REPORT TO IBF Respected Directors, IBF London (U.K) Introduction IBF Supplies Plc is a London based large manufacturer and distributor of office supplies. A recent forecast shows decline has been shown in the demand for office supplies in the UK. At the same time it is anticipates a strong demand for office supplies in Eastern Europe, Asia and Africa over the next several years. Hence, executives of IBF have started exploring the overseas markets and are planning to establish foreign subsidiaries in new markets. Before entering the market certain aspects are to be considered. These aspects include: Financial and non-financial factors The potential risks and possible external strategies to manage such risks. Other strategies available other than establishing a foreign subsidiary Financial and non-financial factors First of all it is to be made sure that whether the selected countries are going to produce the desired results or not. It is a good thing that IBF has anticipated a strong demand in Eastern Europe, Asia and Africa for the type of goods it manufactures but again a detailed research needs to be done before taking any final decision. Developing a foreign subsidiary means establishing company’s branch outside the country to run as a separate entity than IBF the parent company itself. There are a lot of things that need to be considered like the political stability of these selected countries, their legal systems, the fiscal policies, the monetary policies, availability of labor that is skilled, logistics infrastructure etc (Terpstra and Sarathy 2001). It is a good thing that IBF has a proactive approach but still there are a lot of things that are of utmost importance before any final decision can be taken. The financial situation of the company happens to be one very important factor to be considered before IBF can take any decision. The tax bracket is to be kept in mind before actually deciding to expand the business to a new area. The net worth and the objectives of the company happen to be of critical importance. The level of risk that the company can afford to take is also a point of significant importance. While considering the financial factors, IBF needs to take a decision regarding choosing one of the two financing techniques or may be both the techniques. These two financing techniques are debt and equity financing. If IBF chooses debt financing to raise funds it means that the company will borrow money from another source like bank. IBF will have to return the loan with interest and it can be short term or long term. The other way is that of equity financing. In this way IBF can raise finance by selling off its business part to some other party like the investors or the venture capitalists. The company need to decide whether it is going to be generating funds locally or by the parent company. A detailed PESTEL Analysis is required that includes things like political factors etc. The forecasting regarding the exchange rates and the taxation agreement needs to be done before taking any final decision. It is to be kept in mind that these foreign subsidiaries are going to be exposed to volatility of exchange rates. IBF will need to evaluate its risk associated with exchange of foreign currency through monitoring
Table of Contents Executive Summary 2 Introduction 2 Financial and non-financial factors 3 The potential risks and possible external strategies to manage such risks. 5 Other strategies available other than establishing a foreign subsidiary 7 Conclusion 8 Question 2 9 Question 3 11 References 15 Executive Summary Purpose of the report is to enlighten the top management about risk that might arise due to opening of a subsidy in foreign countries…
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