Capital Budgeting and Foreign Direct Investment Decision
1. How big is the risk for KFC to enter the African market? What can go wrong?
All business transactions encompass some magnitude of risk. Moreover, when such transactions traverse global borders, they come with extra risks that are more often than not lacking in domestic business transactions. According to Peters (2010), this level of risk is not as extensive and severe as perceived. Africa is the quickest growing expanse in the globe subsequent to the Asian region. However, with the exclusion of interests in mining and petroleum, there is negligible attention paid to the expanse by Western corporations, substantially due to incessant negative perspectives of high political volatility. The mounting interest displayed to Africa as a possibly eye-catching destination for foreign direct investments is fundamentally as a result of the increasing commitment of emerging Asia with nations in the expanse. Western companies in general have substantially restricted knowledge and understanding regarding the prevailing investment environment and the key institutional restructurings that have occurred all throughout continent in the past number of years. This hinders them from distinguishing new business prospects and to ascertain approaches to alleviate risks (Peters, 2010). KFC entering the African market is a big risk owing to the reason that the African market is a risky market. What could go wrong is that KFC could end up experiencing losses. In accordance to Gill (2010), these losses may come about when KFC has made initial capital investments but fail to recover such funds in the cash flows generated from the business. This can be caused by numerous aspects within the African market. One of the aspects that could go wrong is the lack of proper operation due to bureaucracy. More often than not, businesses within Africa fail to thrive or experience issues because of government controls and bureaucratic tackiness.
2. What would be your major concerns if you were the Chief Financial Officer of KFC and you were asked to find financing in the African market?
Being the Chief Financial Officer of KFC, there would be key concerns in finding financing in the African...
References
Duhaime, I. M., Stimpert, L., & Chesley, J. (2012). Strategic thinking: Today’s business imperative. Routledge.
Gill, A., Biger, N., & Tibrewala, R. (2010). Understanding and mitigating direct investment risk in the Indian real estate market. Business and Economics Journal, 2010, 1-10. Retrieved from http://astonjournals.com/manuscripts/Vol2010/BEJ-2_Vol2010.pdf
Pendleton, E. (2017). The Advantages of Doing Business in an Emerging Market. Chron. Retrieved from: http://smallbusiness.chron.com/advantages-doing-business-emerging-market-22717.html
Peters, S. (2011). Emerging Africa: The new frontier for global trade. Economics, Management and Financial Markets, 6(1), 44-56.
White, B. (2011). Access to Finance is the Biggest Challenge to Entrepreneurs in Africa. Venture Capital for Africa.
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