Political scenario illustrated that governments all over the globe are making their immigration rules more stringent because of the rise in terrorism; the implication of this phenomenon is a decrease in international traveling, which endangers continuance of a number of airlines, including Nigeria’s Arik Air (Eze, 2010). Hofstede’s power distance dimension denotes the degree to which unequal distribution of power is anticipated and accepted by the lower ranking members (in terms of authority), of organizations and institutions in the nation under consideration. USA’s score on this dimension is relatively low (40). Power distance deals with members of a society not being on an equal footing with one another; the dimension conveys a particular culture’s outlook towards power imbalances among countries, as well. Furthermore, the inequality that prevails in a given society is equally approved of by its leaders and followers. Nigeria demonstrates a high power distance score (80), signifying its citizens’ acceptance of a hierarchical system wherein each individual has a grade; there is no additional justification required. Organizational hierarchy exhibits intrinsic inequalities; organizational structure tends to be centralized, with the subordinates anticipating instructions of what their role is, and the model boss being a well-meaning autocrat. Nigeria and the U.S. differ by a score of 40 on the dimension, implying that hierarchical structures are more dominant in the former nation, with every individual having a specific, unquestionable place, and requiring no further explanation (Countries – GeertHofstede, n.d).
With the above implications in mind, a U.S. commercial airline needs to present before its customers a choice of numerous alternatives, allowing them significant bargaining power, which can also be seen in the fact that manufacturers of aircrafts strive for increased airline participation in aircraft design customization. But, owing to steep switching costs within the airline sector, suppliers’ bargaining power is mediocre (Kotler et al., 2009).
Nigeria’s score on Hofstede’s individualism dimension is low (30), indicating the nation to be collectivistic. This is evident in Nigerians’ strong, lasting commitment to any group that they belong (family, organization, etc.). Collectivist societies value loyalty as a paramount virtue; it takes precedence over almost all other social principles and laws. Powerful bonds are fostered, and all individuals assume responsibility for others in their group. Here, offence results in humiliation and shame, and the relationship between employer and worker is viewed in terms of morals. People treat organizations like their family, promotion or hiring decisions take into consideration workers’ in-group, and management refers to group management (Countries – Geert Hofstede, n.d).
The U.S. depicts a high individualism score (91). In individualistic countries, citizens are expected to care merely for themselves and immediate family, whereas, in countries that are labeled ‘collectivist’, individuals form part of groups, which see to their well-being and are responsible for them, in return for absolute loyalty. Hierarchy, in organizations in the U.S., is instituted for the purpose of convenience and structure –subordinates can access their superiors more easily, and managers can make the most of teams’ and individual staff members’ expertise. Subordinates as well as managers are conferred with and, there is regular information sharing. Simultaneously, intra-organizational communication is, to some extent, direct, informal, and participative. Social bonds in the U.S. are loose; everyone is expected to look only after themselves and members of their immediate family, without over-reliance on governmental or social support. Moreover, America demonstrates a great degree of geographic mobility. Though Americans are considered the world’s best joiners, the men, in particular, face challenges with cultivating meaningful friendships. They are habituated to communicating and having business dealings with individuals not very familiar to them. As a result, they do not show reluctance towards seeking or procuring desired information from prospective counterparts. On the business scene, American company employees must display initiative and self-sufficiency. Lastly, in the exchange-based context, it has been noted that promotion, hiring and decisions hinge on proof of competency or merit (Countries – Geert Hofstede, n.d).
Nigeria’s score on the dimension of uncertainty avoidance is 55. This intermediate ranking proves no clear preference. Uncertainty avoidance depicts the degree to which any given society feels endangered by unfamiliar or vague situations and creates institutions and beliefs in an attempt to avoid, stave off or counter such situations. America’s score on this factor lies below average (46). Uncertainty avoidance pertains to how a particular society copes with the issue of unpredictability of the future. Nigeria’s higher score, compared to that of the U.S., suggests that Nigerians feel more vulnerable when faced with vague and unfamiliar situations than Americans do. Further, American society is rather receptive to inspiration or views from anybody; everybody is free to articulate and express his or her thoughts and feelings. This poses a challenge, as the American employer will anticipate or even expect that local (Nigerian) staff can easily handle uncertainties of the future, and will therefore, not feel vulnerable in the face of unfamiliar/vague situations. As such, American society does not demand a great many rules; Americans are more emotionally-guarded than members of higher-scoring societies (Countries – Geert Hofstede, n.d).
Part 2
The American firm must adopt a geocentric human resource (HR) strategy for managing Arik Airlines. Geocentric hiring implies recruiting the most competent of candidates, irrespective of their nationality (background). This is a global approach- one that fosters universal integration; it believes that individual facets of a company all contribute uniquely to its overall functioning. A geocentric staffing policy gives priority to skill and suitability of individuals for a particular post over nationality. What passport one holds is unimportant in a geocentric company, in matters of promotion, rewards, and growth in the organization. The advantage of a geocentric strategy is the organization’s ability to establish a culturally diverse executive board comprising members hailing from different countries. Geocentric policy surmounts the federation shortcoming that characterizes a polycentric staffing policy; also, it facilitates resource sharing and collaboration across units. Bearing in mind the large amount of Arik Airlines employees required in America, it would also prove more convenient to conduct business in their own domain when there is a difference of culture (Williams, 2010; Rao, 2010).
Part 3
The responsibility of organizations that send employees overseas expands to cover more than just elementary HRM functions. For instance, hiring, development and training are given particular emphasis in such companies. They cannot simply choose employees most suitable for placement in a foreign division, without regard for the families they will be taking along to the unfamiliar overseas cultural environment. Numerous employees who are assigned overseas come back unsuccessful simply because of familial adjustment issues. Therefore, it is imperative to arrange foreign language training for the selected individual and members of the employee’s family a prior to departure. All prerequisites, such as visas to undertake the journey, must be made available on time. Moreover, the employer must ensure preparation of a residence for the family in the other country, school enrolment for the employee’s children, and family health services. The geocentric organization makes use of a global integrated approach and hires and manages its workforce on an international basis (Treven, 2001)
America’s HRM system, when compared to that in Nigeria, is rather strict- well-structured and formalized; organizations need to abide by federal HRM rules in the process of hiring candidates, while decision-making in the organization needs to be in line with organizational requirements, and economic and political factors. Therefore, there is a call for hiring specific, competent HR from the local candidate pool. American labor law provides better remuneration and accommodation benefits to staffs. However, Nigeria’s population is already relatively high. The management of Arik Air believes that the local workforce is not competent enough; furthermore, owing to its high population density, people work for lesser pay, giving rise to issues of social inequity in the nation. The Nigerian government had chosen to ignore the problems faced by domestic workers until recently. An effort is underway to equalize local work conditions. The U.S. firm must take into account the prevailing problems and HRM structure of the organization while employing workers from the local candidate pool. While developing its HRM strategy in Nigeria, environmental factors (i.e., political, social, economic, and legal) need to be borne in mind. At present, for a majority of Nigerian companies, performance appraisal takes place via dialogue with employees; it plays the role of a mentor in general molding of employees to gain optimal performance from them (Treven, 2001)
While a geocentric policy is the preferred approach to staffing in this case, it may pose some difficulties as well. A geocentric strategy makes it challenging to counterbalance international priorities and domestic demands. It puts off tough local decisions till they cannot be avoided — at a stage when they become costlier, more complex and pose more troubles than they would have, had they been addressed earlier. Geocentric approach may likely render it harder to hire qualified workers, and can reduce head office control over the overseas subsidiary (Treven, 2001; Rao, 2010)
SLP
Power Distance
Hofstede proposed “Power Distance’ as a measure of social inequality that expresses a society’s outlook towards inequalities inherent in it. It refers to the degree to which unequal power distribution is expected and accepted by the lower ranking members (in terms of authority), of organizations and institutions in a country. It deals with the degree of endorsement of societal inequality by both leaders and followers. Canada’s power distance score is low (39). Canadian society is characterized by societal interdependence. As is common with other low-scoring nations (in regard to the dimension of power distance), Canadian firms institute hierarchy for mere convenience; superiors are easily accessible to subordinates and managers depend on the expertise of team members and individual workers. Staff members and managers confer with each other on organizational matters and there is free flow of information at all levels of the company. As regards communication, the Canadian society sets store by a straightforward information interchange. America’s power distance score (40) is very closely ranked to that of Canada (39).This implies that employees of either country will find it easy to fit into the work environment of the other (The Hofstede center, n.d).
