Multinational Corporation Expansion - Essay Example

Multinational Corporation Expansion This paper discusses PWC Corporation as my multinational corporation. The organization provides financial and advisory services in more than eighty countries in the world. However, it has not yet ventured into Ugandan market due to several factors that has affected its attempt in the past. One of these factors is characteristics of international finance experienced in Uganda. The international finance has three dimensions, which are foreign exchange and political risks, market imperfection, and expanded opportunity set (Eun & Resnick, 2007). Each of these dimensions could have a different impact in the attempt to venture into this new market. The international finance dimension of political risks and foreign exchange encompass all the foreign exchange and political regulation put by a country to foreign investors. Almost every country has unique political and foreign exchange risks. By venturing into Ugandan market, PWC would be exposing itself to risks associated with this country. It would also be exposed to opportunities that arise due to both the regulation of foreign exchange and other political regulations. Uganda is a country that has few foreign exchange restrictions and does not charge very high interest rates to external investors. Therefore, this would be a potential opportunity for PWC in its attempt to venture into this market. However, this country is very politically unstable and its elections are always accompanied by violence. Therefore, its economy fluctuates from time to time, which can raise a potential risk to PWC. The market imperfection dimension of international finance encompasses legal restrictions, transaction/ transportation costs, information asymmetry, and discriminatory taxation (Eun & Resnick, 2007). This increases the cost of operation or even complicates the operations of the international organizations. Uganda has very few legal restrictions and discriminatory taxation and therefore this would act as a potential opportunity for PWC in its attempt to venture into this Ugandan market. However, Uganda is one of the most underdeveloped countries in the East African region. As a result, it has under-developed infrastructure and very few transactional services. Therefore, PWC might encounter high transactional/transportation cost as well as the unavailability of transactional/ transportation services. Expanded opportunity set dimension of international finance is the location of production in any country or region to maximize performance and raise funds (Eun & Resnick, 2007). In this case, PWC can consider locating its production in a country like Kenya that has better business environment and is just adjacent to Uganda. This dimension of international finance would provide this organization with the ability to evade some of the business restrictions in Uganda. However, it might incur additional cost due to the need to move their services across these two nations. The organization should consider this as a potential risk when venturing into Ugandan market. Any corporation operating in a certain country must be affected by the economy of that country. The shift experienced in an economy is what we call an economic trend (Bezjak, 2010). The economic trend in the Ugandan market has been very unpredictable. There are times when this country has experienced tremendous economic growth while other times its economy has been going down significantly. The suggested reason for this unpredictability is political instability and volatility of the economy. PWC would be expecting to provide services to all investors in the country. As a result, the economic trend of this market would affect the organization and therefore it has to design a survival tactic to assist it in case of major economic fluctuations. The operation market that PWC would be getting into by starting its operation in Uganda has been greatly impacted by globalization. One of the impact that globalization has had on this market is that it has made several multi-national and international organizations to venture into this market. It has also enabled importation of products into and out-of this market. Globalization has increased the interconnectivity of this country with other parts of the world. As a result, business in this market has been greatly improved and new opportunities for investments have been introduced. This has led to a great demand for financial and advisory services and therefore PWC should take advantage of this demand and venture into this market. Uganda uses a flexible exchange rate system as its monetary exchange system. It has maintained this kind of a system since its independent. Flexible exchange rate system is a kind of system where the exchange of a national currency with other currencies solely depends on its present demand. This monetary system would greatly affect PWC in its attempt to venture into this country. The major effect that this monetary system would have on PWC is making it difficult to determine the exact amount that the organization would need for the investment. The reason for this is that it would be difficult to predict the cost of the local currency at the time when this organization would be venturing into this market. The flexible exchange rate system has several positive implications both to the nation and to the investors. One of these positive implications is that it can assist in absorbing excess supplies of money (Salvatore, 1995). The absorbing of excess supplies of money assists greatly in preventing and fighting inflation in this country. Flexible monetary system could also assist in preventing very high demands of specific currencies. This kind of a monetary system a country has very high control of its currency supply on internal and international trade. When this happens, a country is able to monitor its economic trend to achieve substantial economic growth. The flexible exchange rate system also has several drawbacks especially to investors. One of its drawbacks is very difficult to determine future cost of a certain currency. This makes investment value unstable. Another drawback is that for this kind of a monetary system, a certain cost is incurred in the exchange of currencies. As a result, the value of an investment is also reduced. In this kind of monetary system, the process of exchange of currencies involves a lot of risks. This is because a currency can fluctuate significantly making an investor to incur losses in his investment. According to Fieleke (1995), balance of payments is the records of transactions between the residents of this country and foreign residents over a specified period. This balance of payments would support the management of PWC in several different ways. One of these ways is that it would be assisting them to determine the level of imports and exports in designing their advisory and financial services. It would also assist them to determine the local and international clients and thus determine the kind of services to provide for particular group. Balance of payments could also determine effectiveness of policies put in place to guard several types of trade (Fieleke, 1995). PWC can therefore use it to determine which production services to base outside of this country. Uganda has both surpluses and deficits in terms of productions. Some of its surpluses that would assist the operation of this organization are electricity, water and land. PWC should be assured that in this country they would be able to get a constant supply of electricity and a land to locate their offices. However, the cost of land and electricity has escalated within the last few years and therefore this organization should be prepared for the same. The main deficit of Uganda is the infrastructure. This country has poor road network, very few airports and has no seaport. Due to this, transport within and out of this country is somehow difficult. This would greatly affect the operation of PWC in the markets of Uganda. Uganda has a foreign exchange market different from that of the other nations. As a result, PWC should be aware that it is venturing into a completely new market and therefore it should be cautious. The difference could be identified by various properties of this market. One of these properties is that this foreign exchange market has low valued currency that fluctuates in value from time to time. Another property of this market is that it does not have very big competition. This foreign exchange market is not as developed as the ones in developed countries. Low-valued of currency and under-development of the Ugandan market would be requiring PWC to draw resources from other markets to support its operations in this market. As a result, the international business operations of this organization could be negatively impacted. The low competitiveness property would enable the organization to build a big customer base. It can later use this to move some of its services from areas where it has low customer base to this area thus affecting its international business operations. The major key foreign market participants in this market are the manufacturing and processing industries. There industries make use of the available resources and provides technology and is used to convert this resources into useful products. Other key foreign market participants are the exportation and importation companies. This companies move products that are in surplus to other countries for trade and bring the ones, which are produced, in deficit. To venture into this market, PWC would not need as much resources as a manufacturing industry. Neither would it need as much capital as an importation or exportation company. Therefore, it could finance its operations from revenues generated by its operation in other international markets. References Bezjak, F. (2010). Global Economic Trends and Their Impact to Corporate Development. London: Books on Demand. Eun, C. S., & Resnick, B. G. (2007). International Corporate Finance. Retrieved from: https://www.stress.utwente.nl/modules/databank/upload/2011%20summary%20International%20Financial%20Management.pdf. On 29 July 2012. Fieleke, N. S. (1996). What Is the Balance of Payments?. Retrieved from: http://www.bostonfed.org/economic/special/balofpay.pdf. On 29 July 2012. Salvatore, D. (1995). Schaum’s Outline of Theory and Problems of International Economics. New York, NY: McGraw-Hill Professional. Read More