FN7226 Managing Resources in the International Business Environment Assignment Sample 2023
Question 1
Causes of this reversal
Globalisation is concerned with the process through which the world becomes interconnected. In the context of business, globalisation involves developing a global presence of business in which goods and services of a company are available for global consumers. In addition to this, the business also operates in the global context and different countries (Walter, 2021). Earlier, considering the benefits of globalisation significant emphasis was being placed on globalisation. However, in recent years it has faced considerable backlash, and some of the reasons for the backlash are-
Regional disparities- This is one of the very important reasons for backlash against globalisation. In globalisation regions that are performing well at the global level and have the capability to operate at the global level become economically stronger. On the other hand, those regions that are not performing well and do not have adequate capabilities to make a global impact, get negatively affected by globalisation (Pastor and Veronesi, 2018). This also creates regional disparities and becomes the reason for the backlash against globalisation.
Socioeconomic inequality- Socioeconomic inequality is another very important cause for backlash against globalisation. High-income regions because of globalisation lead to socioeconomic inequalities in different countries. Socioeconomic inequality among regions of the world is a big motive and concern for people that lead to a backlash against globalisation. Socioeconomic inequality involves that some groups or regions of the world get the best of what is available whereas some groups remain deprived of basic things.
Protectionist– This is also a cause of backlash against globalisation in which countries seek to protect the local economy from the impact of globalisation (Dluhosch, 2018). In addition to this, protecting resources is also an important reason for countries, and increasing backlash against globalisation.
Non-material concerns- Backlash against globalisation is mainly being driven by material causes but one by some group the backlash is also because of nonmaterial concerns. Nonmaterial concerns include identity, culture, and concern about sovereignty. Groups concerned with the environment, consumer health, and labour condition create a backlash against globalisation.
Environmental concern- Environment has become a very important concern for people and it is also one of the reasons for backlash against globalisation (Gamble, 2018). Climate change and extensive use of natural resources is a reason for backlash against globalisation. Countries and regions that are enriched with natural resources are likely to lose them because of globalisation.
Globalisation backlash has been highlighted by a survey conducted by PwC CEO.
The above image reflects that the confidence of CEOs has been fluctuating in globalisation and revenue prospects of globalisation (PwC CEO Survey highlights backlash against globalisation, 2017). CEO’s confidence in global growth will improve declined significantly in 2016 and in 2016 other aspects of confidence of CEO also reduces in 2016 highlighting globalisation backlash.
Challenge and opportunity that globalisation may face in the future
Technological development- This is an opportunity for globalisation in which technology development is connecting the world. Countries with a strong ability for technological development are looked upon by other countries to share their technologies. It is an opportunity for globalisation because technology has become a very important element in the present environment. Technological development by one country is increasing their strength in globalisation. Technology is also enabling in dealing with the crisis of climate change, and such technologies are having strong potential for global success.
Environmental concerns- Globalisation involve increased industrial activities in a country. Increased industrial activities involving increased use of resources and negative impact on the environment have created a requirement to focus on sustainability (Diamond, 2018). In addition to this, countries and regions are working on net-zero and because of this, there is a backlash against globalisation.
Net-zero refers to the balance between the amount of greenhouse gas produced and the amount of greenhouse that has been removed from the atmosphere. Reaching net-zero involves producing the amount of greenhouse gas that is less than the amount of greenhouse gas that has been removed from the atmosphere. A net-zero economy is one in which the amount added to greenhouse gas is less than the amount removed. The purpose of net-zero is to tackle climate change and minimise the impact of climate change. Climate change is getting triggered by greenhouse gases present in the atmosphere because greenhouse gases increase earth warming. Carbon dioxide is the most dangerous and abundant of all other greenhouse gases, and this is why it has become important to cut the carbon emission. Net-zero is also affecting globalisation and can be considered as a reason for the backlash of globalisation.
