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FB659 International Finance For International Expansion

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  • Course Code: FB659
  • University: UCFB Etihad Campus
  • Country: United States

Questions:

Develop knowledge and understanding of the strategies and options available for global expansion with reference to relevant theories and conceptAnalysis and Argument:
Analysis of the strategies and options available for global expansion with reference to relevant theories and concepts & evaluation of the risks to the club and sources of financeavailable using appropriate sports based examples to support and illustrate your arguments.
Evidence of research from a breadth of sources in support of points made.

 

Answer:

Introduction

The purpose of designing this report is to develop theoretical knowledge about different concepts related to international expansion of a business. The organization that is chosen in this report is Wycombe Wanderers. This is a soccer club or football club of UK. This report will help to develop understanding about different methods that can be used by an organization in order to establish itself in the international market. This report will evaluate that what are different financial risks that are faced by a company while moving into the international market place. Final section of this report will provide the knowledge about different financial instruments that can be used by a multinational sports organization for maximizing the shareholder’s return and to minimize the risks exposed to shareholders.

Company Background:

Wycombe Wanderers is selected as the soccer club in this report. The full name of Wycombe Wanderers is Wycombe Wanderers Football Club. It is a food well known soccer club of UK. This soccer club was founded in 1880 town of High Wycombe, Buckinghamshire, UK. The team of this club plays league one that is the third tier of England Football (Wycombe Wanderers, 2018). The nicknames of this football club are “The Chairboys” and “The Blues”. The color of uniform that is wear by team of this club while playing any league is pale blue and quartered shirts of navy blue.

 

Methods or Strategies of International Expansion:

Ansoff Matrix Model:

The Ansoff matrix model is quite helpful to determine appropriate methods for the international expansion of an existing business of an organization.

Market Penetration: Under market penetration, a company can decide to grow its business in the existing market and with the sale of existing products and services. Under this strategy, the growth of business is possible through investment in marketing and promotional strategies. Many companies design/ launch special discount offers; cash back offers and other promotional schemes for generating extra ordinary demand from customers (Fortin, 2017). This strategy is quite effective for the companies in order to generate superior sales growth.

Product Development: Under this strategy, an organization can decide to design and launch the new products and services within the existing market already served by it. This option will contribute in revenue growth of company (Bachmeier, 2013). In context of Wycombe Wanderers football club, the new soccer teams for specific age group can be designed as a new product, new leagues and trophies can be designed in order to serve the existing market through its products and services. This strategy is effective to improve financial performance of company.

Market Development: Under marketing development strategy, a company plans to enter into a new market with its existing products and services. This strategy can be used by administrative board of Wycombe Wanderers soccer club in order to establish its presence in the international market place. Under this strategy, the organization can plan to make presence of its existing products and services into countries other than UK across the world (Fortin, 2017). The existing teams of this soccer club will play in the international markets for the company (i.e. club).

Diversification: Diversification is also an important strategic method that can be adopted by an organization for investing in an international business expansion. In this method, the company can decide to expand into new market places or countries with new products and services. In this context, administration of Wycombe Wanderers can decide to make presence of its club into new countries with new teams and leagues (Bachmeier, 2013). This strategy can positively contribute in the achievement of competitive revenue growth in the industry.

 

Strategic Methods of Merger and Acquisition:

Merger and acquisition are also two important strategic choices in order to opt for international expansion for a company. Merger stands for the process of combining business of two existing companies in order to form a third integrated company. Acquisition strategy is different from this option. Under acquisition, a company takes over or acquires another existing company. The merger and acquisition strategies are also effective to overcome competition existing in a market. In other words, a larger company purchases another existing company under acquisition strategy (Dringoli, 2016). In context of international expansion of Wycombe Wanderers, the acquisition strategy will be a better choice for company. Under this strategic method, the administrative board of Wycombe Wanderers may plan to acquire some already existing soccer club of a country, in which it wants to expand its business by making the payment to the owners or sponsors. This would provide an already existing business platform to the club. Both bank loan and equity financing can be used as sources of finance for the international expansion.

Joint Venture:

Under Joint venture, two or more companies develop cooperative business agreement to run business collaboratively. Before commencement of such venture, the companies involved in such venture finalize different decisions like delegation of operational responsibilities, consignment of potential risks and rewards in business, and allocation of resources (Trost, 2011). Joint venture can be established for a fixed period of time or permanent in nature. Joint venture method is very effective in context of international expansion of business, as it can enable Wycombe Wanderers to make marketing presence in the abroad with the help of local foreign business partner.

In other words, the business partner under joint venture strategic method will be highly supportive for Wycombe Wanderers, as the management of club would be able to use knowledge and expertise of local foreign partner in different business areas in the local market like internal markets, regulations, government policies and the distribution know-how. This knowledge can be highly beneficial for the Wycombe Wanderers, as the foreign territories would be new to the administration of club (Shishido et al., 2015). There are different benefits of joint venture strategy such as sharing of risk with the partner, safer than full scale acquisition specifically in a host country with hostile government legislations, and the presence of knowledge, experience of foreign market of the local partner. At the same time, limitations or challenges may be faced in the form of sharing of control and profits and the emergence of conflicts with the partners. Example of a proposed joint venture in foot club includes the joint venture of City Football group with Goal soccer centers of USA and Canada (David Hall, 2018).

