  currency
• facilitate transfer of purchasing power between
  countries - transactions transacted in one/two
  sets of currencies
• facilitate provision of credit - allowing
  distribution whilst payment is being arranged

19
Exchange Rates

• Minimise foreign exchange risks - foreign
  exchange markets provide hedging facilities for
  transferring foreign exchange risk to someone
  else
• Market participants2 tiers interbank/wholesale
  market
• or client/retail market

20
Exchange Rates

• 5 broad participants
• bank/nonbank foreign exchange dealers
• MNEs/customers
• speculators/arbitragers
• central banks/treasuries
• foreign exchange brokers

21
Exchange Rates

• Transactions in Interbank Market
• Spot transactions Forward transactions
• Swap transactions Interbank quotations
• Direct/Indirect quotes Bid/Offer quotes
• Forward Quotes on a points basis
• Forward Quotes on a basis
• Newspaper Quotes Cross Quotes

22
Exchange Rates

• Measuring changes in Spot Rates
• Spot rates quoted are current daily rates
• Quoted in terms of buy and sell - the MNE
  buys currency, the Bank sells it.
• Adjustments quoted in terms of points also
  called cash rates and swap rates depending on
  maturity

23
Exchange Rates

• point is last digit of a quotation, convention
  dictates the no. of digits to the right of the
  decimal point.
• Usually expressed to 4 dec. places
• A forward quote is expressed in terms of points,
  and not an exchange rate itself, rather the
  difference between forward and spot rates. Spot
  rates never given on points basis

24
Exchange Rates

• A Forward bid and offer quote for 2years are
  called Swap Rates
• 2 sides to each transaction forward exchange
  transactions involve simultaneous purchase for
  one date and sale (reversal) for another date a
  Swap is a way to borrow one currency for a
  limited time giving up the use of another
  currency for the same time

25
Exchange Rates

• Ie. Short term borrowing of one currency with a
  short term loan of another. Swap rates express
  interest differential on a points basis rather
  than interest rates basis
• Foreign Currency Futures Contract is an
  alternative to a forward contract

26
Exchange Rates

• A future calls for future delivery of a standard
  amount of foreign exchange at a fixed time,
  place, and price, traded on appropriate market
• Futures v Forward Contracts
• no of differences regarding contract size,
  maturity, location, pricing, collateral,
  settlement, commissions, trade hours,
  counterparties liquidity (see pg. 117)

27
Exchange Rates

• A cross rate is an exchange rate between two
  currencies, calculated from their common
  relationships with a 3rd currency
• When cross rates differ, from the direct rates
  between two countries, intermarket arbitrage is
  possible

28
Exchange Rates

• Futures are standardised forward contracts,
  unlike forward contracts however, trading occurs
  on the floor of an exchange rather than between
  banks/customers. Futures also require collateral
  and are normally settled through the purchase of
  an offsetting position. (Eiteman, 2001)

29
Exchange Rates

• Foreign Currency Options are financial
  transactions that give the holder the right, but
  not the obligations to buy (in case of calls) or
  sell (in case of puts) a specified amount of
  foreign exchange at a predetermined price
  on/before a specified maturity date. (Eiteman,
  2001)
• Options traded on O.T.C. Market

30
Exchange Rates

• Use of currency option as a speculative device
  for the buyer of an option arises from fact that
  an option gains in value as the underlying
  currency rises (Calls) or falls (puts). The
  amount of loss when the underlying currency moves
  opposite to the desired direction is limited to
  the cost of the option

31
Exchange Rates

• Use of currency option as a speculative device
  for writer (Seller) of an option arises from the
  earning of the option premium on writing. If the
  option (either put or call) expires out of the
  money (Valueless) the writer of the option has
  earned the premium
• Speculation is an attempt to profit by trading on
  expectations of future prices.

32
Exchange Rates

• Currency Option Revaluation the determination of
  the options premium, is a complex combination of
  the current spot rate, the strike rate, the
  forward rate, currency volatility and time to
  maturity