Individualism
This dimension deals with whether individuals in a given society perceive themselves singly or collectively. Individualist cultures expect members of society to be responsible only to themselves and immediate family members. On the other hand, individuals in collectivist cultures form part of groups, which look after them, in return for absolute loyalty. In this dimension, Canada and the U.S. display high scores of 80 and 91, respectively; the cultures in these neighboring countries are categorized as ‘individualist’. In both nations, communities are loosely-united. In the context of business, in both nations, companies require their employees to exhibit the qualities of self-reliance and enterprise. Additionally, in the exchange-based context, it has been observed that promotion, hiring and decisions hinge on proof of competency or merit. Americans are comfortable communicating and having business dealings with persons not very familiar to them. As a result, they do not display reluctance towards seeking or acquiring requisite information from prospective counterparts (The Hofstede center, n.d).
Masculinity
A masculine culture denotes one that is guided by success, competition, and achievement; here, “best-in-the-field” or the best performers define the measure of success in this culture. The basic focus concerning this dimension is individuals’ motivation: the urge to surpass all others (Masculine) or being content with what one does (Feminine). In terms of masculinity, Canada may be labeled as dominantly “masculine,” with a score of 52, while the U.S. depicts high masculinity, with a score of 62. Masculinity in American culture is manifested in its typical behavioral patterns, which stem from a blend of extreme individualism and high masculinity. Canadians, meanwhile, try hard to achieve high performance standards in work as well as play (sports). Canada’s general cultural tone, in relation to achievement, winning, and success, can be deemed more comparatively subdued than that of the U.S. Likewise, Canadians are inclined to balance their personal and professional lives well, and will likely devote time towards recreation, family events, and life’s simple pleasures. Canadians typically put their best foot forward for achieving high performance standards in every task they undertake. The Americans also exhibit this trait (The hofstede center, n.d).
Uncertainty Avoidance
Hofstede’s dimension of Uncertainty Avoidance pertains to how a particular society handles the unpredictable nature of the future, that is, whether it believes in attempting to shape and control one’s future or simply allow it to happen. The ambiguity associated with the future is accompanied by anxiety; people of different cultures cope with the anxiety differently. Uncertainty avoidance depicts the degree to which any given society feels endangered by unfamiliar or vague situations and creates institutions and beliefs in an attempt to avoid or counter such situations. Canada scores 48 on the dimension of uncertainty avoidance, whereas America displays a below-average score (46). Consequently, citizens’ perceived context will determine actions more if scores were either lower or higher. Hence, characteristically, American society depicts: Novel ideas, innovation in products, and readiness to attempt unfamiliar or new things (whether in the context of business, technology or food) are, to a reasonable degree, accepted — as is also the case with Canada. Canadian society is not grounded on rules; lastly, Canadians are more emotionally-guarded than members of higher-scoring societies (The hofstede center, n.d).
Discussion
Geert Hofstede on culture: https://www.youtube.com/watch?v=wdh40kgyYOY
One cannot dispute the fact that Geert Hofstede represents the most brilliant minds; Hofstede’s insights into cultures around the world are a guide to all who attempt to gain an understanding of them. For example, Hofstede’s illustration of how French and German students differ (at instance 17:00 of the above video) is extremely helpful and accurate.
Hofstede’s Model on Cultural Dimensions: https://www.youtube.com/watch?v=lTY6LH9WdZ4
Social Psychologist, Geert Hofstede, has researched individuals in a number of countries across the globe in the pursuit of developing a theory/model on different cultural dimensions. The above video discusses the five key culture dimensions identified by him, namely, Power Distance, Individualistic vs. collectivist, Masculinity vs. Femininity, Time Orientation, and Uncertainty Avoidance.
Videos assist stimulating and engaging the students’ minds towards active learning. Videos make for a persuasive and captivating instructional medium for students. They spark a greater deal of enthusiasm and curiosity in the subject matter as compared to regular printed content. Employing the use of sound and sight, videos form the ideal, proactive educational medium for those who are visual or auditory learners. They cultivate interest among students and maintain it for a longer duration of time. Videos offer a valuable and innovative mode for tutors and mentors to manage and deliver essential curriculum matter. They create experiences — that is, videos offer the advantage of an enriching, sensory experience which enables abstract ideas and concepts to assume the form of an actual experience. Videos give life to theoretical study matter, guiding students through various stages of learning. They are also a flexible means of teaching. With increasing student engagement and enthusiasm in the lesson, and growing interactivity of every learning session, students will learn more, enjoy more, and retain a larger quantity of information. Apart from its interactive quality, video are also very flexible, in that they can be stopped, started and revisited — an invaluable feature. A video can easily be stopped midway to challenge students in a class to guess at the result of any demonstration, or explain, or deliberate on any historical aspect. Videos have aided both parents and teachers in minimizing the time required for preparing lessons, as they allow easy identification and selection of the video(s) appropriate to a lesson, while also drawing upon other resources offered for enriching students’ learning experience and outcomes, and emphasizing individual lessons’ benefits and quality. They also come with subtitles or closed captions. Videos that are professionally subtitled enable effective analysis of video content by the students, while simultaneously improving their literary and reading skills. Concurrently, the options of reading, listening, or watching the presentation, help ensure that the video will serve a wide range of favored learning styles (The Benefits of Using Educational Video in The Classroom, n.d)
Reference:
Countries – Geert Hofstede. (n.d.). Retrieved October 10, 2015, from http://geert hofstede.com/countries.html
Eze, C (2010) Arik air announces management team restructuring [online] Available from:
http://www.thisdayonline.com/nview.php?id=168400 [Accessed: 12th March, 2010]
Kotler, P.; Keller, K.; Brady, M.; Goodman, M.; Hansen, T. (2009) Marketing Management,
Essex, Pearson Education Limited.
Rao, P. (2010) Unit 2: International human resource management and development. International Business Environment. Global Media, Mumbai, IND. [Ebrary]
The Benefits of Using Educational Video in The Classroom. (n.d.). Retrieved October 10, 2015,
from http://www.zaneeducation.com/educational-video/education-and-video.php
The Hofstede Center. (n.d.). What about the U.S.A. Retrieved October 10, 2015, from http://geert hofstede.com/united-states.html
Treven S. (2001). Human resource management in international Organizations. Retrieved October 10, 2015, from https://www.efst.hr/management/Vol6No1-2-2001/11-Treven.doc
Williams, S (2010) Arik an African leader in the air. Retrieved 10 October 2015 from http://www.thefreelibrary.com/Arik,+an+African+leader+in+the+air:+Virgin+Nigeria’s+decision+to+stop…-a0206404350
Case (4pages)
Question 1
The two key forms of currency risk encountered by a business that may, in turn, be a risk to family income are:
1. Transaction risk – This denotes cash flow-related risk; it deals with impact of shift in the exchange rate on exposure of transaction account in relation to payables (i.e., import contracts), receivables (i.e., export contracts), or dividend repatriation (Papaioannou, 2006).
