FN7226 Managing Resources in the International Business Environment Assignment Sample 2023
Introduction
Globalization could certainly be interpreted as internationalization of businesses. It allocates different resources for its manufacturing intentions by allocating extraction of same from different countries. This assignment particularly enquires about international environment for business. It will look forward to citing implications of globalization on political, environmental, economical and technological arbitrations. Main aim of this study shall be to explain brief impacts brought by global issues of expanding existing businesses. It shall explore a scenario where expansion of one such business demands risk analysis along with calculation of NPV. Exchange rate fluctuations shall also be cultured with impacts laid by the same and how that could be mitigated.
Question 1
Negative Impact of Globalization
Globalization has certainly been recognized for its contributions in development of global economy but it has posed certain negativities on existing systems. Such can be categorized in this following manner.
Growth in Debts- Growing rate of globalization has given rise to interdependence on foreign products. Many countries and states import such items on credit from exporting nations giving birth to credit bubbles. According to Paskaleva and Stoykova (2021), this brings a negative impact on their financial capacity due to uncertain changes in exchange rate between countries. Those importing nations often fall trap to such orders giving rise to economic dilemmas for these importing nations.
Geo-Political Affairs- Relationships between many nations are learnt to be in arbitrary positions due to their intellectual differences. This could give rise to cross border war-like situations which can be harmful for intercountry investors. As per Usman et al. (2020), they shall face losses in humongous quantities in such scenarios. It could certainly lead to closure or temporary stoppage of business which will consequently affect their financial position in the global market. This could be cited as a political drawback in case of globalization or internationalization of business.
Extraction of Natural Resources– Internationalization of businesses, especially manufacturing units have given rise to increased production for many companies. As opined by Salahuddin et al. (2019), this is a prospect of growth for these business units. Consequently, it has affected the store of natural resources. In order to pose competition in their respective industries, these companies have shifted to massive extraction of natural resources of a country thereby, depleting without adequate sustainability of resources. This brings a negative impact on nature thereby causing differences in environmental aspects. Further depletion could certainly ignite nations to counter such production processes.
Disappearing Scope of Labour– Globalization has brought explicit developments in the field of technology. Technology has been so efficient that it has almost been able to replace human labour. As cited by You and Lv (2018), this is a negative sight for those developing nations where population explosion is a necessary concern. Internationalization demands accuracy through machine functionality. This ends possibility of human labor to coexist in this market. Thus, it can be addressed as a negative impact of globalization through technological aspects.
Challenge and Opportunity of Globalization in Future
Current development of the economic environment has both positives and negatives against its progressive nature. As suggested by Amavilah et al. (2017), challenges could be such situations which international businesses could certainly face in future periods. Whereas, opportunities are distant advantages that such companies could avail in future. This part of study shall shed light on one such challenge and opportunity that could be potential for globalization purposes.
Challenge
Loss of Cultural Identity– Businesses which are of this thought for expanding their operations on a global basis will certainly have to adopt international recruiting. Therefore, it is evident that various people will come in this practice as a prospect for employment in such foreign country. This is a place where that company will invite multiple cultures into their business. As referred to by Twerefou et al. (2017), it is one of those areas where such people with mixed cultural diversities will cater to job roles in their specific manners. This shall be inhibited in their working process as well. To some extent it shall also customize their products and services. It will inherently adopt such cultures without realizing loss of parent culture of that company. Thus, differences at this point are evident due to disappearance of such identity. This can further affect them to revive such things after it is lost in that process (Furceri et al., 2019). There could be differences in terms of productivity. Therefore, it can be a potential challenge for globalization in future times.
Opportunity
Corporate Success– Globalization is certain to fetch economic growth with expansion of their operational activities. It can earn them huge revenues through this massive exploration of different cultures in various nations. As opined by Sala and Trivín (2018), these companies will be able to surge a new customer base that could be potential revenue options for these companies. Moreover, it shall give these business entities with an option for open trading. Global expansion would certainly involve additional costs but will be complemented with growth in market demand for their products and services. Open channels of distribution shall give these business organizations a lead to emerge as financial giants in their respective industries. As opinionated by Boshra and Almoied (2020), this could even give rise to innovative opportunities which these firms can reap to explore more revenue from their markets. It will certainly enhance their profit margins with differences in exchange rates.
Implications of Climate Change due to Global Economic Developments
Industrial revolution through globalization or internationalization of businesses has certainly increased production rates but has negatively affected climatic aspects in different parts of the world. According to Shahbaz et al. (2018), global economic development is possible with expansion of market boundaries. Such expansion has caused many companies to extend their market in foreign countries. As a result of increased cost of sales, such companies have opened manufacturing units in those countries. This has given rise to factories for relevant production purposes. It is one of those leading contributors in climate change due to their impact in massive rates.