Concerning net-zero political impact is positive, and politicians are aiming at achieving net-zero in their economy (Jian, 2017). The UK is a country aiming for achieving net zero by 2050, and the government of other countries is also taking action for achieving net zero.
The economic impact of net-zero can be understood in multiple ways. It means that net-zero will benefit some of the sectors of the economy but will economically sectors as oil and gas will decline. These changes will impact jobs and training. With net zero and reduction in carbon emission economy will benefit because then possibilities of the flood, heatwaves, and other extreme weather events will reduce, and their economic and financial impact will also reduce.
Net-zero and environment are no different from each other, and net-zero have been proposed for sustainability and protection of the environment from carbon emission (A £2.5 trillion transformation: the economic impact of a net-zero North Sea, 2021). Achieving net-zero will make a significant positive impact on the environment, and it will ultimately benefit society.
The technological impact of net-zero is also considerable because innovation in the field of sustainability will be required.
Overall, different arguments regarding net-zero presents that, it has become essential for countries to aim for net-zero to protect the environment. The economic impact was also discussed, and regarding globalisation, globalisation discouraging achieving net zero will experience backlash. Globalisation involves extensive industrial activities and contributes to carbon emission, and this is why it will experience backlash from regions focusing on net-zero and sustainability.
Question 2
Expansion in International Market
For a UK-based business, an international business manager is considering full-scale expansion of the business. In this expansion, the USA and Europe have been identified as potential markets where business can expand its operations. However, both the market seems to have the effective potential for expansion of business and return on investment for the business. The following table presents projected cash flows in respective currencies in the USA and Europe. An investment that is to be made for expansion is 20 million in both currencies.
| Year | Net Cash Flow – USD USA | Net Cash Flow – EUR Europe |
| 0 | -20 million | -20 million |
| 1 | 2 million | 2 million |
| 2 | 4 million | 3 million |
| 3 | 5 million | 4 million |
| 4 | 6 million | 8 million |
| 5 | 8 million | 8 million |
Based on the projected cash flow it can be said that, in the USA cash flow in the initial 4 years increases steadily. In the second-year cash flow growth is double the growth in the first year and after cash flow keeps adding. On the other hand, in Europe initial three years case flow is less than in the USA however in the 4th year it experiences a significant increase in cash flow. In the 5th year, cash flow in USA and Europe is similar. Projected cash flow of the company in the USA and Europe, outlines that in the USA as well, as Europe total cash flow of 5 years will be25 million.
Viability in Europe and USA
Viability is concerned with the possibility and ability to work successfully in the international market (Witt, 2019). The viability of the business in the USA and Europe can be determined on the basis of several aspects. In Europe, companies are likely to get access to the largest single market European Union whereas the USA is also a viable market because of its strong and stable economy. The viability of a business gets affected by market size, target audience, and competition that are the three most important indicators of viability. In relation to market size and target audience Europe is favourable for expansion because European Union offers the largest single market in the world (Strange and Zucchella, 2017). In relation to the competition, it can be said that USA and Europe both are likely to present significant competition for business because the USA economically developed country, and several businesses are operating in the USA that can give the competition to new entrants. Similarly, Europe also has a large market, and there are several businesses is already operating in the market that can give strong competition to a new entrant. Strengths and abilities of business are the only factors that can affect and increase its viability in the USA and Europe (Monaghan and Tippmann, 2018). Financial viability can be determined on the basis of projected cash flows and the application of discounting rate on the cash flow that helps in identifying the net present value of the business in the USA and Europe.