2. Economic risk – This risk fundamentally denotes risk to present value of a business’s future cash flow from operations, because of shift in the exchange rate. Economic risk is essentially concerned with exchange rate fluctuations’ impact on returns (Papaioannou, 2006; Shackman, 2015)
A perfect hedging plan is then adopted by determining the risk the business is ready to take. The hedging plan represents the smallest possible optimal hedge ratio for a standard uncertainty level. Through this method, if the currency view of the business involves an observation of volatility, alternatives give rise to a comparable or better optimal hedge ratio at lower degree of uncertainty as compared to un-hedged position. The business must hedge once it has ascertained the kinds of currency risk involved and computed related to exposure risk (Papaioannou, 2006).
This reveals that transaction risk, typically, is hedged strategically or selectively (tactically) for preserving income and cash flows, based on a business’s treasury view with regard to future currency (Euro, in this instance) movements. A majority of organizations employs tactical hedging for currency risk pertaining to short-run payables and receivables; on the other hand, concerning long-term transactions, strategic form of hedging is adopted (Papaioannou, 2006).
Mostly, firms hedge economic risk as residual risk. Its quantification is not easily possible because it signals probable effect of fluctuations in exchange rate on present value of future cash flows. Here, firms can neutralize effect on individual flows across markets and product lines; offsetting the effects of net economic risk of businesses investing in multiple overseas markets. The business, under such conditions, can ideally hedge economic risk through creation of payables (such as, funding operations) in the monetary unit that its subsidiary encounters higher inflation cost (in other words, the currency which makes the business’s value vulnerable) (Papaioannou, 2006).
A business may plan on fixing budget exchange rate at the average daily exchange rate of the past financial year. The company, in this case, would have to employ a hedge via, possibly, an average-based mechanism such as synthetic forward or option. The establishment of a budget exchange rate proves vital for the pricing strategy of businesses apart from its significance in determining benchmark hedge performance and hedge tenor (the latter usually equalize cash flow hedge requirements). Budget exchange rates employed for predicting cash flows have to, however, be near the benchmark rate for preventing likely major alterations in the pricing strategy of a business or reassessment of its hedging plan (Papaioannou, 2006).
Question 2
In the present times, any small-scale or large-scale organization, be it supplier, buyer, manufacturer, distributor or service provider, will likely be affected by international variables, like inflation, foreign currency, and interest rates. They can individually or collectively influence cash flow and profit levels desired by internationally-operating firms. For a multinational company (MNC), a well-developed, all-inclusive, and functional budgeting system forms a vital management tool. These companies need to predict effect of internal variables as well as international (external) variables. Overall, a business’s budgeting system must be efficient with regard to monitoring progress in comparison to the pre-determined plan as well as in adjusting and accommodating unforeseen circumstances and events transpiring with growth and progress of business operations (Rivera & Milani, 2011).
This is regarded as economic risk (Shackman, 2015); it necessitates policy decisions critical to the process of budgeting. The activities entailed in strategic planning must take into account policy decisions, which include:
1. Marketing-connected policies; these define how the strategic sales budget differs as per exchange rate fluctuations.
1. Production-connected policy; these indicate that company budget should have the ability to deal with critical changes in production.
A flexible budgeting approach will enable implementation and control of production and marketing variations. MNCs can establish operations in nations that often minimize negative repercussions of fluctuations in exchange rate (i.e., China, in this particular instance). Also, the organization can obtain capital for the foreign country venture in the respective foreign currency rather than utilizing home currency (i.e., South African and Indonesian currencies, in this instance). Both the above policies will aim at aiding the MNC in equalizing cash inflows (capital proceeds and revenue) and outflows (financing and production expenses) in the very same currency for minimizing inter-country cash flows and, thereby eventually, lowering economic exposure. These policies, after institution, will come under the process of budgeting; they will be utilized for assessing foreign operations’ actual performance when subject to variations in exchange rate (Rivera & Milani, 2011; Avadhani, 2010).
Question 3
If the products of any nation are relatively inexpensive, foreigners will prefer to purchase them. In order to enable them to do so, they require that nation’s currency. The nations where prices are lower are characterized by strong currencies and the currency value of these nations will increase. With growth in economic size, a growth in money supply is required for ensuring price stability; if this does not happen, a drop in prices will ensue, as services’ and goods’ quantity will rise at a faster rate than the money circulating in the economy, thereby causing deflation. When the opposite phenomenon transpires, that is, quicker increase in money supply than economy, the outcome will be inflation. Therefore, as services and goods possess a fundamental value and as supplier profitability limits quantity produced, their nominal price is principally decided by money circulating in the given economy. Forex rate refers to one currency’s price with regard to another. As it compares two nations’ currencies, forex rate relies on each currency’s value, and, consequently, both nations’ economies (Economics of Foreign Exchange Rates, n.d). Forex rate is impacted by three basic economic factors:
Each currency’s relative purchasing power;
Investment risks and prospects of both nations, and Services and goods desirability of both nations.
Though there are other factors worth mentioning, like international BOP (balance-of-payments), we can incorporate them all under the aforementioned three basic economic factors determining forex rates (Economics of Foreign Exchange Rates, n.d).
Usually, a country with better opportunities for investment will draw international capital. This will result in its local currency appreciating relative to the currency of other nations, as foreign investors will be required to exchange home currency for that of the nation they intend to invest in, thus increasing investment currency demand; consequently, investment currency’s price, that is, forex rate, will rise (Agarwal, 2009). For example, emerging economies have drawn a significant quantity of capital from foreign countries as the underdeveloped nature of their markets pose greater growth potential. Thus, if a particular currency is able to purchase more services and goods as compared to an equal sum of another currency, the former’s value and, consequently, demand will be more. Another economic determinant of forex rate is how desirable a nation’s services and goods are in comparison to other services and goods on sale in the global scene. If a nation delivers superior services or superior goods at lower cost, foreign nationals will purchase more from it, thus increasing its local currency value (Economics of Foreign Exchange Rates, n.d).
SLP (3pages)
Part 1
Ever since December of 2010, Australia’s currency (i.e. Australian dollar or AUD) has typically traded above parity with America’s currency (U.S. dollar); it has seldom shown a decline below parity. Australia’s forex regime has transformed and improved from a fixed regime, to managed floating, to eventual independent floating. The nation had constant exchange rates from 1945 to1973 — the era of the Bretton Woods system. Following the system’s collapse in the year 1973, there was a shift towards managed floating currency exchange system, wherein the Reserve Bank set exchange levels on a daily basis; they were connected to a trade-weighted portfolio of select currencies having different weightings (i.e., currency basket). During the 80s, several capitalistic economies displayed a trend of currency floating probably because they understood that they did not have independent control over domestic fiscal policy, which could result in inflations and a decrease in their export competitiveness. Moreover, nations were at a risk of speculative attacks, owing to connected exchange rates. A decade after the elimination of Bretton Woods system, nearly all Australian forex controls were abolished. Since then, the AUD’s link to a trade-weighted portfolio of currencies has been severed, with the monetary unit being assigned to the ‘independently floating’ category. Australian exchange rate, at present, is regulated by the market. Licensed forex dealers are allowed to deal with one another, with clients, and with foreign counterparts at jointly-settled rates for forward as well as spot transactions in the currency of any country, with respect to non-trade- and trade-linked transactions. Australia’s Reserve Bank, nevertheless, still holds discretionary power for intervening in the forex marketplace. The AUD does not possess an official foreign exchange rate (International Economics – Historial Exchange Rate Regime of Asian Countries, n.d). The AUD’s fluctuations in relation to USD, typically, are larger than TWI (Trade Weighted Index) fluctuations, as the TWI determines the overall rise and fall of the AUD (Ravimohan, 2010).