Greenfield Investment:

The Greenfield investment is also an important business strategy that can be adopted by an organization for establishing presence of its business into an international market place. This strategy is characterized by highest involvement of the company in business in the international business unit. Under this method, the company purchases land, develops property/ infrastructure and operate business by its own staff. This strategy is attributed by highest risk and cost as compared to rest of strategic methods (Lorenzen, 2011). The risks and costs of skilled labor, technology access, transportation and the government regulations are undertaken by company.

 

Wholly-owned Subsidiary:

Under this method, a company purchases an existing company in the foreign market but keeps its existing management for operating the business operations. The owned company is known as subsidiary company and the purchaser company is known as parent company. Under this strategy, Wycombe Wanderers can plan to purchase the foreign football club or soccer club by purchase of its all common stocks (Welch et al., 2010).

Financial Risks Associated with the International Move:

There are different financial risks that may be faced by Wycombe Wanderers football club with the international expansion of business. Example of these risks includes foreign exchange risk, interest rate risk, inflation risk and accounting regulatory risk. The unfavorable movement in the foreign exchange value can adversely affect the profitability of club. The currency hedging instruments can be used by management of Wycombe Wanderers for mitigating the foreign exchange risk. Interest rate risk may be the risk of increase in interest by central bank of host nation (Jacque, 2013). This can increase the financial cost to company due to increased cost of interest on the loan. Due to increase in inflation, the cost of different resources may become more expensive for the company. This can hamper the profitability of company. Wycombe Wanderers may also face the challenge of new accounting and financial regulations that are followed by companies operating in the host country. The management of Wycombe Wanderers may need to invest in training of existing staff to learn the application of new regulations for financial reporting.

Evaluation of financial instruments to fund global corporate strategy of Soccer Clubs:

Only a few soccer clubs in United Kingdom are effectively dealing with the rapidly changing economic and financial conditions. In this context, the funding solutions of Wycombe Wanderers significantly contribute to the successful soccer achievements and corporate strategies. Since Wycombe is one of the large professional association soccer clubs in UK, it becomes important for the financial managers to choose the relevant financial instruments to fund its corporate strategies, through big investors (Stewart et al., 2018). Although Wycombe uses the similar funding and credit rating as other associations, in addition to this, Wycombe also uses own and patron financing. The club also identifies and considers various potential risks before using any financial instrument, such as cost of capital, opposition among agents and owners, and market value.

Wycombe attempts to recognize its critical financial threats as a part of its strategic approach to successful corporate governance. These risks are analyzed by the senior managers first every quarter, then scrutinized and communicated by the Audit Committee for ensuring timely actions. In the situations of significant intangible and economic results, the reliance of Wycombe for the funds on sports significantly declines (Wycombe, 2017). For certain periods, such revenues are considered fixed, and as a result the growth opportunities become highly limited during these contracts. In the case of uncertain success of new media elements, the revenue growth is attained as an outcome of sports results. Therefore, the revenues from media rights are taken by Wycombe as a particular situation depending on the past season, and it does not indicate that the club should not try to make more revenues just because media revenue becomes the enough sources for to fund corporate strategies (Wilson, and Plumley, 2017). It can be observed that the professional soccer clubs in United Kingdom have been able to increase the funding rate by 40% in the recent seasons as compared to the past seasons.

Another financial instrument used by Wycombe to finance its corporate strategies is the sale of its different assets. In today's contemporary soccer, parties usually conclude transactions together with the options of lease back because the assets are disposed out of requirement are important for the smooth operation of the club. Although such transactions are appealing from the taxation perspective, the major considerations are the fact that Wycombe parts with the assets only for the short term for the purpose of obtaining funds (Nagy, 2012). The contracts typically contain the right to re-acquire the assets at the closing of lease. Moreover, Wycombe also arranges the significant funds by raising capital or going public. However, the complicated preliminary tasks must be carried on by Wycombe and other soccer clubs in UK in order to exploit the available options in better way, along with incorporating the clubs as a stock corporation. Wycombe is also required to produce other information after the initial public offer, from time to time so as to present fruitful results in the areas of economic, sports, and intangible results (Bridgewater, 2016). Meetings with the analysts are also helpful for the club to obtain capital funds. In addition to this, various circumstances that limit the decisions of Wycombe Club have been observed, such a relying on different legal forms of activities. These limitations are required to be addressed so as to meet out the outside expectations in context of yield, share price, and dividend expectations (Wilson, and Plumley, 2017). This following info-graphics and table presents the capital project and revenue funded by the club to meet its Corporate Strategy Priority.