| (Amount in Million $) | |||
| Year | Net Cash Flow – USD USA | PV Factor @6% | Present value |
| 0 | -20 | 1 | -20 |
| 1 | 2 | 0.943 | 1.886 |
| 2 | 4 | 0.89 | 3.56 |
| 3 | 5 | 0.84 | 4.2 |
| 4 | 6 | 0.792 | 4.752 |
| 5 | 8 | 0.747 | 5.976 |
| NPV | 0.374 | ||
Table 2 Allocation of Discounting Rate or Cost of Capital
Discount rate is concerned with an interest rate that is the rate of investment applied to the present value calculation (Gaspars-Wieloch, 2019). In simple words, the discount rate is the rate of return that is used for discounting future cash flows back to their present value. Determination of appropriate discount rate is important for adequate value in future cash flows to identify whether the future cash flows will be in form of earning or debt for the organisation (Hopkinson, 2017). For the calculation of this business, a 6% discounting rate was allocated to the cash flows because allocating a higher rate of discount was presenting a negative net present value. The discounting rate was allocated 6% to both USA and Europe.
| (Amount in Million EURO) | |||
| Year | Net Cash Flow – EUR Europe | PV Factor @6% | Present value |
| 0 | -20 | 1 | -20 |
| 1 | 2 | 0.943 | 1.886 |
| 2 | 3 | 0.89 | 2.67 |
| 3 | 4 | 0.84 | 3.36 |
| 4 | 8 | 0.792 | 6.336 |
| 5 | 8 | 0.747 | 5.976 |
| NPV | 0.228 | ||
Table 3 Allocation of Discounting Rate or Cost of Capital
On the basis of allocation of discounting rate and net present value in the USA and Europe, it was found that the total net present value of a business is higher in the USA as compared to the net present value in Europe (Willems et. al. 2017). It means that investment that will be made in the future has had value in the present in the USA as compared to Europe. The higher net present value of an investment in the USA indicates that the performance of the business in the USA will be good as compared to the performance of the business in Europe. The positive or higher present value of case law in the USA can be attributed to higher cash flow in the initial years in the USA as compared to cash flow in Europe in the initial years. The initial three years projected cash flow in the USA is higher than projected cash flow in Europe. Projected cash flows in each year have a significant impact on the present value of cash flows when the discounting rate is applied on them and this is the reason that cash flows in the USA are higher as compared to Europe (Dagdelen and Traore, 2018). On the basis of calculations, the USA project should be selected by the international business manager because the USA has a higher potential for success. The high net present value indicates that the USA will offer higher benefits to the business as compared to Europe. However, it should be noted that Europe also has positive net present value for the business, and overall net present value gets affected by less cash flow in Europe in the initial years of business expansion.
Current economic climate
In relation to the current economic climate in the USA and Europe, it can be said that economics was considerably affected by the impact of the covid-19 pandemic. However, economies have started to recover as the impact of covid-19 reduced and everything is getting normal in terms of the economy (Ranta et. al. 2018). Concerned with the current economic climate of the USA, it has recovered in the third quarter of 2021 and expanded by 33.8 percent. However, it is not adequate to offset earlier losses in the country in which of 5% decline in GDP is also included (World Economic Outlook Database, 2021). In relation to the economic climate of Europe, it can be said that Europe is also recovering from the impact of the covid-19 pandemic. In relation to its economic climate, advanced economies have forecasted an expansion rate of 5.2% whereas is emerging economy of Europe is likely to expand by 6%. It means that Europe and USA both are working on expansion and recovering from the impact of the covid-19 pandemic. In addition to the general economic climate of the USA and Europe is strong in which European economic get benefited by European Union and its policies of a large single market (Barua, 2020). The USA is also one of the strongest economies in the world on the basis of GDP. Europe also consists of some highly developed countries, and on the basis of GDP per capita, some of the largest economies are in Europe. It means that on the basis of economic climate USA and Europe both are viable and worth considering by business.
