Main Sources of Funds That Are Available to a Major International Business - Assignment Example

Heading: Final Exam Your name: Course name: Professors’ name: Date 1. Discuss the main sources of funds that are available to a major international business in order for it to grow, and note the advantages and disadvantages in each. If you were a manager in such a business, what would you expect the relationship manager from your main bank lender (alone or in a consortium) to be requiring of you, and offering to you? To begin with, Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) say that equity financing is one of the financial sources for a business that intends to engage in international operations. When firms use equity financing, it gets capital through sale of shares. With the money that the business gets from equity financing, the shareholders get a percentage of the ownership interests in the business. This source of fund for global operations also refers to share capital. Equity finance is in various forms, and that business angels and venture capitalists provide it to the business that need it (Çetindamar 2003). Besides, the investment of equity finance happens with a supposition that there might be a long or medium term profits. Moreover, equity finance where the project’s nature bars debt providers like banks. It is also suitable where a firm has insufficient money to recompense loan interest since it is necessary for the main activities or funding development. Some of the equity finance sources include business finance, business angels, venture capital, enterprise fund capital, and Enterprise Investment Scheme (EIS). Equity finance is disadvantageous, as it requires the business owner and the fund source to share company shares (Landström 2009; Besley 2012). Notably, international equity market is a global market of finances for equity funding; the stock exchange all over the world where firms and investors meet to sell and buy shares (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) say that another source of funds for global operations involves debt-finance. This entails a source of finance entails borrowing money from an external source with a promise to bring back the principal, and the consented-upon interest level. This source of money has an equal share of advantages as well as disadvantages. To start with, debt financing is advantageous in that it maintains ownership of the business, tax deductions, and low interest rates. On the other hand, debt financing has drawbacks including high rates, requirement of a collateral and cash, affects business’s credit rating, and repayment possibility in case of bankruptcy. There are two major sources of debt financing include bond sales and loans. The third of source of finances for international operations entails intra-corporate financing. These funds are from firm’s internal network of affiliates and subsidiaries. This involves funds obtained from internal sources the firm in terms of loans, equity, and trade credits. Trade credits come from when a vendor of services and goods gives the clients an alternative to recompense later. Some of the advantages of this source are that interest payments are tax deductible; it has a reduced income tax burden; little impact on parent’s balance sheet; can save transaction costs; and prevents the ownership-diluting impact of equity financing (Cavusgil, Knight, Riesenberger, Rammal, and Freeman 2011; FAO 2012; Kurtz 2011). As a manager of an international business, I would expect the relationship manager form the bank lender to require a business plan that justifies the business’ need for the fund. I also expect that the relationship manager of the lending organization will offer certain conditions for the transaction to be successful. For instance, some of the banks and lending institutions might that they hold a given percentage of the ownership, or equity capital in the company. Another condition might also involve a certain rate of interest, which the business must comply with for the agreement to be valid (Abrams 2003). References Abrams, R 2003, The successful business plan: secrets & strategies, The Planningshop, Palo Alto, Calif: Pp. 266-270. Besley, S 2012, Principles of finance, South-Western/Cengage Learning, Mason, Ohio. Pp. 48-55. Cavusgil, T, Knight, G, Riesenberger, J, Rammal, HG, & Freeman, S 2011, International Business: the New Realities, Pearson Prentice Hall, Upper Saddle River, N.J. Çetindamar, D 2003, The growth of venture capital: a cross-cultural comparison, Praeger, Westport, Conn. Pp. 260-265. FAO 2012, Types of funds, Collaborative Partnership on Forests, Retrieved on May 23, 2012, from http://www.fao.org/forestry/6113/en/ Kurtz, D 2011, Contemporary business, Wiley, Hoboken, N.J. Pp. 576-580. Landström, H 2009, Handbook of research on venture capital, Edward Elgar, Cheltenham. Pp. 171-175. 