Part 2
The banking sector of Australia is powerful, advanced, well-structured, and profitable; it increasingly participates in global and regional markets, and accepts new entrants (Australian Trade Commission, 2011). In the year 2012, Australia’s banking system was functionally very sound; not even l% of loans were regarded problematic, as opposed to the 1991 figure of 6%; one can view this against Japan’s figure of 8% in the year 2002, or America’s struggle in 2009 with around 6% mortgage delinquency (most of which were sub-prime, i.e., loans to individuals posing high default risks) (Blanchard & Sheen, 2013). Australia’s banking system counts among the most sophisticated systems across the world. The country boasts of a lengthy history of safe and stable banks.
Two of the major ‘safety’ dimensions include probabilities of illiquidity and failure. As regards the latter dimension, one can witness widespread consensus regarding the fact that major banks of Australia are financially stable. In terms of debt ratings, the nation’s 4 important banks are rated medium to low AA, counting the Australian banking system, together with those of Canada and Singapore, among the world’s highest rated systems. After the economic crisis, majority of the international banks were rated either BBB or single A. The financial strength of a bank is centered on its capital quality, capital quantity, asset quality, and earnings capacity, all of which are reinforced by effective management and governance. According to the Australian Prudential Regulation Authority (APRA), the asset quality of Australia’s banks is one of the strongest globally, in spite of being highly focused in mortgage loans which possesses higher risk than normal. Also, their earnings capacity and capital quality counts amongst the best, globally. Capital quantity of major Australian banks, in contrast, lies far above the minimum requirements of the law, and above global average; however, it is short of Australian FSI-recommended (FSI- Financial System Inquiry) top quartile standing. In view of Australian banks’ dependence on offshore finance, there is inevitable showcasing of international comparisons in any issue of the proper capital levels of Australian banks. In short, the major banks of Australia are financially-strong and well-capitalized, and can potentially play the role of shock absorbers, in case the nation’s financial system and economy faces any unforeseen external adversity. However, this stability is mainly due to the bank earnings and asset quality. However relative capital level of banks has lower bearing on stability. (Littrell, 2015).
Part 3
It is easy to carry out business operations in Australia. The nation has a transparent and well-organized regulatory system, which offers businessmen a safe commercial and economic environment. Entrepreneurs acquire a secure and stable environment for conducting business, owing to Australia’s firm governance and legal structures, and political stability. Australia has, for six consecutive years, retained the third spot on the Economic Freedom Index. Australia’s financial sector is advanced and provides access to one of the largest bank asset pools in the Asia-Pacific, in addition to the fourth largest pool of pension assets worldwide. The above credentials encourage corporates across the globe to do their business in Australia. (Business, n.d).
Below are recommended some steps for assisting risk managers with ascertaining whether their organization benefits from a certain hedging strategy or not.
STEP 1: Risk Identification
Prior to taking any decisions with regard to hedging, a firm’s management ought to initially determine what risks their company is vulnerable to. Financial risks can mostly be hedged because of the presence of large, well-organized markets that allow transference of these risks. Unless there is material potential loss (loss large enough for having a serious impact on company returns) costs might not be outweighed by a hedge’s benefits; consequently, the business may be at a greater advantage if it chooses not to hedge (Giddy, n.d).
STEP 2: Differentiation Between Speculating And Hedging
One of the reasons behind the occasional reluctance of organizational risk managers towards hedging is their association of the employment of hedging instruments with speculation. The opposite holds good in reality. A well-developed hedge lowers risk at all times. The managers’ choice of not hedging is what frequently exposes a company to added risks (Giddy, n.d).
STEP 3: Evaluation Of Hedging Costs Taking Into Account The Costs Of Not Hedging
Hedging costs can, at times, make organizational risk managers unwilling to hedge. However, they must take into consideration the alternative: in case the market factors (like exchange rates or interest rates) take an adverse course (Shackman, 2015). Hedging cost, in these cases, should be assessed similar to an insurance policy’s cost, i.e., in relation to probable loss (Giddy, n.d).
STEP 4: Adoption Of The Right Measure For Evaluating Hedge Performance
The answer to proper evaluation of every derivative transaction’s performance (including that of hedges) is to establish proper goals right from the start (Giddy, n.d).
STEP 5: Avoidance Of Centering Hedge Program On Market View
A number of organizational risk managers strive to develop hedges depending on their outlook of market elements such as exchange rates and interest rates. The main aim to hedge must be risk minimization and must not gamble with market price directions (Giddy, n.d).
STEP 6: GRASP OF HEDGING TOOLS
One last factor which discourages adoption of hedging by numerous organizational risk managers is non-familiarity with derivatives. There are some managers who perceive derivatives to be overly-complex, incomprehensible instruments. But, the truth is that the basis of a majority of derivative solutions is the two elementary instruments, namely, options and forwards (Giddy, n.d).
STEP 7: Establishment Of A System Of Controls
Like every other financial activity, a hedge also needs a framework of internal controls, policies, and procedures for ensuring its proper implementation (Giddy, n.d).
Discussion Question: Gambling with Currency (1 Page)
Case study: I lost $2,800 in a forex trade
I wished to trade in foreign exchange, and therefore, deposited 3, 500 Australian dollars with a Forex margin provider. I settled on buying AUD 100,000 against USD at 0.9100 (i.e. a USD 91,000 foreign exchange contract). I paid an AUD 500 margin (i.e., 0.5%). Unfortunately for me, AUD’s value against the U.S. currency dipped to 0.8850; I closed out the transaction and lost around 2, 825 AUD (in addition to the AUD 500 margin). Therefore, from the original amount I invested (AUD 3,500); I had around AUD 675 left, minus transaction costs.
Had I not chosen to close out the transaction, and had the AUD’s value against USD kept dropping, I might have met a margin call, while losing several times my original investment. The arrangement of a guaranteed stop loss (GSL) order would require an additional fee. The GSL would have closed the transaction, thereby preventing any further loss in case of inadvertent movements in the market. This would have reduced my losses by not fully recovered. (Foreign exchange trading, 2015).
Foreign exchange trading is highly risky since:
Considerable investment risks accompany forex trading; currency changes can take place against the forex trader, resulting in loss of money. Forex rates are highly volatile and fluctuate a lot in extremely short spans of time. Unlike other means of gambling, time zones ensure 24/7 accessibility to markets; thus, traders have to commit a considerable amount of time towards tracking their investments. Also, owing to the fact that several factors impact exchange rates, currency markets prove to be highly unpredictable. Furthermore, due to high leveraging of a majority of foreign exchange trading products, even small fluctuations in the market have the capability of making a great impact. GSLs and other risk management options only allow limited trader protection by loss capping; however, GSLs command a premium fee (Foreign exchange trading, 2015).
