GLOBAL PORTFOLIO MANAGEMENT:
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
Factors affecting global portfolio investment:
on interest or dividends
Problems of global portfolio investment:
exchange rate movement
in international financial market
of security prices
access to information
Global entry strategies
Level of involvement:
subsidiary Company acquisition
operations Joint venture
manufacture Direct marketing
and agents Sales force
management companies Piggyback operations
GLOBAL ENTRY STRATEGIES:
FORMS OF INTERNATIONAL BUSINESS: I) Exporting as an
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.
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
is the most popular approach for firms as it requires fewer resources, has
little effect on existing operation and involves low investment and financial
II) Manufacturing strategies without foreign
direct investment: 1) Licensing:
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.
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:
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
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.
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.
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:
common reason for operating wholly-owned subsidiary separately from the owner
company could be name value.
well-known and respected corporation is acquired by another entity that has no
name recognition in that particular market.
6) Assembly operations:
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
The advantages of International business (an
economic view) The economic benefits that greater openness to international
trade bring are:
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
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
technologies: by having an open economy we can bring in new technology as it
happens rather than trying to develop it internally
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
consumer income: multination will bring up average wage levels because if the
multinationals were not there the domestic companies would pay less.
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
of company resources