2. Describe the advantages of international collaborative ventures, and describe the potential risks of collaboration. Discuss strategies that managers can employ in order to increase the chances of a successful collaborative venture. Joint ventures or collaborative ventures entail two or more constitutionally different organizations, each of these take part in decision-making activities of the common owned entity (Menipaz 2011). Smart businesspersons and entrepreneurs engage in understand the benefits and costs of collaborative international ventures (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). They are aware that such ventures are fast and effective in creating a radical increased in profits and sales with virtually no risk and no money, provided that they do this appropriately. Allen (2012) holds that one of the benefits of international collaboration ventures is that it enables a speedy growth of business and realization of the set goals and objectives. They also offer easy access and equitable sharing of valuable resources necessary for successful business activities. International collaborative business promotes leveraging of underused resources in order to improve business performance. Such a venture also facilitates high profits, massive leveraging, and no or low risk opportunities (Trost 2011). Nevertheless, Allen (2012) says that joint venture has some risks that include the probability of disappointment or ripping off by unprofessional or unscrupulous joint venture partners. This can lead to ruined business reputation, which in turn, discourages business associates and customers from the business. Collaborative global venture can also lead to time wastage, loss of money, loss of crucial technology, and squandering of a firm’s credibility. To ensure effective collaborative international ventures, managers out to develop a well-articulated and sound business strategy. This helps in explaining and determining the purpose the joint venture; the rationale for the choice of the venture partners; and what the business intends to achieve. Managers should also set strategies that define the accountability, governance, decision-making process, and issue and conflict-resolution measures (Gutterman 2002) Secondly, managers ought to develop human resource strategies that support and align the collaborative ventures’ goals and objectives. Besides, managers should also create a unique culture and identity for the new firm, communicate aggressively to workers, and develop unique career paths and management. Thirdly, there is a need for a credible and fair leadership selection to ensure success. It is crucial to search for leadership possibilities like past experience, behavior, and measureable results. Fourthly, Trost (2011) holds that communication is necessary to motivate and engage workers in the firms involved. Here communication ought to frequent and employed to from a shared vision. This communication is also indispensable in the in establishing a link with leadership, and in explaining new rules. It also helps in supporting the personal transition process, aiding retention, and defining the new firm as a unit, and not separate entities. Lastly, Peter (2002) maintains that managers should also make the identification, motivation, and retention of main talent on first priority. During moments of uncertainty, defections can occur; hence the importance of counter-measures. It is also significant to pay attention to particular skills, behavior, and knowledge that facilitate the achievement of new company’s venture goals and objectives. Besides, identify the major in both the parent organization who are necessary in the transition to a collaborative business and beyond. Managers should also beware of those workers that are at more risk for recruitment by other firms and gather information on the costs and causes, or turnover that can affect the workers to target and which retention measures to execute. Additionally, managers must perform worker study to enable the new firm to identify hat issues affecting employees, as well as serving as a basis for all incentives and programs (Taliashvili 2009). References Allen, S 2012, Joint Venturing 101 - Risks and Legal Implications, Retrieved on May 23, 2012, from http://entrepreneurs.about.com/od/beyondstartup/a/jointventures_4.htm Cavusgil, T, Knight, G, Riesenberger, J, Rammal, HG, & Freeman, S 2011, International Business: the New Realities, Pearson Prentice Hall, Upper Saddle River, N.J. Gutterman, A 2002, A short course in international joint ventures: negotiating, forming, and operating the international joint venture, Novato, Calif: World Trade Press. Pp. 6-10. Menipaz, E 2011, International business: theory and practice, SAGE, Los Angeles. Pp. 1-25. Peter, FJC 2002, Cooperative strategies in international business: joint ventures and technology partnerships between firms, Pergamon, Amsterdam Boston. Pp. 187-200. Taliashvili, G 2009, Joint Venture Company - JVC under German and UK jurisdictions, GRIN Verlag GmbH, München. Pp. 5-10. Trost, T 2011, Joint Ventures: The benefits and perils- why some are successful and others fail, GRIN Verlag GmbH, München. Pp. 1-20. 3. Explain the concept of a global market opportunity, and discuss the key questions to assess a firm's organizational readiness to pursue global market opportunities. Provide examples to support your answer. Pride and Ferrell (2009) assert that global market opportunity refers to a constructive blend of locations, circumstances, or timing that provides prospects for investing, sourcing, exporting, and collaborating in foreign markets. Firms often meet such opportunities to sell their products, open up factories, procure input products, or get into a rewarding joint venture in markets all over the globe (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). International market opportunities maintain the prospect in improving company performance, usually far beyond what a business can obtain in the domestic market. Company’s success in the entry of these foreign markets is largely reliant on the ability to make suitable choices. The more information a firm has concerning a particular opportunity, the better prepared it will be to utilize it (Pride & Ferrell 2009). Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) and Lisle (2012) argue that the first question considered in the assessment of a firm’s preparedness to engage in global business is the determination of its ability to have an explicit competitive advantage over other possible market entrants, or the already existing players. A firm’s distinctive technology, access to consumers, and experience enables it to overcome certain obstacles to entry that can appear forcing to other potential new market entrants (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). The second assessment question that a firm should consider involves the identification of unmet market need, or underserved market location. The firm can discover underserved market location, or unsatisfied market need. It is also possible that other rivals are unaware of the need, or are incapable of serving it. Thus, this gives a distinctive ability to satisfy clients (Pride & Ferrell 2009). According to Lisle (2012) and Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011), the third question regards the idea of finding the Goldilocks sized market. The potential to affect or leave a strong impact on the industry is inadequate reason to rationalize entry. The prospective new entrant should consider the market opportunity size before commencing its operations. Whereas some markets prefer obscure, niche market segment and shun large markets, some go for smaller markets. For a new market entrant, neither too small nor too large (Goldilocks) are appropriate. Moreover, Pride and Ferrell (2009 say that it is critical to consider the nature of the market to enter, in terms of its age and the growth rate. A sufficiently sized, but dwindling market is less promising than the one that is fast developing. In fact, it is easier to get into a developing market than it is to enter one via stolen shares from other entrants. According to Pride and Ferrell (2009, another issue to consider when assessing a firm’s preparedness to enter a global market is its competitive analysis to the target market. According to Michael Porter, the firm’s competition level is crucial. Some of his competitive forces include suppliers’ bargaining power, customers’ bargaining power, substitute products’ threat, new entrants’ threat, and the present situation of rivalry in existing rivals in the market. To succeed, the new entrant should operate in a market that serves small, dependent, and powerless customers (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). As Lisle (2012) reports, a complete assessment of a firm’s preparedness for international market considers those markets in disequilibrium state. This implies that a stagnant market is less likely to attract a new entrant as compared to an aggressive one. Furthermore, it is vital to consider clients who are unsatisfied with little switching costs. This is because markets with underserved consumers can easily accept a customer-oriented new market entrant. It is essential for firms to evaluate the clients’ satisfaction levels, their difficulty of changing suppliers, and the process of selecting new suppliers. What is more, Lisle (2012) maintains that effective assessment involves a keen observation of macro-level trends. These trends include generations, environment changed, education reform, or healthcare systems. Evaluation of regulatory barriers is also essential for appropriate operation in global market. This implies the consideration of trade limitations like quantitative restrictions, tariff levels, and non-tariff obstacles. Notably, Pride and Ferrell (2009 maintain that some countries provide more friendly regulatory requirements than others do. It is also vital to consider the attractiveness of the market segments. This is because the most attractive ones are advantageous in enhancing successful market entry (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). Additionally, Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) it is important to consider the market’s profitability, and opt for the most profitable. Distribution channels are very important in the international market; hence, the need to select the appropriate ones. References Cavusgil, T, Knight, G, Riesenberger, J, Rammal, HG, & Freeman, S 2011, International Business: the New Realities, Pearson Prentice Hall, Upper Saddle River, N.J. Lisle, C 2012, Going Global: Assess Market Opportunities. Pp. 1-9. http://industrialmarketer.m.xtenit.com/files/1/industrialmarketer/412/pa/Going%20Global --%20Assess%20Market%20Opportunities.pdf Pride, WM & Ferrell, OC 2009, Conducting market research for international business, Business Expert Press, New York, NY. Pp. 15-20. 