Anticipating the change in exchange rates
The exchange rate is concerned with the value of a country’s currency versus the value of another country or economic zones currency (Auer et. al. 2021). Most exchange rates are free-floating, and the increase and decrease in currency get affected by supply and demand in the market. The exchange rate is a very important element that needs to be considered in the international environment of business. Forecasting changes in the exchange rate can help in making a more reliable and valid decision for the expansion of business in a certain country or economic region (Greenwood et. al. 2019). There are mainly three methods through which UK-based businesses can forecast changes in the exchange rate. Three methods of forecasting are-
Purchasing power parity– This is the most important and widely used method of forecasting exchange rates because of its inclusion in most of the textbooks of economics. Purchasing power parity method is based on the approach that is the theoretical law of one price (Gilboa and Mitchell, 2020). Purchasing power parity considers that identical goods in different countries should have identical prices. This means that a product that a UK-based business sells in Europe and USA should be sold at the same price as the UK.
Relative Economic Strength– It is another method of forecasting the exchange rate in which the strength of economic growth in different countries is considered for forecasting the direction of the exchange rate. This method considered the approach that a strong economic environment and potentially high growth environment is likely to attract investment from foreign. Higher investment from foreign increases the exchange rate value of a country (Iqbal et. al. 2020). To calculate the value of currency exchange from this method UK based businesses will be required to determine the Economic Strength of Europe and the USA.
Econometric models of the forecasting exchange rate- This method includes forecasting exchange rate marketing factors that are likely to affect currency movements and creating a model that relates these variables with the exchange rate (Nyoni, 2018). Econometric models are, based on economic theories, and variables can be added that influence the exchange rate of a currency.
Mitigating impact of possible exchange rate fluctuations
Impact of exchange rate can be significant but there are various ways through which this impact can be mitigated. Possible ways through which UK-based business can mitigate this impact is-
Setting up a foreign currency account- It is a possible way in which businesses can accept and pay bills in foreign currency, and this can also use multiple foreign currency accounts if required (Shams et. al. 2021). It is a way to mitigate the impact of exchange rate fluctuation.
Use of currency option- It is the way in which businesses can protect a certain exchange rate. At the same time, businesses can participate in the market if the currency rate moves in their favour.
Forward exchange contract- It is a contract through which a business can buy one currency amount and sell another at a fixed exchange rate on an agreed future date(Guzman et al., 2018). This help business in avoiding the impact of exchange rate fluctuation and also, in determining the exact cost of the business.
Fluctuation of exchange rate creates a significant risk for business, and international businesses are most likely to get affected because of exchange rate fluctuations.
International business also involved with several other types of risks for business to mitigate the risks following strategies can be adopted by UK based businesses-
Assessing political risk and impact- It is one of the ways through which international business risk can be managed and mitigated (Deligonul, 2020). Businesses should assess political risk which is very important, and its impact on business success. In response to political risk business, it can also purchase political risk insurance. Political risk in insurance can help them in protecting their equity investment and loan from particular government actions.
Developing contingency plan- Eliminating all kind of risks and their impact on business is impossible, and this is why it is important that business is before expansion develops a contingency plan (Liu and Lee, 2020). A contingency plan provides measures to a business through which it can protect its interest and minimise the impact of any risk on the business.
The selection of projects based on financial data is one of the best ways through which it can select the right and successful project of international business. It is very important to assess different factors that are likely to affect the success of business in the international environment, and among these factors, the currency is very important. Businesses should forecast possible currency changes and develop appropriate strategies through which they can minimize or eliminate the impact of exchange rate fluctuation.
References
Books and Journals
Auer, R., Burstein, A., and Lein, S. M. (2021). Exchange rates and prices: evidence from the 2015 Swiss franc appreciation. American Economic Review, 111(2), 652-86.
Barua, S. (2020). Understanding Coronanomics: The economic implications of the coronavirus (COVID-19) pandemic. Available at SSRN 3566477.
Dagdelen, K., and Traore, I. (2018). Open pit transition depth determination through global analysis of open pit and underground mine production scheduling. In Advances in Applied Strategic Mine Planning (pp. 287-296). Springer, Cham.
Deligonul, S. Z. (2020). Multinational country risk: Exposure to asset holding risk and operating risk in international business. Journal of World Business, 55(2), 101041.