In case of United Arab Emirates’ currency, Dirham (AED), forex rate arrangements fluctuate around the SDR’s (Special Drawing Rights’) value; SDR is the special financial unit of the International Monetary Fund, constituting a fixed major global currency basket. In case of the Kuwaiti dinar, forex rate is established based on an adjustable, yet fixed relationship between a weighted currency basket and the dinar. The Kuwaiti dinar’s Dollar forex rate has, of late, remained extraordinarily stable; the Kuwaiti dinar depicted a less than1% standard deviation in the past 5 years. Kuwait’s currency is also the only Middle Eastern currency not pegged to the Dollar, following the Bretton Woods system’s collapse (Jadresic? & International Monetary Fund, 2002).
References
Agarwal, O. (2009). Chapter 5: Foreign exchange risks. International Financial Management.
Himalaya Publishing House, Mumbai, IND. [Ebrary]
Australian Trade Commission. (2011). Australia’s banking industry. The Australian
Government.
Avadhani, V. (2010). Chapter 19: Operational exposure — risk management. International Financial Management. Global Media, Mumbai, IND. [Ebrary]
Blanchard, O., & Sheen, J. R. (2013). Macroeconomics: Australasian edition. Frenchs Forest,
N.S.W., Pearson Australia Group.
Business. (n.d.). Retrieved October 10, 2015, from http://www.austrade.gov.au/digital benchmark/business.html
Economics of Foreign Exchange Rates. (n.d.). Retrieved October 10, 2015, from http://thismatter.com/money/banking/foreign-exchange-rate-economics.htm
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Shackman, J. (2015). The economic and financial environment of international business. Trident Case (4 Pages)
Part 1
One of the factors that made Project Pie a success in Philippines after it entered the market, was the partner they decided to go into business with (Killifer, 2015). In terms of expanding into global markets, one of the most important things that a company has to find is the right franchisee / operational partner. Such resident partners are already familiar with the markets they operate in and they could also offer additional capital to enable the success of the international joint venture. However, a brand that is seeking to expand internationally should remain flexible in terms of how its set standards are met in each of the new international franchises it is opening. Upon partners submitting lists of possible locations in their respective towns, Roy Choi’s firm will then chose the location of the stores. Franchisees serve the locations where they are from, and since Roy Choi’s enterprise is a new market entrant that brands itself for its fresh food, it is important for its partners to create local relationships. Roy Choi should give the partners the standards that it wants them to meet in relation to the food products it wants to supply and then it should have someone who shall meet the vendors, check regularly to ensure the food meets the quality and taste as per standards. There are cultural differences in almost every country and even regionally, however the brand’s flexibility makes it quite easy to open branches anywhere it chooses. One of the main reasons behind Roy Choi’s international expansion is that, it believes that there is a market need in the health and wellness subsector (Hoy & Stanworth, 2003; Killifer, 2015).
Question 1
It is recommended that Roy Choi should utilize product localization. Localization allows commodities or services to be more accessible globally. It has been revealed that approximately 72.4% of individuals will most probably purchase merchandise with labels written in their own language. Thus, localizing a service or a commodity creates greater opportunities for a company to grow since it expands a company’s market beyond the restrictions of borders and languages. Products or brands that have more exposure are also likely to have more demand for their products thus more business for the company (5 Reasons why Product Localization Should be a Priority, 2011).
The firm should have a Multi-domestic strategy. International firms that choose the adaptation strategy do so based on the argument that each nation ought to be approached as a separate market. Thus, such firms have subsidiaries in all the countries where they do business. The decision-making process is done at the subsidiary level, thus each subsidiary has a lot of independence in its operations. When utilizing a multinational strategy, firms often get into foreign markets with no presumptions about that specific economy. Such firms then do research to find out the needs of the target population. Such firms then develop marketing plans based on the needs of the market. Multinational firms have the advantage of economies of scale and improved product quality and assume that world markets are homogenized and that lower costs of production result in reduced prices and increased sales. Proponents of Adaptation base their arguments on price discrimination and the friction theory that often establishes the relationship between main offices and subsidiaries. Firms utilizing a standardized multi-domestic strategy can attain the advantages of reducing their costs of production, enhancing the quality of their services or products, also in addition to more client preference (Herbig, 1998).
Question 2
New technology-based firms that are expanding into international markets frequently are faced with challenges of insufficient resources of capital, time and capabilities. As a result, such companies usually utilize entry modes typified by lower resource commitment such as joint ventures. It is recommended that Xiaomi should utilize the alliance strategy. According to Nielsen, companies often get into partnerships because of the many benefits they could get or to get resources or knowledge about the local market. There has been a huge growth in the number of businesses that have gone into partnerships since the mid-1980s, particularly, in the technology sector. Different companies have several crucial internal resources that give it a competitive edge, however, a number of carefully-selected and well-cultivated partnerships also add to the company’s competitive edge. Obviously, a company cannot just choose another and begin doing business with it. There has to be a negotiation process to settle on concerned issues and to reach an agreement (Moen, Bakas, Bolstad & Pedersen, 2010).
A standardization strategy is recommended. Firms utilizing a standardized strategy can cut production costs, enhance their products / processes, improve client preference, and increase their competitive edge. Global marketing focuses on economies of scale through developing standardized commodities of high quality to be sold at relatively low prices in the international market. The standardization strategy stresses on similarities between cultures, despite the regional location of consumers. Thus, this strategy brings about or results in- low costs, increased profits, standardization of consumer behavior, international sourcing, compatibility with legal and political environments, efficiencies of scale, and global corporate thinking. Firms can easily attain economies of scale by coming up with standard products that they can sell globally (Herbig, 1998).
As the world increasingly moves towards a global mindset, there is a need for more international businesses and information technology. These needs are brought about by international markets, international collaboration, international resources, and International operations. A transnational IT or business strategy involves a company relying on information systems and communication technologies to help it to merge its global business practices. Transnational strategy provides firms with the ability to integrate its enterprise systems with global data. The strategy does this by using the Intranets, extranets, Internet, or other internet-based processes. The standards and policies utilized in a transnational strategy are often the same globally. Transnational strategies offer companies many benefits such as a collection of global partnerships that allow virtual 24-hour-7 days a week operation of the company. This strategy also allows mass customization, which means that even though the processes are standardized they can be customized to different needs in different countries (Swart, n.d).
SLP
Part 1
In terms of political stability, Canada has a score of 91 (Worldwide Governance Indicators, 2015). The country is a parliamentary democracy, whereby law is the supreme authority. The 1867 Constitution Act, which is the basis for the country’s written constitution, states that there shall be one legislature for Canada, made up of 3 separate components: the House of Commons, the Senate, and the Crown. However, since it has a federal government, the duty to legislate is shared among the federal, provincial and territorial governments (Parliament of Canada, 2000). Canada is more stable now than ever before. Most of the regions that make up the country have moved beyond the need for secession (including Quebec). Prime Minister Stephen Harper was able to unite Eastern Canadians in terms of what they do not want, and this led to a liberal majority in parliament that was backed by the regions of Quebec and Ontario. Democratic and non-violent politics and the cultural unity among the people of Canada give the country a high score in terms of political stability. The stability is strengthened by the high economic growth levels, robust social freedoms, upholding of human rights and very low levels of corruption. Changes in Quebec’s separation issue are the main threat to Canada’s stability, however such a separation is not likely to be highly disruptive (Future of Canada: Stability, n.d).