4. Explain three ways that managers can achieve cross-cultural success. Why might it be more difficult to conduct business in countries with religious diversity than in countries with a single, dominant religion? According to Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011), one way in which managers can obtain cross-cultural success is through acquisition of interpretive and factual knowledge concerning the other culture, as well as attempt to learn and speak its language. Effective managers get a foundation of knowledge concerning the attitudes, values, and lifestyles of the cultures in which they conduct their businesses. They should investigate the economic and political background of the intended countries, in terms of their present national affairs, histories, and perceptions on other countries. This information is crucial in the understanding of the partners’ attitudes, objectives, and organization. Moreover, managers can easily make decisions, and that they develop trust, respect; hence creating a base for productive and open relationships (Payne 2012). Greater language proficiency levels encourage the development of competitive advantage, especially when they speak local language. For instance, managers of firms intending to expand to China must learn the Chinese language and culture properly (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). Secondly, Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) assert that managers can succeed in their cross-cultural business by avoiding culture bias. Challenges emerge when managers suppose that foreigners behave and think just like their people at home. Ethnocentric suppositions can cause poor business approaches in the business planning and implementation stages. This is because they distort interactions with the foreign partners. Some managers who are new to the global business might perceive other people’s behavior as improper or odd. For instance, differences in food history, entertainment, or sport might cause disappointments, especially when the other party does not appreciate the other. An individual’s culture dictates how he responds to various behavior, values, or systems. For instance, in Japan, managers greet each other by bowing their heads, rather than shaking hands (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). Thirdly, Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) argue that managers succeed in cross-cultural operations by developing cross-cultural skills. Effective co-working with partners in foreign cultures needs a considerable investment of personal professional development. Every culture possesses its own manner of conducting business negotiations, transactions, and resolving disputes. For instance, when a manager operates in a high ambiguous cultural environment, it is imperative that he develop cross-cultural proficiency to succeed in international operations. Notably, cross-cultural proficiency entails the ability to tolerate ambiguity, perceptiveness, valuing personal associations, and developing adaptability and flexibility (Medah 2004). As Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) suggest, it is easy to conduct business in an environment with a single prevalent religion as compared those with numerous diverse religions. This is because a country with a single religion has a fewer cultural differences as compared to those countries with diverse religions, which have many different cultural issues to consider (Czinkota 2007). In a diverse religious business environment, there are many various issues regarding culture involved in the business. Several religions in a business setting complicate operations and make it hard for the staff and customers interrelate. For instance, there is a difference in language, ethics, dressing, beliefs, and values. This can have an adverse effect on the firm’s performance, especially in handling and satisfying customers (Wuthnow 2005). References Cavusgil, T, Knight, G, Riesenberger, J, Rammal, HG, & Freeman, S 2011, International Business: the New Realities, Pearson Prentice Hall, Upper Saddle River, N.J. Czinkota, M 2007, International marketing, Thomson/Southwestern, Mason, OH. Pp.70-80. Medah, S 2004, Top 5 Tips for Cross-Cultural Success. Retrieved on May 23, 2012, from http://aupairmom.com/top-5-tips-for-cross-cultural-success-by-shana-medah/2010/08/24/celiaharquail/ Payne, N 2012, Cross Cultural Solutions for International Business, Retrieved on May 23, 2012, from http://www.kwintessential.co.uk/cultural-services/articles/cross-cultural-solutions-international-business.html Wuthnow, R 2005, America and the challenges of religious diversity, Princeton University Press, Princeton, N.J. Pp. 250-260. 5. What are the four functions of organization design? Discuss the factors relevant to a firm's decision whether to centralize or decentralize foreign operations. Provide examples to support your answer. As Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) put it, organizational structure entails authority lines, employee groupings, supervisory relationships, and company’s operational workflow. This structure directly influences certain factors including operational efficiency and workplace culture. Firms should maintain a well-designed structure in order to succeed in their businesses (Rushton 2010). Organizational structure has four main functions including company hierarchy, decision-making, departments and work groups, and career advancement. To start with, Ingram (2012) asserts that the most important factor of organizational design is to delineate authority lines in the firm. Organizational hierarchies may be flat with many employees under a few supervisors, or tall with several management layers. These hierarchies are not essentially better than others are, but