Diamond, P. (Ed.). (2018). The crisis of globalization: democracy, capitalism and inequality in the twenty-first century. Bloomsbury Publishing.
Dluhosch, B. (2018). Trade, inequality, and subjective well-being: Getting at the roots of the backlash against globalization (No. 741). LIS Working Paper Series.
Gamble, A. (2018). Globalization and the new populism. The crisis of globalization: Democracy, capitalism and inequality in the twenty-first century, 27.
Gaspars-Wieloch, H. (2019). Project net present value estimation under uncertainty. Central European Journal of Operations Research, 27(1), 179-197.
Gilboa, S., and Mitchell, V. (2020). The role of culture and purchasing power parity in shaping mall-shoppers’ profiles. Journal of retailing and consumer services, 52, 101951.
Greenwood, R., Hanson, S. G., Stein, J. C., and Sunderam, A. (2019). A quantity-driven theory of term premiums and exchange rates. Working paper, Harvard Business School.
Guzman, M., Ocampo, J. A., and Stiglitz, J. E. (2018). Real exchange rate policies for economic development. World Development, 110, 51-62.
Hopkinson, M. (2017). Net present value and risk modelling for projects. Routledge.
Iqbal, N., Fareed, Z., Shahzad, F., He, X., Shahzad, U., and Lina, M. (2020). The nexus between COVID-19, temperature and exchange rate in Wuhan city: new findings from partial and multiple wavelet coherence. Science of The Total Environment, 729, 138916.
Jian, X. (2017). Globalization in Reverse and Its Transformation. China Int’l Stud., 65, 5.
Liu, T. Y., and Lee, C. C. (2020). Exchange rate fluctuations and interest rate policy. International Journal of Finance and Economics.
Monaghan, S., and Tippmann, E. (2018). Becoming a multinational enterprise: Using industry recipes to achieve rapid multinationalization. Journal of International Business Studies, 49(4), 473-495.
Nyoni, T. (2018). Modeling and forecasting Naira/USD exchange rate in Nigeria: A Box-Jenkins ARIMA approach.
Pastor, L., and Veronesi, P. (2018). Inequality aversion, populism, and the backlash against globalization (No. w24900). National Bureau of Economic Research.
Ranta, V., Aarikka-Stenroos, L., Ritala, P., and Mäkinen, S. J. (2018). Exploring institutional drivers and barriers of the circular economy: A cross-regional comparison of China, the US, and Europe. Resources, Conservation and Recycling, 135, 70-82.
Shams, R., Vrontis, D., Belyaeva, Z., Ferraris, A., and Czinkota, M. R. (2021). Strategic agility in international business: A conceptual framework for “agile” multinationals. Journal of International Management, 27(1), 100737.
Strange, R., and Zucchella, A. (2017). Industry 4.0, global value chains and international business. Multinational Business Review.
Walter, S. (2021). The backlash against globalization. Annual Review of Political Science, 24, 421-442.
Willems, C. J. L., Nick, H. M., Goense, T., and Bruhn, D. F. (2017). The impact of reduction of doublet well spacing on the Net Present Value and the life time of fluvial Hot Sedimentary Aquifer doublets. Geothermics, 68, 54-66.
Witt, M. A. (2019). De-globalization: Theories, predictions, and opportunities for international business research. Journal of International Business Studies, 50(7), 1053-1077.
Online
A £2.5 trillion transformation: the economic impact of a net-zero North Sea. 2021. [Online]. [Available Through]: <https://www.woodmac.com/news/opinion/a-2.5-trillion-transformation-the-economic-impact-of-a-net-zero-north-sea/>.
PwC CEO Survey highlights backlash against globalization. 2017. [Online]. [Available Through[: <https://www.consultancy.uk/news/12992/pwc-ceo-survey-highlights-backlash-against-globalisation>.
World Economic Outlook Database. 2021. [Online]. [Available Through]: <https://www.imf.org/en/Publications/WEO/weo-database/2021/October/weo-report?>.
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