Exporting to Foreign Country Introduce yourself and about the company.

Our Strategy To create Value for stakeholders. To become cost effective. To differentiate product (on the basis of design, quality, after sales service). Michael Porter developed a framework of generic strategies .The strategies are (1)Cost leadership Strategy, (2) Differentiation Strategy, and (3) focus on a particular market niche. The generic strategies provide direction for business units in designing incentive systems, control procedures, operations, and interactions with suppliers and buyers, and with making other product decisions. The ultimate goal of pursuing any strategy is to create value for the stakeholders

Foreign Investment Options Viable Options: Exports Joint Venture Subsidiary Green Field Project Merger and Acquisitions Franchisee Licensee First, Australia is located in the Pacific and Asia. It is one of the most developed countries in the world. Australia has high purchasing power and life expectancy within Australia is approximately 80 years of age which is very high (www.abs.gov.au). Their elderly is expected to grow approximately 10%. This growth proves to be a large opportunity for us as our product sales with the proper marketing and target market could increase with this population. Australia is known for following business ethics. They expect foreign countries too to follow business ethics. They have strict laws, harsh punishment and the strong cultural beliefs. This could be negative for a new entrant in the Australian market. There are various options available to do business in Australia. Since Australia is a developed country, all the options are tried and tested and are feasible.

Risks with International Business Foreign Currency Exchange Risk Country Risk Adjustment of WACC according to the risk Problem in calculation of Beta If you do business in foreign market, cash flows are earned in foreign currency. Ultimately financial statements are prepared in home currency., So, international business is always susceptible to fluctuation in foreign currency exchange rate. Also, companies should assess the business environments of the foreign country. Doing business in foreign country poses certain country risk Unstable government, poor law and order, in general bad business environment, labor law etc poses risk. However, country risk in Australia is minimal. Exchange Controls Some of the country risks are: Currency Inconvertibility Some governments will not permit conversion of the local currency into another currency Blockage of Funds When host governments experience a foreign exchange shortage, they may block the transfer of funds back to the parent. Currency exposure Company should adjust its WACC according to the risk involved in the country it is venturing in. Beta of a foreign investment can be calculated by regressing the project’s return to a benchmark market index. In fully integrated international financial markets, both the firms and the individual investors are free to invest anywhere in the world. Investors can diversify its portfolio internationally. Here, World market index acts as benchmark index.

Recommendation Joint Venture Benefits Spreading costs and risks Improved access to financial resources Economies of scale Access to new technologies and customers Access to innovative managerial practices Complimentary Business A joint venture is a strategic alliance between two or more parties to do business together. The parties agree to create a new entity together by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise as well as risk. Since company has no experience of exporting, it should partner with an Australian company who has experience of Australian market and is aware of laws, regulations, culture, consumer preference and other factors prevailing in Australia. This way, both companies will benefit by each other’s skill set and strength. The joint venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture based on the outcome and performance of the JV.

Issues with JV Differences in language, culture and management practices? Ownership issues Terms and Conditions of agreement How to transfer resources and Rights (Technology, copyright, Trademark license) Controlling and management of the JV There are many issues related to international business. Some specific issues to be addressed when a company enters in a JV are listed here. Company should address these issues clearly before entering the JV.

Limitations of Strategy loss of control over technology, copyright, license limited ability to realize experience curve and location economies Less brand visibility conflicts between partners Sharing of Returns or Ownership Lack of Trust on Partner Inefficiency of partner JV is a medium risk and medium return strategy. It involves sharing of ownership and profits. The alliance partner must be carefully chosen. In fact, your JV partner should be complimentary of your strength. Sometimes, a JV may be harmful for future expansion if company has big plans for the country. If company is willing to undertake big risk, JV is not the right option.

Strategies to Avoid Wholly owned subsidiary High Risk High Return A wholly owned subsidiary will involve high commitment of resources as it involves capital investment like purchasing its own assets in an international country. It involves the highest risk and in turns the chances of highest return. Since company has no experience of exporting and say any kind of international business, this strategy should be avoided till company gains sufficient experience and exposure in international business.

References Gilpin, R. (1986) U.S. Power and the Multinational Corporation- The Political Economy of Foreign Direct Investment David William Carr. Foreign Investment and Development in the Southwest Pacific http://www.dfat.gov.au/facts/exporting_to_aust.html Retrieved on July 7th, 2009 http://www.internationalbusinessstrategies.com/market-research-reports/australia.html Retrieved on July 7th, 2009 A private entity builds and operates a new facility for the period specified in the project contract. It will involve high commitment of resources as it involves capital investment like purchasing its own assets in an international country. It involves the highest risk and in turns the chances of highest return.