they operate under diverse circumstances (Czinkota, Ronkainen, & Moffett, 2008). Another function of organizational design or structure involves decision-making. Employees in a decentralized organization structure have power to participate in making decisions that satisfy clients’ needs (Czinkota, Ronkainen, & Moffett, 2008). For instance, an accountant at an electronic shop can provide an exchange without consulting the management. In a centralized structure, low-level workers pass vital information to the management that makes most of the decisions (Ingram 2012). According to Massa and Zhang (2010), the third function of an organizational structure entails determination of physical groupings of workers with various functions. A functional organizational structure groups employees basing on their nature of work, for instance, a customer service department, or finance department. On the other hand, Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) say that a product organizational structure classifies employees basing on particular product line. For example, it groups representatives of human resources, production, accounting, and marketing in one product line. A geographical or a market structure groups workers depending on their certain market served. The fourth key function of an organizational design involves career advancement. A proper structure of firm may serve to direct individual workers’ career development plans. The explicit company authority layers function as career progress maps, with higher compensation and new responsibilities at every level. In fact, some companies create formal career development plans that guide their workers from entry-level positions top management through their years of excellent service. Structure also helps in the creation of organizational culture. For instance, firms with broad decision-making authorities and flat hierarchies encourage culture that makes employees feel free to grow and experiment (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011; Ingram 2012). According to Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) and Edidiong (2012), firms can have centralized or decentralized organizational structures. A firm’s decision to choose to centralize or decentralize foreign operations depends on certain factors. First, the need to regulate mistakes that might happen influences a firm’s choice to decentralize or centralize its foreign operations. Secondly, Ireland (2012) says that an organization can decide to centralize or decentralize its operations depending on whether it requires consistent product policy, or not. Specialization is another determining factor of the firm’s decision to centralize or decentralize its overseas operations. This is vital since a company that needs specialization of services that can be too costly to reproduce in decentralized units. In this case, such a firm will establish a specialist department reporting to the head office (Daft & Marcic 2012) Edidiong (2012) also states that market diversity also determines a company’s decision to centralize or decentralize its international operations. Here, an organization handles market decisions at the higher management levels. Technology also dictates a foreign firm’s type of structure. Moreover, Khan (2012) and Cavusgil, Knight, Riesenberger, Rammal, and Freeman (2011) note that organization’s geographical dispersion determines the kind of structure to adopt. For example, a company can use decentralization so that the bottom management can use their local skills and knowledge to make sound decisions. The junior and middle managers’ quality also determine the structure o a foreign company (Mosley, Mosley & Pietri 2010). For instance, if these managers are competent enough, a firm can decentralize the foreign operations. On the other hand, centralization is crucial if the firm’s junior and middle managers are not well educated (Cavusgil, Knight, Riesenberger, Rammal, & Freeman 2011). References Cavusgil, T, Knight, G, Riesenberger, J, Rammal, HG, & Freeman, S 2011, International Business: the New Realities, Pearson Prentice Hall, Upper Saddle River, N.J. Czinkota, M, Ronkainen, IA, & Moffett, MH 2008, Fundamentals of International Business, Wessex Press, Indianapolis. Pp. 312-314. Daft, R & Marcic, D 2012, Understanding Management, South-Western College Pub, Cincinnati. Pp. 254-256. Edidiong 2012, Decentralization and centralization, Saysaid.com. Retrieved on May 23, 2012 from http://edidiong.hubpages.com/hub/decentralization-and-centralization Ingram, D 2012, What Are the Functions of Organizational Structure? Retrieved on May 23, 2012 from http://www.ehow.com/list_6532419_functions-organizational-structure_.html Ireland, R 2012, Understanding business strategy: concepts plus, South-Western Cengage Learning, Mason, OH. Pp. 174-176. Khan, S 2012, Centralized & Decentralized Organizational Structure, Retrieved on May 23, 2012 from http://www.ehow.com/about_6517661_centralized-decentralized-organizational-structure.html Massa, M & Zhang, L 2010, The Role of Organizational Structure: Between Hierarchy and Specialization. http://www.apjfs.org/conference/2010/cafm2010/6-3.pdf Mosley, D, Mosley, M & Pietri, P 2010, Supervisory Management, South-Western College Pub, Cincinnati. Pp. 116-117. Rushton, A 2010, The handbook of logistics & distribution management, Kogan Page, London Philadelphia. Pp. 142-145 Read More