FN7226 Managing Resources in the International Business Environment Assignment Sample 2023
Introduction
This study will evaluate the impact of new policies to operate business organisation and their effects on climate change. Political, economical, technological, social, and environmental effects for considering NET ZERO concept that is proposed by UNFCCC will be enlightened in this study. Innovation projects for implementing business by using green energy will be evaluated where and NPV and Cost of capital will be calculated for the same project to n choose the most effective country for this project. This study will provide a discussion on risk of exchange rate and controlling factors to sustain the economy for long run.
Question 1
Critically discuss the causes of backlash against globalisation
Political
Most governments have facilitated globalisation to develop economic conditions of a country. As cited by Caligiuri et al. (2020), political environment of the USA is supportive of the NET ZERO concept to manage and has promised to do this by 2030. Government of Europe has said they will make their country carbon-free by 2050. A lot of opportunities are created to motivate entrepreneurs of country to participate in exporting business with innovative strategies that do not affect climate.
US government has allowed cross border investment law to acquire international companies and expand indigenous companies. As opined by Davis et al. (2018), commercial laws for international business, treaties, conventions, and domestic legislation are the elements of international business. Companies invest their money in those countries where the political environment is comparatively stable and laws are not too complicated for international business. Political ups and downs affect companies’ daily activities and it is necessary to invest in a politically stable country.
Environmental
Environmental factors are most essential for international business. UNFCCC has proposed the NET ZERO concept to maintain the environment by using green energy. It is a challenge for companies to adopt effective plans that will maintain climate. As opined by Romanak et al. (2021), NET ZERO concept is focused on producing goods as per the demand of the market to reduce waste of energy, weather, and human resources. Companies with effective technologies will be able to sustain their business for a long period and it also ensures the development of mankind. Greenhouse effect will be removed by this concept. The US government has futuristic technologies that can easily manage to achieve NET ZERO that companies will be benefited by organising business in this country. Europe will also cover all the instructions of NET ZERO by 2050 that which is also a good investment point for future business.
Social
Society will benefit from implementing new technologies that will produce sustainable energy for mankind. As per the opinion of Nolden et al. (2021), the price of goods and services will increase because green energy is more expensive than traditional sources of energy and society will have to pay more than usual for the betterment of climate. Different kinds of diseases have arisen due to the use of uncontrollable traditional energy that harms the environment. A large amount of energy will be sustained and waste of natural resources will be reduced by this concept of NET ZERO.
Technological
NET ZERO concept will help to increase sustainability of natural resources because it influences innovative ideas to develop effective technologies for the future that is affordable by consumers. Increasing the use of green energy is necessary to stop climate change. As cited by Kato and Kurosawa (2021), technological advancement of the country helps to reduce pollution by minimizing the use of CO2 and Nox. Most of the country has taken initiatives to develop technologies to produce effective green energy for the future. Technologically advanced country is best for the future business. It is necessary to choose an international business operation centre by evaluating the technological environment of that country.
Economical
Developing and underdeveloped countries will face a lot of complications to implement new technologies to reduce the use of carbon. Reducing the use of carbon means existing companies have to close their business operations within the upcoming few years. As cited by Lee et al. (2021), use of effective technologies will allow companies to produce energy and goods at an affordable price. Value of real estate will increase for establishing new policies for the NET ZERO concept. Governments will easily allow companies whose operational policies do not spread pollution and use sustainable energy that develops the economy of the country. Investors are highly motivated to invest in a company that uses sustainable energy to reduce the effects of carbon on climate. NET ZERO does not affect economically developed countries like Europe and USA so investing in these countries will be profitable.
Challenges and for the implication of current development and global issues
Globalisation has impacted countries economy, there are different effects in the political, environmental, economical, technological factors most of the companies focuses to participate in international business. US-based companies follow a cross border investment method to acquire companies of other countries like Cisco have acquired Broadsoft. Globalisation has affected the laws that are imposed by governments that create so many opportunities and challenges for companies.
Those companies who have a large number of financial resources have taken a risk to expand their business activities; globalisation is considered a non-democratic action by political leaders because it is incorporated through a top-down level. As cited by Ford and Hardy (2020), local business organisations are unable to grow their business. Local companies get unfair market competition in competitive markets for the lack of effective technologies and economical support. Small organizations are unable to afford new technologies that they face more complications during operating a business and engagement of international companies reduces demand.