Part 2
In terms of the rule of law, Canada has a score of 95 (Worldwide Governance Indicators, 2015). Canada’s legal system is a hybrid one. It includes two of the most used legal traditions in the world i.e. the English Common Law that is applied in 3 territories and 9 provinces and the French Civil Law that is applied in Quebec. Constitutionally, the country is a federal state and power is shared between the national (federal) government and provincial/territorial governments. For the majority of businesses, provincial legislations have more importance or direct effect that federal laws, since provincial governments have been granted by Canada’s constitution that power over “civil rights and property,” which includes, labor relations, land use, occupational health and safety, contract law, municipal legislations, financial securities and consumer protection. Thus, many businesses see federal control as being confined to only a few areas of the economy such as financial services sector, communication, and infrastructure or matters of national importance such as customs and immigration. In some situations, a business aspect might be subject to both provincial and federal legislation. For example, the relationship between an employer and his or her employees is normally governed by provincial labor laws, however if the business is either a bank, a railroad company or an airline or any other kind of “national” business, the relationship between the two entities is then guided by the federal government’s labor code. In other cases, different business aspects are regulated at different levels: for instance, all the big insurance companies are federally cleared; the conduct, governance and practices are under the leadership of the federal Superintendent of Financial Institutions; however, the marketing done by these insurance firms, their policies are governed by provincial insurance laws. In a few other cases, there might be overlapping: for instance, there exist both provincial and federal environmental laws. However, overall, it can be said that the laws in Canada are pro-business. One of legislations that will have the most impact on a business is the employment laws. The employment law defines the legal rights and obligations that regulate the workplace relationship between employers and their workers. While employment law principles are derived from the English Common law, several aspects such as CBAs (Collective Bargaining Agreements) and standards of employment are governed by statutes (Borden Ladner Gervais, 2014).
Part 3
In terms of corruption, Canada has a score of 95 (Worldwide Governance Indicators, 2015). Corruption is not a huge problem to doing business in Canada. Canada has well defined ant-corruption laws that are not only reliable but also transparent. Despite the low levels of corruption, there are still incidences where bribery occurs particularly during tax administration whereby corrupt tax officers allow companies to evade tax after being bribed. Foreign investors who want to invest in construction services should also be cognizant of the high level of corruption in the country’s procurement system. Bribes, gifts, and kickbacks are widespread among politicians and construction companies in provinces such as Quebec. The main anti-corruption law is the country’s criminal code. It prohibits bribery, corruption, peddling influence and abuse of office. Payments for facilitation and foreign bribery are considered a crime under the ‘Corruption of Foreign Public Officials Act (CFPOA)’. The law permits local courts to persecute corruption committed by Canadian firms and nationals abroad. The anti-corruption law of Canada is enforced effectively and the firms and person found guilty by courts of law are punished (Business Corruption in Canada, 2014). The Corruption of Foreign Public Officials Act (CFPOA) is the law in Canada that implements the country’s obligations under the United Nations Convention against corruption. The law permits local courts to persecute corruption committed by Canadian firms and nationals abroad. While the Canadian government does not offer any formal guidelines for what an anticorruption program should include, the provisions contained in the Bribery Act and the FCPA provide some direction for firms that want to prevent corruption. Companies should come up with their own programs based on the risk exposure and its size (CFPOA, n.d). However, the following should be taken into account when coming up with an anticorruption compliance program:
The program should include a corporate policy against corruption and CFPOA violations
The company’s management should lead by example by quickly acting on corruption concerns
Compliance procedures and standards should be drafted in such a manner that they decrease the risk of a firm’s standards being violated.
One or more senior administrators should be assigned the duty of ensuring compliance.
There should be proper accounting and financial procedures
Guidance, communication, and training against corrupt practices should be made available to all employees.
There should be a periodic review of the compliance standards and procedures (CFPOA, n.d).
References
5 Reasons why Product Localization Should be a Priority. (2011, July 1). Retrieved October 11, 2015, from http://blog.csoftintl.com/5-reasons-why-product-localization-should-be-a-priority/
Borden Ladner Gervais (2014). DOING Business IN CANADA: An Introduction to the Legal Aspects of Investing and Establishing a Business in Canada. Retrieved October 11, 2015, from https://www.blg.com/en/NewsAndPublications/documents/Doing_Business_in_Canada.pdf
Business Corruption in Canada. (2014). Retrieved October 11, 2015, from http://www.business anti-corruption.com/country-profiles/the-americas/canada/snapshot.aspx
Canadian Corruption of Foreign Public Officials Act (CFPOA). (n.d.). Retrieved October 11, 2015, from http://www.business-anti-corruption.com/resources/compliance-quick-guides/canada.aspx
Future of Canada: Stability. (n.d.). Retrieved October 11, 2015, from http://www.futureatlas.com/North_America/Canada/Canada stability.htm
Herbig, P. A. (1998). Chapter 2: The standardization versus adaptation debate: Wherefore art thou now? In E. Kaynak & P.A. Harbig (Eds.), Handbook of Cross-Cultural Marketing (pp. 31-50). Haworth Press, Inc., Philadelphia, PA, USA. [Business Source Complete]
Hoy, F., & Stanworth, J. (2003). Franchising: An international perspective. London: Routledge.
Killifer, V. (2015, January 16). Restaurant Chains Are Going Global, Here’s How — restaurant development design. Retrieved October 11, 2015, from http://rddmag.com/development/features/387-going-global
Moen, O., Bakas, O., Bolstad, A., & Pedersen, V. (2010). International Market Expansion Strategies for High-Tech Firms: Partnership Selection Criteria for Forming Strategic Alliances. International Journal of Business and Management, 5(1), 20.
Parliament of Canada. (2000). 1. Parliamentary Institutions. Retrieved October 11, 2015, from http://www.parl.gc.ca/marleaumontpetit/DocumentViewer.aspx?Sec=Ch01&Seq=2&Language=E
Swart, E. (n.d.). BMBA ULM Group 7, 5009: Transnational Strategy. Retrieved October 11, 2015, from http://bmba5009group7.blogspot.co.ke/2012/11/global-businessit-strategy-as-world.html
Worldwide Governance Indicators. (2015.). Retrieved October 11, 2015, from http://info.worldbank.org/governance/wgi/index.aspx#reports
The next frontier market that Zipcar should target is India. India has grown rapidly in the last few decades to become one of the world’s largest economies. Now, under the leadership of Prime Minister Manmohan Singh, the country has one of the most diversified and complex economies on earth. The new prime minister is pro-business and has announced several reforms, that are seen as the most important changes since the revolutionary reforms of mid-1991 that saw the country being opened up to foreign investments (Govindarajan, Matin & Sarkar, 2012). However, despite the many promising changes, since many organizations do not have enough resources to tap into all foreign markets that they think would be beneficial for their businesses, they must prioritize the markets and think of how much in terms of resources they are willing to allocate to the businesses (Venkateswaran, 2012).
Factors Favoring Foreign Direct Investment in India:
I. Strong Economic Growth:
For quite a number of years in the last few decades, the annual growth rate of the Indian economy has been over 7%. This huge growth has driven the Indian economy to become the world’s 4th largest economy in terms of PPP (Purchasing Power Parity). One of the most significant positive effects of the rapid growth is the growth of a robust middle-class population that has a higher than average purchasing power. Even the country’s per capita income has more than tripled from the mid-1980s per capita income value of 310 dollars to the 2007 value of 1000 dollars. The country’s imports also similarly tripled in the period between the year 2001 and 2005, form a value of 50 billion dollars to approximately 138 billion dollars, while its exports have doubled from a paltry 43.3 billion dollars to almost a 100 billion dollars in the same period. The fact that Indian economy is robust and dynamic is a positive factor and has led to more and more foreign entities investing in the country (Mondal, 2014).
