Discuss about the Corporate Responsibility and Governance Decisions.
As per this case study, X and Y are two different countries with different financial and economic condition. As per the case study, Y is a developed country which a strong financial as well as economic growth. On the other hand, X is a country which is famous for its recent emergence in the financial as well as economic sector. From the above discussion, it can be understood that both the countries have totally different condition in terms of economic and financial aspects. On the other hand, there is a bad reputation of X for having corruption, bureaucracy, slow decision making process and others. However, X has become a lucrative country for investments for the emergence of the economy of the country. Now, in this position, one of the leading FMCG manufacturing and exporter companies of Y is considering a massive amount of investment in X looking at the high prospects of making profit in this country. For this reason, the Head of International Business Development of that company is preparing a proposal for the investment in X. Hence, there are some major aspects that the Head of International Business development needs to consider (Saaty & Vargas, 2013).
First of all, he needs to analyze and evaluate the business opportunities in X. It has been reported that X is famous for its rapidly growing consumer spending and the growth in various commodity markets (Moosa, 2016). The international business head needs to examine that whether this business growth is also applicable for the manufacturing and export businesses or not. This needs to be done as the investment is of a very high worth that is US$ 500 million per year and there should not be any chance of making loss. Another important aspect that needs to be considered by the international business head is the amount of fee charged by the local business intermediaries of X for setting up of the business. Local intermediaries refers to the local business houses and the local business entities that helps to solve various issues faced by the foreign investors and help them to set up their business in this country. However, for this process, they use to charge a lot of money as fees. The fee charged by one of the local business houses is very high and this amount can significantly impact the investment presentation by the international business head of that company (Shroff, Verdi & Yu, 2013).
The third factors that can impact the presentation of the international business head is the various issues in X regarding ethics and corporate governance (Wild, Wild & Han, 2014). As per the case study, corruption and bureaucracy is present in the government of X; and one of the bad reputation of X is the slow decision making process by the government. In this situation, the adverse effect of these above discussed issues needs to be considered by the head of international business of the foreign company. Lastly, the advice to set up a Community Development Foundation by one of the local business houses can make an impact on the investment proposal. They international business head needs to evaluate the pros and cons of setting up of a Community Development Foundation and needs to analyze that whether the company will be profitable by this move or not. These are the four major factors that can make a significant impact on the presentation of the investment proposal. Hence, it is recommended to the international business head to take into consideration all these above discussed issues before making the decision of investing that large amount of money in X (Moffett, Stonehill & Eiteman, 2014).
There are various pros and cons of investing in the country X. There are many advantages of investing in X. First of all, X is a developing nation. The country is famous for its speedy growth. The rise of the middle class in the country make contributes to the rise in the consumption power of common people. The rise in the consumption power of people has resulted in the growth in the manufacturing sector along with growth in the economy of the country. All these aspects together contribute towards a favorable business situation for the foreign company. The aim of the company is to develop a worldwide business image for them. The success of the organization in the country X will contribute to the foreign country in gaining the desired international image and they will have a chance to expand their business. These are the pros of investing in X (Dunning, 2012).
Along with the pros, there are many cons in the process of investing in X. The disadvantages are all about ethical business practices and faulty corporate governance process. The first disadvantage of investing in X is the high amount of fee demanded by the local business intermediaries known as local business houses. The high amount of fee can affect the profitability of the organization (Cavusgil et al., 2014). Another con of investing in X is the presence of corruption in the government body. The government of a country is considered as the backbone of that country; and hence, corruption in the government body can affect the business policy of the country which can passively affect the business of the foreign company (Eicher, 2016). The slow decision making process of the government is another con of investing in X. it is desired that the government will take prompt and effective decisions. And the most crucial disadvantage of investing in X is the questionable investment procedure prescribed by the government of the country. The investment procedure of the country is not effective compared to the other companies. The investors invest in a country in hope to get desired returns from that investment. For this reason, it is desirable that the country makes such investment policies that can be dependable for the investors and they can get good returns. The corporate governance policy of the country is a major disadvantage for the investors (Neelankavil, 2015). These are the major cons or major disadvantages in investing in X. thus, it can be seen that there are both advantages and disadvantages in investing in X.
An old age local practice can be seen in X at the time of doing foreign businesses. As per this business tradition, the local business houses or local business entities of X help to set up the foreign businesses in this country. They provide various type of assistance to the foreign companies like they speed up various business processes of the foreign investors, they provides business advises to them and many others. These local business houses have links with various government departments and functionaries and for this reasons, they can do these works very easily (Lambsdorff, 2013). However, they use to charge a large amount of money for these purposes. The fee is about 10% to 25% on the value of incoming investment deals. This is a significant percentage to the investors. For instance, in case of the foreign company of Y, the fee will be among US$ 50 million to US$ 125 million that is 10% to 25% of the incoming investment deal. In case of a US$ 500 million investment deal, US$ 50 million to US$ 125 million is a huge cost. This is all about the “fee” of local partners (Madsen, Moen & Hammervold, 2012).
From the whole discussion, it can be understood that the investment deal involves the interest of both the countries. As per the study, an FMCG manufacturing and export company of the country Y wants to invest a large amount of money in the business of the country X. There are various reasons behind this decision. First of all, X is a developing country whose financial position and economy is going into a better direction. As a result of this, the consumption and spending power of the people of the country is increasing. This is a lucrative opportunity for the company of Y as they can have the chance to get foot in a growing market. On the other hand, the company will be become more credible as an investor in overseas corporate social responsibility. These are the major business benefits that Y can get from this investment decision. On the other hand, X will be benefitted from this deal in a great way. The foreign company will establish a Community Development Foundation. The main function of this institute will be to provide funds for schools, doctor clinics, power generation centers, supply of water, provide sanitation facilities for more than ten thousand people and others. Along with these facilities, the invest will create job opportunities for a lot of people in X. After considering both side advantages of X and Y, it can be said that the investment deal is a win-win situation for both the countries that is X and Y. Both the countries will be vastly beneficial from this investment deal. However, the fact cannot be denied that there is a risk involve for the company of Y in this deal; but the presence of proper investment strategies and the assistance of the government of X can make this deal fruitful for both X and Y (Kroencke, Schindler & Schrimpf, 2014).
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