International Business
What information would you require to assess the options which are open to ABH Electronic (15 Marks)
In order to properly assess the options that are available to ABH electronics I would need additional information pertaining to the economic conditions of the three countries seeking to attract ABH. Specifically I would need to know the Gross Domestic Product, the overall market index, the consumer price index (inflation), the annual per capita income of residents and the overall economic viability of the various countries. I would need to assess this information because knowing the economic condition of a country will enable the chief financial officer to create a strategy that is beneficial to ABH electronics. It will also allow the CFO to examine the risks associated with doing business in that particular country. I would also need to know the size of the market, the demographics, social issues and political issues facing the country. Requiring this information may seem germane but this information is critical to understanding consumers in and their needs within these markets, discuss the methods available to pay for foreign investment and the reasons for your choice (12 Marks)
Foreign investment has increased drastically over the past decade. According to a report entitled "Foreign Direct Investments: Financing Sustainability" explains that flows from Foreign Direct Investments reached $36 billion. Paying for foreign direct investment can be a challenge for any company. One of the primary ways that organizations pay for foreign investment is the Private-Public Partnerships (PPPs). A Private-public partnership is defined as, contractual agreement between a public agency (federal, state or local) and a for-profit corporation. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility." ("How Partnerships Work")
PPP's are often used by corporations to fund foreign investments because they tend to offer more security than other forms of investment. As the definition illustrates, companies that are engaged in public-private partnerships not only share financial resources but they share management expertise. Therefore PPP's can offer a corporation a great deal of mentorship and guidance as they engage in foreign investment.
There are approximately 14 different types of Public-private partnerships. For the purposes of this discussion we will concentrate on explaining three of them; Build Own operate, Design Build operate and turnkey. In a PPP that is based on a Build Own Operate strategy
The contractor constructs and operates a facility without transferring ownership to the public sector. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. A BOO transaction may qualify for tax-exempt status as a service contract if all Internal Revenue Code requirements are satisfied." ("How Partnerships Work")
PPP design that is based on a Design Build Operate strategy there is one contracted that is awarded for the construction, operation of capital improvement, and design. In addition, the facility's title stays with the public sector.
The article "How Partnerships Work" explains.
The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owner's taking over the project and operating it." ("How Partnerships Work")
The final design for a PPP that I would like to discuss is the turnkey design. A turnkey project occurs when the public sector joins with the private investor to build and design an entire facility. ("How Partnerships Work") These facilities must be built in accordance with the criterion that has been agreed upon by the public and private sector. In addition the private developer agrees to construct the facility at a predetermined price and the private developer also absorbs all the risks associated with meeting that predetermined price. ("How Partnerships Work")
In most cases the private sector that constructs the facility uses fast track construction techniques and they are not forced to follow traditional procurement requirements. ("How Partnerships Work") The fast track technique allows the private sector to save time and money in the process of construction that would be impossible using traditional techniques. The article "How partnerships work" explains that In a turnkey transaction, financing and ownership of the facility can rest with either the public or private partner. For example, the public agency might provide the financing, with the attendant costs and risks. Alternatively, the private party might provide the financing capital, generally in exchange...
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It is also interesting to comment on the article's evaluation of the potential future trends for the companies in developing countries. The article evaluates a closer integration of these companies in the global market. This is something that is potentially bound to happen. Indeed, these companies are already playing a more important role on a regional level by investing in neighbor economies. Recently, a Kazakh corporation purchased a Romanian fuel
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