II. Huge Labor Force and High Educated Workforce:
With a labor force made up of about 430 million individuals, the country has one of the world’s largest labor forces. India is also known for its increasing investments in education, especially at the post-secondary school level, which has enabled the country to have the 3rd largest number of higher education students globally. The language used to teach in institutions is English, thus almost the country’s entire educated workforce speaks relatively good English. The annual number of students graduating is as follows; there are over 200,000 graduates from engineering programs, at least 300,000 postgraduates from other programs, over 2.1 million undergraduates and about 9,000 PhDs. Even though, the number of people graduating is huge, quite a significant portion of the country’s workforce is uneducated. The uneducated workers form the majority of the employees in the country’s informal sector. While these uneducated workers might not be the direct benefactors of foreign direct investments, the fact is they provide a lot of cheap labor that is useful especially in sectors of the economy that require a lot of labor. However, despite the fact that many of these individuals are not educated, many of them have been trained at work that has given many of these workers opportunities to be trained. Thus, such an uneducated labor force is also a crucial factor in attracting foreign investments, especially in sectors of the economy that are labor intensive (Mondal, 2014).
III. Access to Capital and Institutional Support:
While it is a fact that most capital markets do not cater to the needs of those who are financially weak, the Indian banking system has hugely acted on the contrary. Many Indian banks have succeeded in including the poor in the rural countryside to bank with them. Also, the new Indian government under Prime Minister Modi, has been able to launch a number of new development projects with the aim of allowing the country’s poor easier access credit. Many of these loans target individuals who want to open their own small and medium sized businesses. Therefore, while the majority of FDIs target more capital intensive sectors of the economy, such monies have a trickledown effect in the banks which are then able to focus on areas of the economy where there is little competition from foreign multinationals, such areas include giving loans to the poor (Mondal, 2014)..
Factors Discouraging Foreign Direct Investment Inflow:
I. Poor Infrastructure:
Large swathes of the Indian countryside have poor dilapidated roads, insufficient amounts of electricity, old sea ports and an overused railroad system that makes it somewhat challenging for many firms to make and deliver commodities to the consumers in a manner that is both timely and efficient. The country’s infrastructure investment has not kept pace with its rapidly expanding economy and thus most of India’s transport systems are old and poorly maintained (Mondal, 2014).
II. Rigidity in the Labor Market:
In spite of India’s robust economic growth over the last few years, a similar growth in employment numbers in the country’s formal sector has not been witnessed. The country’s inability to create more jobs in the formal sector has been linked to difficult and bureaucratic labor policies particularly in the central Indian states (Mondal, 2014).
III. Bureaucracy and Corruption:
High corruption levels and bureaucracy discourage foreign direct investment by disrupting resource allocation, bringing about mistrust in government officials and escalating the cost of doing business. Even though India has undertaken to reform its economy in several areas through opening up more of the country’s market to foreign direct investments, such investments into the country have been somewhat hampered by formalities and corruption in the government both at state and national levels. Also, investment approvals by government departments take significant amounts of time (Mondal, 2014).
IV. Legal Delays:
Despite the fact that many legal experts consider India’s legal system to be more advanced or superior than the legal systems of other emerging markets, in practice the legal system has frequently been found to be a hindrance to investment. One of the main reasons why this is so, is the excessive delay in the introducing procedures that also, likewise, typify the court processes in India. As a result, governance by rule of law, which has frequently been fronted as one of the reasons why foreign direct investors should invest in the country, is now considered a major obstacle by many investors (Mondal, 2014).
Part 2
The mode of entry is a crucial decision that a company has to make when it enters a new economy, since such a decision would set the boundaries of the company’s production and marketing strategies. The decision also determines how a company addresses the challenges of getting into a new economy and how it will utilize its assets to successfully sell its goods or services (Jeyarathmm, 2008). Zipcar should utilize a joint venture to get into the Indian economy. This joint venture should be structured in such a manner that there is shared ownership between Zipcar and another company located in India.
As the world markets progressively become more integrated, American companies are seeking to venture into international markets. The overall stagnation and the recent economic slowdown have only increased the eagerness of American companies to invest in international markets by leveraging on local expertise in those markets through joint ventures. With exception of the big organizations, most of American companies do not have the resources, manpower, and experience to get into international markets without forging any alliance. Joint ventures allow firms to access international markets more effectively and with less exposure. Some of the factors that make an IJV (International Joint Venture) a desirable option, are the differences in culture, language, legal and regulatory frameworks. These differences make international joint ventures one of the best ways to quickly get into an international market. However, going into business with another company, sharing the risks and leveraging on that company’s expertise and its resources can be a challenging without sufficient planning and market research (Stewart & Maughn, 2011).
The partnership could be a contractual agreement between two IJV partners in which the governing terms and conditions are stated in written format. Nowadays, IJVs are often based on equity joint venture, whereby a new company is formed and owned in percentages, by the two parties, or the party coming into the agreement might also decide to purchase stock in the IJV partner (Rajagopal, 2009). The new company might be registered as a limited liability firm or a corporation or any other form of business that is possible under federal, state or municipal laws. The form of joint venture agreed upon shows the level of intensity, with which the IJV partners are pursuing the business. An equity joint venture, for instance, is often utilized for long-term close partnerships. Equity joint ventures also involve higher capital investments. Such joint ventures are however, always difficult to leave, since besides ending a contractual agreement, the two partners often decide to sell the assets that are jointly held in the entity, and such liquidations may take lengthy periods of time. Whether a joint venture is equity-based or not, the premise on which the joint venture partners relate should always be based on a written agreement that contains the terms of the partnership. Besides a definitive written agreement, the two partners may also get into additional contract-based agreements that address other specific elements of the partnership (Stewart & Maughn, 2011).
IJVs allow quicker and less expensive access to international marketplaces that can be done through buying equity in an existing firm in the foreign market or establishing a new entity with a partner in the host country. IJVs facilitate a fast access to distribution channels and provide the foreign partner with access to local expertise on how to do business in the foreign country, such expertise enable the likelihood of success of the IJV. Resident partners also frequently already have established relationships with clients and suppliers, and are often proficient in the local customs and language. These advantages can be particularly crucial to businesses that are small or medium sized and do not have sufficient capital or resources required to get into international markets unless they are able to share both costs and risks through an IJV. Thus, IJVs allow firms access into local market places, in a timely, credible, and cost-effective manner (Stewart & Maughn, 2011).
SLP
Part 1
The Canadian economy has what many firms are seeking right now. The robust and stable financial service firms have enabled the country’s banking sectors to be ranked as the best in the world by both WEF (World economic forum) and Moody’s. Canada also has plenty of natural resources. Even the Canadian government bonds are looked at as some of the most stable and attractive bonds by international investors. Canada’s retail sector has also grown rapidly and now plays a key role in the country’s economy due its economic contribution and the impact that consumers have on the economy. In the year 2011, for instance, the Canadian retail sector generated 457.4 billion dollars in sales and this represented 12% of what was produced by the country’s workforce. Despite the sector experiencing a drop in demand because of the recent global economic slowdown, the sectors’ sales had increased by almost 67 billion dollars from 2006 to 2011 (Industry Canada, 2013).