Benefits for the implication of current development and global issues
Import and export are facilitated by globalization that affects the economic environment of the country. More exporter countries earn a large amount of foreign exchange by their business activities. Countries who import more than export spend a lot of money on purchasing products from foreign countries that affect their economy. As opined by Vásquez et al. (2017), globalisation allows companies to expand business globally and get a large number of customers. Most of the country’s economy has grown because of globalisation because it gives an opportunity to participate in the world market. Current development of technologies has affected the environment by using harmful technologies and substitute products to reduce cost and increase efficiency of production. Mankind is facing climate change effects for implementing current business development policies.
Question 2
Discuss viability of both projects in today’s global business context and allocate discount rate
Companies in the UK have evaluated the economic position of Europe and the USA to implement business operation centres by using sustainable energy. Global business environment is changing fast and the inflation rate is also increasing. The 5% discount rate is taken into consideration for this project in two countries. Initial investment for the green energy project is around 20 million dollars for USA and 20 million Euros for Europe. Both projects are efficient because every company will be able to get a large amount of revenue in upcoming 5 years. Cash flow for upcoming 5 years for this project in USA is almost 2 million dollars, 4 million dollars, 5 million dollars, 6 million dollars, and 8 million dollars. Projected cash flow for the same project in Europe for 5 years is expected to be almost 2 million Euros, 3 million Euros, 4 million Euros, 8 million Euros, and 8 million Euros.
Investment is needed for each project the NPV of each project
Almost 20 million Euros for Europe and 20 million dollars is needed for the USA for this project. As cited by Yousefi et al. (2019), net present value helps to identify the profitability of a particular project by evaluating expected cash flow and discount rate. After calculating the NPV of this project of both countries by evaluating, the expected cash flow for the project is 28.06 million dollars for the USA and approximately 27.70 million Euros for Europe. NPV shows that this project has potential to earn a large amount of money in the future and cash flow will increase over time. NPV is greater than initial investment in both cases that both projects have potential to earn money.
Discussion of calculation to choose the effective project
Net present value (NPV) was calculated for projects for both Europe and USA where initial investments are 20 million Euros and 20 million dollars respectively. As opined by Erkoc et al. (2018), internal return rate is calculated n to identify the most profitable country for this project. IRR represents the rate of growth of a particular project when NPV is more than zero. The NPV of this project in the USA is almost 28.06 million dollars and in Europe around 27.70 million Euros. Calculations of NVP have shown that the project will be beneficial for the USA more than Europe. Cost of capital for this project in the USA and Europe is almost 8.06 million dollars and 7.70 million Euros respectively. Internal rate of return is more than 8 % and almost 7.701 % in the USA and Europe respectively on this project. It can be said that implementing this project in the USA will be more beneficial for the company.
[Calculation is mentioned in appendix: 1]
Analysis of world economic climate, future exchange rates are uncertain in exchange rate
Economic condition of world will fluctuate because future exchange rates b and growth of an economy are dependent on innovation and climate change. US have acquired most of the world economy for their infrastructure and innovative strategies. Natural resources are not sustainable and it is necessary to sustain available resources for the development of a global economy. As cited by Sudacevschi (2017), it is hard to predict accurate future exchange rates because of uncertainties exchange rates of Europe and USA will improve in upcoming future because they will adapt sustainable energy before other countries. Futuristic idea of saving energy saves mankind from climate change and improves the economies of countries that use sustainable energy. Fluctuation of exchange rate is dependent on the economic condition of countries and it affects the chosen financial plan of the organisation that must be controlled efficiently.
Proposal to mitigate impact of possible exchange rate fluctuations
Countries have to follow currency forward contracts to control currency risk. This contract of currency forward is made among parties to fix a currency exchange rate for a predetermined period. As per the opinion of Hendrawan (2017), countries have to deposit money to currency brokers to account for this type of contract. Exchange rate fluctuates over years so it is necessary to open a foreign currency account that will minimize the risk of currency fluctuation. Companies can invest their money in different currencies that will reduce the risk of exchange rate fluctuation. Based on currency forward contract companies deposit their money in a currency broker account and will be eligible to get that money after a certain period of time. In this way, exchange rotation does not affect the deposited money.
