Global Portfolio Management and Global Entry Strategies

GLOBAL PORTFOLIO MANAGEMENT:

Global portfolio investment means the purchase of stocks, bonds, and money market instruments by foreigners for the purpose of realizing a financial return which does not result in foreign management, ownership, or control. Portfolio investment is part of the capital account on the balance of payments statistics. An international portfolio is designed to give the investor exposure to growth in emerging and international markets and provide diversification.

Factors affecting global portfolio investment:

Tax rates on interest or dividends

Interest rates

Exchange rates

Problems of global portfolio investment:

Unfavorable exchange rate movement

Frictions in international financial market

Manipulation of security prices

Unequal access to information

Global entry strategies

Level of involvement:

Wholly-owned subsidiary Company acquisition

Assembly operations Joint venture

Strategic alliance Licensing

Contract manufacture Direct marketing

Distributors and agents Sales force

Trading companies

Export management companies Piggyback operations

Domestic purchasing Franchising

GLOBAL ENTRY STRATEGIES:

FORMS OF INTERNATIONAL BUSINESS: I) Exporting as an entry strategy:

Exporting is the most traditional mode of entering the foreign market. Exporting is that which allows manufacturing operations to be concentrated in a single location, which may lead to scale economics.

            Indirect exporting: For firms that little inclination or few resources for international marketing, the simplest and lowest cost method of market entry is for them to have their products sold overseas by others

          Direct exporting:

Exporting is the most popular approach for firms as it requires fewer resources, has little effect on existing operation and involves low investment and financial risks.

II) Manufacturing strategies without foreign direct investment: 1) Licensing:

Under a licensing agreement, a company (the licensor) grants rights to intangible property to another company (the licensee) for a specified period; in exchange, the licensee ordinarily pays a royalty to the licensor.

2) Franchising:

It means of marketing goods and services in which the franchiser grants the legal right to use branding, trademarks and products and the method of operation is transferred to third party – the franchise – in return for a franchise fee.

3) Contract manufacture:

A firm which markets and sells products into international markets might arrange for a local manufacturer to produce the product for them under contract.

4) Turnkey projects:

It is a contract under which a firm agrees to fully design, construct and equip a manufacturing/business/service facility and turn the project over to the purchaser when it is ready for operation for remuneration.

5) Managements contracts:

It is an agreement between two companies, whereby one company provides managerial assistance, technical expertise and specialized services to the second company of the argument for a certain agreed period in return for monetary compensation

III) Manufacturing strategies with FDI: 1) Joint ventures:

It occurs when a company decides that shared ownership of a specially set up new company for marketing and/or manufacturing is the most appropriate method of exploiting a business opportunity.

2) Strategic alliances:

SIA is a business relationship established by two or companies to co-operate out of mutual need and to share risk in achieving a common objective.

3) Merger:

It is a combination (other terms are amalgamation, consolidation or integration) of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash.

4) Acquisition:

It is process of acquiring and purchasing an existing venture. It is one of the easy means of expanding a business by entering new markets or new product areas.

5) wholly-owned subsidiary:

The common reason for operating wholly-owned subsidiary separately from the owner company could be name value.

Often, a well-known and respected corporation is acquired by another entity that has no name recognition in that particular market.

6) Assembly operations:

A foreign owned operation might be set up simply to assemble components which have been manufactured in the domestic market. It has the advantage of reducing the effect of tariff barriers which are normally lower on components than on finished goods.

The advantages of International business (an economic view) The economic benefits that greater openness to international trade bring are:

Faster growth: economies that have in the past been open to foreign direct investments have developed at a much quicker pace than those economies closed to such investment e.g. communist Russia

Cheaper imports: this is down to the simple fact that if we reduce the barriers imposed on imports (e.g. tariffs, quota, etc) then the imports will fall in price

New technologies: by having an open economy we can bring in new technology as it happens rather than trying to develop it internally

Spur of foreign competition: foreign competition will encourage domestic producers to increase efficiency. Carbaugh (1998) states that global competitiveness is a bit like golf, you get better by playing against people who are better than you.

Increase consumer income: multination will bring up average wage levels because if the multinationals were not there the domestic companies would pay less.

Increased investment opportunities: with globalization companies can move capital to whatever country offers the most attractive investment opportunity. This prevents capital being trapped in domestic economies earning poor returns.

Factors affecting the selection of entry mode

External factors

Market size

Market growth

Government regulations

Level of competition

Level of risk

Internal factors

Company objectives

Availability of company resources

Level of commitment

International experience

Flexibility