A country’s ability to attract FDI is increasingly becoming essential to driving productivity, competitiveness, and innovation. Thus, one of the most crucial foreign policy aims of Canada is to maintain its economic relationship with the United States, since the country’s growth is linked to the strength of its relationship with the robustness of the U.S. economy. The trade between Canada and the United States is the world’s single-largest bilateral trading relationship, for instance, in 2014 it reached approximately 751 billion dollars. A significant fraction (over three-quarters) of Canada’s merchandise exports are destined for the United States economy, such exports account for 20% of Canada’s GDP. In 2014, cross-border exchange of services amounted to a further 119 billion dollars. Investments in joint infrastructure have also further deepened economic ties. Such investments begun decades ago; in the year 1961, the Canada and U.S. agreed to the terms of the Columbia River Treaty, which enabled the start of a huge infrastructure project to build and manage 4 hydroelectric power dams, 3 of which were to be located in Canada’s British Columbia province and one in the northern American State of Montana. The dams were for not only power production but also flood control. As both economies grew and became increasingly integrated in the latter half of the 20th century, the two countries became even more closely linked through roads, railroads, telecommunication networks, electric power lines, and oil and gas pipelines. Deeper economic ties that extend over past hundred years show the continuing evolution of both economies from agricultural to more industrial and knowledge-based countries. Overall, in spite of the differences in economic power and size the relationship between the two countries has greatly benefited both of them (Crane, 2015).
Part 2
Dependence on U.S. technology and capital has led to high levels of American ownership and control in quite a number of vital sectors of the Canadian economy with very significant consequences. American corporate interest has been able to solicit support from the U.S. government in order to oppose policies that target development of certain sectors of the Canadian economy. In spite of Canada’s merchandise trade surplus, the country constantly reports bilateral trade deficits in investment and service flows from both portfolio and direct investments (about 14 billion dollars in services and 30 billion dollars in investments). The American ownership of Canadian companies has for quite some time now been matter of concern to the Canadians. In fact the 1957 Gordon commission, raised concern about the American domination of mining, smelting, oil and gas and other manufacturing industries (Crane, 2015).
While both Canada and the U.S. share quite a number of fundamental values, they do have several significant differences, too. For instance, the people of Canada often perceive their government as positive player in the economy and thus their readiness to utilize instruments of public policy such as Royal corporations to grow industries and the economy so that they can meet their needs. The U.S. constitution, with its clear separation of powers, establishes a sense of bureaucracy and thus distrust of the government. Thus, from this viewpoint, Canadians think that it is important that Americans understand their legitimate aspirations and interest, in the same way that they understand theirs. While Canada greatly depends on U.S. technology and investments, both the nations are dependent on each other.
Part 3
In the United States, investors are increasingly looking at Canada for greater opportunities. This shows that the advantages outweigh the disadvantages of investing in the country. Besides lower costs of doing business, and the Canada’s federal government pro-business policies, the country also has Scientific Research and Experimental Development (SR&ED) tax credits that enable firms to attract investors. Reforms made to the Income Tax Act have also enabled easier FDIs. Therefore, the investment infrastructure exists, for American and other foreign investors to get into the Canadian economy and build sustainable businesses (Serebrin, 2013).
Discussion question
The movie “Outsourced” is an interesting commentary that looks into the issue of outsourcing. The movie narrates the life of Todd, whose job is outsourced to India. “Outsourced” takes an entertaining look at how negatively Americans react when they end up speaking to foreigners when calling American numbers for assistance. Therefore, Todd is told to cut the time that the Indian employees at the new call centre spend on the phone with customers. Part of what Todd has to do, involves teaching the call centre employees about the American culture. Todd, through his interactions with the locals, also gets to learn and appreciate the local culture despite being initially horrified. I think this movie reflects how the majority of American firms look at India as just a way of reducing operation costs. However, there are some Americans who, like Todd get to see and understand the culture and what makes many Indians good employees and important assets to companies. n the end however, the job is again outsourced to China, which also shows how American companies operating in international markets mostly focus solely on their “bottom line.” The movie also shows how many American firms will also disregard the existing quality they have just so that they can cut costs. The movie provides a short preview of how foreign call centers work. It is also interesting to note the kind of effort being put in by foreign workers to satisfy their American consumers. The individuals who undertake such tasks are often bright and hardworking and the work they do is more challenging than many people give it credit for (Schwartz, 2009).
Summary and Reflection
The two most relevant and important modules for supply chain management are: The global economic fluctuations and the resulting cuts in credit are affecting trade flows and putting financial pressure on both international buyers and suppliers. This has led to increase in risk, thus in order to attain long-term cash optimization, firms need to have a comprehensive and sustainable liquidity management approach which requires an approach that is systematic and can only be given by financial supply chain management (Kristofik et. al, 2012).Performing firms are those that consider human capital as their main asset. The fact that many components of supply chains are individuals with their own perceptions, personalities, and mind maps means that such individuals cannot be perceived as a single entity, thus human resource management should utilize both group and individual psychology to commit workers to achieve the company’s objectives (Babi? et. al, 2009).
Supply chain management has emerged as an important aspect in business practice (Shih, 2010). First conceptualized in the 1980s, SCM, has grown to include applications in many business practices. However, in spite of these developments, and the many benefits, the implications of the relationship between SCM and marketing have not been deeply explored in marketing scholarship (Mentzer & Gundlach, 2010).
References
Babi?, D., Ivakovi?, M., & Jur evi, M. (2009, January). The Role of Human Factors in Supply Chains. In Mednarodno posvetovanje o prometni znanosti Prometna znanost, stroka in praksa (12; 2009). Hrvatska znanstvena bibliografija i MZOS-Svibor.
Crane, D. (2015). Canada — U.S. Economic Relations. Retrieved October 11, 2015, from http://www.thecanadianencyclopedia.ca/en/article/economic-canadian-american-relations/
Govindarajan, V., Matin, J., & Sarkar, C. (2012, September 25). Open India: Considerations for Retailers. Retrieved October 11, 2015, from https://hbr.org/2012/09/open-india-considerations-for
Industry Canada (2013). Canada’s Changing Retail Market. Retrieved 11 October 2015 from https://www.ic.gc.ca/eic/site/oca-bc.nsf/vwapj/CTU-2013_Q2_Canadas_Changing_Retail_Market-eng.pdf
Jeyarathmm, M. (2008). Chapter 12: Strategy in a global environment. Strategic Management. Himalaya Publishing House. Mumbai, IND, pp. 165-169. [Ebrary. Note: you don’t have to read the whole chapter — just the last five pages]
Kristofik, P., Kok, J., de Vries, S., & van Sten-van’t Hoff, J. (2012). Financial supply chain management — challenges and obstacles. Proceedings in Finance and Risk Perspectives ’12.
Mentzer, J. T., & Gundlach, G. (2010). Exploring the relationship between marketing and supply chain management: introduction to the special issue. Journal of the Academy of Marketing Science, 38(1), 1-4.
Mondal, P. (2014, May 13). Factors Favoring and Discouraging Foreign Direct Investment Inflow. Retrieved October 11, 2015, from http://www.yourarticlelibrary.com/microeconomics/foreign-investment/factors-favoring-and-discouraging-foreign-direct-investment-inflow/40261/
Rajagopal (2009). Chapter 6: Modes of entry in a global marketplace. Globalization Thrust: Driving Nations Competitive. Nova Science Publishers, Inc., New York, NY, USA. [Ebrary]
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