Essay Instructions: International Finance
The author of this report is to explore the topic of international finance and expansion. At hand is the company Dorchester Inc. which is seeking to expand internationally by snapping up some companies with massive market share in other parts of the world. The author of this report will name the companies that could or should be targeted, will discuss the different means by which the companies could be acquired and then there will be a list of pros and cons relating to the upsides and downsides of owning a company based in the home countries in question. Each of the three companies has to be from a different country. While international business is not all that different from domestic business in many forms in functions, there are some considerations and cultural issues that must be taken seriously.
Analysis
The three companies that will be discussed are LG, Sony and Xiaomi. These three companies are based in South Korea, Japan and China, respectively. Each of those three countries has their own potential upsides and downsides. These pros and cons, depending on the country, can have issues that are political, social, cultural, governmental and logistical. South Korea would be the first country up for review. South Korea is actually home to both LG and Samsung, far and away two of the most dominant consumer electronics companies in the world. However, South Korea happens to be in a fairly good or bad location relative to some of its neighbors depending on the perspective being used. They are right off Japan and China but they also directly border North Korea, a country that is a police state and is led by a unbalanced dictator with nuclear weapons. Also worth of note is that they fought a war in the 1950?s that never technically ended. However, the country?s proximity to China is a huge plus as the cheapest and most efficient manufacturing in the world is just across the water. Hong Kong is also close by. Being in South Korea gives the same upsides as China in terms of logistics and that means an easy pathway to get goods to the United States and the rest of the Western world.
The next country up for review is China. While China?s labor is extremely cheap and they enjoy the manufacturing output that they leverage against the United States, they have many of the same locality issues as South Korea. However, one major difference with China is that they are one of the five countries with a UN Security Council veto and they have a much more robust nuclear and economic arsenal than most countries other than the United States could ever dream of. Indeed, they have almost the same amount of economic GDP as the United States but they also have three times as many people (if not more) and this means their per capita performance is rather poor. However, as stated before this can lead to very cheap labor and many companies around the world take full advantage. A huge downside to China is that workplace safety and standards are extremely low as compared to the Western world and this, in addition to the normal nationalism/?Buy American? fare, would complicate public relations and corporate ethics greatly with American consumers and politicians.
The final country is Japan. Japan is a little more costly to operate in than China but they have advanced leaps and bounds since the Allies left them in a pile of cinder after World War II. The recent tsunami/earthquake that happened in Japan is still something they are recovering from and they have a massive amount of government debt. However, they also have enjoyed manufacturing and quality gains since the second World War that have allowed them to surpass the rest of the Western world, including the United States, in many ways including with consumer electronics and cars. When speaking of consumer electronics, it is clear that many of the top IT and electronics companies, including Microsoft, Oracle and Apple, are all based in the United States. However, all of those companies, the latter in particular, has its tentacles all over Asia with China and Japan being two of the major foci. The only reason the same is not true for Microsoft and Oracle is that so much of their business is software-based rather than hardware-based. Since this article pertains to consumer electronics companies, they would be the main focus although the consumer electronics division of Microsoft (e.g. Xbox, etc.) is nothing to sneeze at. To be concise, Japan is in a great location and their business atmosphere is extremely competitive with the West. However, the government is saddled with a lot of debt and manufacturing will always be cheapest in China and the poorer countries of Asia.
The ways by which Dorchester could acquire the three firms in question would include stock sales to raise capital, bringing in capital investment firms to chip in money for a huge reward later on and the use of short-term and long-term debt. When speaking of debt terms, such a massive purchase would be a long-view endeavor rather than a short one. However, the right acquisitions at the right time and price could lead to massive dividends. LG is burning hot right now as they are making huge strides in the LED television, smartphone and similar markets. Exactly the same thing can be said of Samsung, although they are even more prevalent in their field and they have an array of products that Apple et al could only dream of (GASME, 2014).
Going after any publicly traded company is going to be about convincing shareholders. If any one person or group has a lot of shares in a company and they are not interested in selling easily, then that could present a problem. However, if the company is faltering, the stock shares can be purchased at a discount. However, if the price is swelling now or is expected to in the future, then a premium on the current or projected share price might be necessary. It is all about having a plan and executing at the right time. Sometimes the impetus to act is obvious, which is what was seen with bank failures/acquisitions during the Great Recession in the United States. Other times, it takes some digging, negotiating and projection to figure out the right way to go and perhaps when it is best to wait and see what happens. Forcing a situation to work when the dollars and cents is not right is less than wise and entering into any country with a messy economic or social climate can lead to massive problems. For example, if consumer electronics manufacturing were a big item in Bangladesh, that could create some major issues given that their infrastructure and worker safety situations make China actually look good, which is saying a lot.
Conclusion
In the end, it pays to be aggressive and pounce when the opportunity is there but fools can rush in and snap up a company when it?s less than wise to do so. When speaking of consumer electronics, many would point to Apple buying out Beats as a good way to get a boutique headphone company, a very lucrative and high-profit business right now, overnight. However, some acquisitions have proven to be very foolish such as HP?s buyout of Compaq. HP lived to tell from their mistakes but many companies or at least their executives certainly do not (WSJ, 2011).
References
GASME. (2014, September 22). How South Korea Became a Consumer Product Juggernaut.
GASME News. Retrieved September 22, 2014, from
http://www.globalsmes.org/news/index.php?func=detail&detailid=1013&catalog=37&la
n=en&search_keywords=
WSJ. (2011, August 19). The Compaq Acquisition Comes Full Circle. The Wall Street Journal.
Retrieved September 22, 2014, from http://online.wsj.com/news/articles
/SB64044