Conclusion
Based on this study it can be concluded that it is necessary to follow NET ZERO concept to increase sustainability of natural resources and stop climate change. Globalization gives an opportunity to meet global consumers and earn a large amount of foreign currency. Local business organizations face unfair competition in the market for implementing globalisation concepts. Economically strong countries will easily make their country NET ZERO in carbon pollution but most of the countries are underdeveloped and developing so that it is hard to operate a business in those countries by NET ZERO concepts. Based on this study it can be said that business project has been evaluated for two countries, the USA and Europe. After calculation of Net present value, it can be said that the USA is the better option for that project. Exchange risk is a big financial risk for companies that must be controlled efficiently and currency forward contracts help to reduce the risk of currency exchange.
References
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Davis, S.J., Lewis, N.S., Shaner, M., Aggarwal, S., Arent, D., Azevedo, I.L., Benson, S.M., Bradley, T., Brouwer, J., Chiang, Y.M. and Clack, C.T., 2018. Net-zero emissions energy systems. Science, 360(6396).Available at: https://science.sciencemag.org/content/360/6396/eaas9793.abstract
Erkoc, M., Wang, H. and Ahmed, A., 2018. Optimal capacity investment, and pricing across international markets under exchange rate uncertainty and duopoly competition. Available at SSRN 3152729.Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3152729
Ford, R. and Hardy, J., 2020. Are we seeing clearly? The need for aligned vision and supporting strategies to deliver net-zero electricity systems. Energy Policy, 147, p.111902.Available at: https://www.sciencedirect.com/science/article/pii/S0301421520306157
Hendrawan, R., 2017. Forward, forward option, and no hedging which one is the best for managing currency risk. Jurnal Keuangan dan Perbankan, 21(3), pp.356-365.Available at: https://pdfs.semanticscholar.org/f0bb/8009ae8183f55b48cde5e5878454eeb95d5e.pdf
Kato, E. and Kurosawa, A., 2021. Role of negative emissions technologies (NETs) and innovative technologies in transition of Japan’s energy systems toward net-zero CO 2 emissions. Sustainability Science, 16(2), pp.463-475.Available at: https://link.springer.com/article/10.1007/s11625-021-00908-z
Lee, K., Fyson, C. and Schleussner, C.F., 2021. Fair distributions of carbon dioxide removal obligations and implications for effective national net-zero targets. Environmental Research Letters, 16(9), p.094001.Available at: https://iopscience.iop.org/article/10.1088/1748-9326/ac1970/meta
Navia-Vásquez, C., Monsalve-Hinestroza, M.C. and Franco-Sepúlveda, G., 2017. NPV analysis as a function of the discount rate and cost of re-handling implementing SIMSCHED DBS to open pit mining. Boletín de Ciencias de la Tierra, (41), pp.80-85.Available at: http://www.scielo.org.co/scielo.php?pid=S0120-36302017000100008&script=sci_abstract&tlng=en
Nolden, C., Eyre, N. and Fawcett, T., 2021. Energy demand policymaking attention in the context of a just transition to net zero: results of a UK survey. In ECEEE Summer Study 2021 Proceedings (pp. 2-027).Available at: https://www.researchgate.net/profile/Colin-Nolden/publication/355184219_Energy_demand_policymaking_attention_in_the_context_of_a_just_transition_to_net_zero_results_of_a_UK_survey/links/616545b40bf51d4817771b38/Energy-demand-policymaking-attention-in-the-context-of-a-just-transition-to-net-zero-results-of-a-UK-survey.pdf
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Appendix: Net Present Value and Cost of Capital
| Calculation of Net present value | |||||
| Discount rate | 5 | ||||
| Initial investment | 20 | ||||
| Net Cash Flow – USDUSA | Net Cash Flow –EUR Europe | ||||
| 1 | 2 | 1 | 2 | ||
| 2 | 4 | 2 | 3 | ||
| 3 | 5 | 3 | 4 | ||
| 4 | 6 | 4 | 8 | ||
| 5 | 8 | 5 | 8 | ||
| Net present value | $28.06 | Net present value | $27.70 | ||
| Cost of capital | $8.06 | Cost of capital | $7.70 | ||
| Average internal rate of return | 8.06 | Average internal rate of return | 7.701649 | ||
(Source: MS Excel)
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