Wycombe also adopts success-circle strategy in order to attain the financial results, that comprises of appealing new consumers, prize for triumph, and contacting big sponsors. As a result of this strategy, the club has been able to take new investments for reinforcing the team value. This has also made the club to develop more effective corporate strategies. However, it has been found that when the groups restrict this strategy by limiting the number of international winners, the strategy becomes problematic. The revenues then fail to compensate the increasing labor costs of the strong players frame. As a consequence, many a times the Wycombe has to let its top performers go due to heavy losses, and it ultimately leads to inefficiency. Wycombe also adopts transfer-strategy in order to retain financial as well as sport success of the club however, the club earns high amount of revenues mainly from the sale of the players. Apart from this, the other Soccer Clubs such as Uttoxeter Town, Tower Hamlets, Swallownest, and St Francis Rangers employ commercial strategy so as to clearly decide in the support of profitability access and conservation of the financial balance. Currency hedging is also used by these clubs for managing, controlling, and eliminating the risks they come upon while undertaking business abroad. The Currency hedging instruments include the use of a mixture of financial instruments, such as Forward Contract and other Derivative contracts.

From the evaluation, it can be suggested that the revenues from sponsorship and advertising can be a great source for Wycombe in the future, particularly for the club's development, and designing strategies. The key components of this revenue source could be t-shirt, jersey, and logo applications, along with banner adverts. Moreover, many other clubs like Smethwick Rangers, Romsey Town, and Potton United have experienced failing contracts that are required be replaced. In a complicated financial state this could bring serious issues. Professional financial agencies could also be appointed that are involved in closing sponsorship agreements and identifying sponsors. The agreements between the club and sales generally include warranty clauses for cases where the search for sponsors does not become effective or is not attained at all. In such cases, the revenues can be increased and losses could be minimized by Wycombe to a great extent. The way of the future is that Wycombe Wanderers shall plan to enlarge the intangible outcomes through certain targeted promotions like by planning loyalty promotions and managing member recruitment.

 

Conclusion

On the basis of above analysis, it can be concluded that there are different strategic methods that can be adopted by an organization like Green field investment, joint venture, wholly owned subsidiary, merger/ acquisition etc. Ansoff Matrix model is helpful to understand different choices of international expansion such as market penetration, product development, market development and the diversification. The market development and diversification strategies can be appropriate for selected soccer club (Wycombe Wanderers). One of the sources of funding that can be suggested to Wycombe Wanderers soccer club is the sponsorship of companies. This would prove to be a source of additional revenue generation for the club.

 

References

Bachmeier, K. (2013) Analysis of Marketing Strategies Used by PepsiCo Based on Ansoff's Theory. Germany: GRIN Verlag.

Bridgewater, S.(2016) Football management. Germany: Springer.

David Hall (2018) City Football Group announces joint venture with Goals Soccer Centres in US and Canada. [Online]. Available at: https://stadiavision.co.uk/city-football-group-announces-joint-venture-with-goals-soccer-centres-in-us-and-canada/ (Accessed: 30 October 2018).

Dringoli, A. (2016) Merger and Acquisition Strategies: How to Create Value. UK: Edward Elgar Publishing.

Fortin, F. (2017) Ansoff Matrix Essentials. USA: CreateSpace Independent Publishing Platform.

Jacque, L.L. (2013) Management and Control of Foreign Exchange Risk. Germany: Springer Science & Business Media.

Lorenzen, A. (2011) Volkswagen's Way East - Brownfield or Greenfield Investments: Business Location Decisions. Germany: GRIN Verlag.

Nagy, z.I. (2012) Financing Methods in Professional Football. [Online]. Available at: https://uni-obuda.hu/users/vecseya/RePEc/pkk/wpaper/1201.pdf (Accessed: 30th October, 2018).

Shishido, Z., Fukuda, M. and Umetani, M. (2015) Joint Venture Strategies: Design, Bargaining, and the Law. UK: Edward Elgar Publishing.

Stewart, B., Nicholson, M., Smith, A.C. and Hoye, R. (2018) Sport management: principles and applications. UK: Routledge.

Trost, T. (2011) Joint Ventures: The Benefits and Perils - Why Some Are Successful and Others Fail. Germany: GRIN Verlag.

Welch, E.P., Turezyn, A.J. and Saunders, R.S. (2010) Folk on the Delaware General Corporation Law: Fundamentals: 2011 Edition. USA: Aspen Publishers.

Wilson, R. and Plumley, D. (2017) Different shaped ball, same financial problems? A holistic performance assessment of English Rugby Union (2006-2015), Sport, Business and Management: An International Journal, 7(2), pp.141-156.

Wycombe (2017) Wycombe District Council Statement of Accounts 2016/17. [Online]. Available at: https://www.wycombe.gov.uk/uploads/public/documents/About-the-council/Council-budget-and-spending/Wycombe-DC-Statement-of-accounts-2016-to-2017.pdf (Accessed: 30th October, 2018).

Wycombe Wanderers (2018) Wycombe Wanderers: Meet the Chairboys. [Online]. Available at: https://www.wycombewanderers.co.uk/teams/player-profiles/ (Accessed: 30 October 2018).

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