Manufacturing units of these companies have certainly acquired resources of those countries to give effect to their production processes. As a result of which there was an explicit extradition of natural resources as a whole. Production processes in particular use techniques that involve consumption of various chemicals. Such commencement of production has given rise to huge amounts of pollution. As opined by Burlacu et al. (2018), atmospheric pollution has been a massive challenge to cope with for these foreign nations. Global temperatures are expected to rise by 3 degrees which can affect GDP of several nations in these upcoming years. Major economies would suddenly face a downturn due to this vicious impact on nature. Equatorial countries are expected to face more challenges than other regions.
Fossil fuels have reduced to minimum numbers after such an amount of exploitation by such global units. Market demand has risen by such numbers that it is evident to pool more production than before. Therefore, further exploitation is being done without much sustainable options. As described by Acheampong et al. (2019), replenishment has been minimal in comparison to extradition of such resources. This can possibly lead to scope for natural disasters which shall affect these businesses on a global platform. Rising water levels will lead to loss of land area which is a negative impact for business units. As suggested by Sabir and Gorus (2019), excessive heat will destroy cultivation which in turn will reduce nourishment options. Net Zero has been recognized as a benchmark target to resolve such differences. It is an urge to reduce pressure on the environment that could further contribute to sustainable sources of revenue generation in future.
Question 2
a)
Viability of Each Project
A project is termed as viable if relative benefits of that project are more than costs of such a project. In this case, it can be said that both projects show a potential of earning 25 million by the end of 5 years. Initial investment for both projects has been ascertained at 20 million. Therefore, it can be said that both projects shall reap sufficient benefits by the end of its 5 year period. Both of these projects seem to cover this quantity of expenses during their 5th year.
Moreover, it is also important for a company to perceive how long it can continue to persist in such a market. As per its size of investment in each project, it can be assumed that each project can continue to exist in their respective countries for a long period of time. According to Li et al. (2017), it shall explain their resistance to various barriers that can occur in their operational capacity. Global expansion is only done when a company has achieved substantial respect in domestic operations. Therefore, in case of this company, it can be assessed that it will utilize this domestic goodwill to expand in European and American boundaries.
Allocation of Discount Rate
A discount rate of 10 percent has been allocated for each project on the basis of general assumption. Such a percentage is allocated to calculate net present value for each project on the basis of their cash flows. As per Chang et al. (2019), this shall be helpful for computing value of each investment’s contribution in these two particular projects. This rate shall help to understand present value of those ascertained future cash flows that this company is supposed to earn by using discounted cash flow methods. This will give the investor a better idea for making investment decisions and cultivating maximum profitable options.
b)
Investment Required
Investment could be defined as an amount spent for a particular product as a consideration for the same. Therefore, it is an initial amount that is paid to reap future benefits against such payment. As opined by Vayas-Ortega et al. (2020), this is a prior amount that is cultivated in a particular business or project to give effect to future income making possibilities. In case of this company, it has projected two cash flows. One such cash flow is directed towards expansion of business in United States of America. Another cash flow has been provided to establish future cash flow possibilities in their respective European origin. In case of both projects, company has assessed an initial investment of 20 million USD and 20 Million Euro. Investment amount is quite large and it will require substantial management from end of this company.
Investment is required to such a large extent because this company will have to comply with increasing demand for their products in these two nations. It is evident that the company will have to set up substantial units of production that will be able to meet targeted units of production. Additionally, this company will also require funding for creating new distribution channels and acquire required certificates for conducting proper operations. As described by Carras et al. (2020), it shall also have to spend on obtaining premises for establishing a country headquarters. Further, it shall require adequate funding for advertising their scope of business to associate a new set of potential customers to their bag of revenue.
Calculation of Net Present Value
Net present value for both projects has been calculated based on their respective discount rates. It has been assumed at a rate of 10 percent per annum. Cash flows of both projects had been determined on a previous note. Such calculations had been done with a view to understand which project shall be more beneficial for this company. Calculation for USA based expansion has been shown below.
| Year | Cash Flow USA (Million) | Average Cash Flow | Difference | Sq. Difference |
| 0 | $ (20) | |||
| 1 | $ 2 | $ 5 | $ (3) | $ 9 |
| 2 | $ 4 | $ 5 | $ (1) | $ 1 |
| 3 | $ 5 | $ 5 | $ – | $ – |
| 4 | $ 6 | $ 5 | $ 1 | $ 1 |
| 5 | $ 8 | $ 5 | $ 3 | $ 9 |
| $ 25 | $ 20 |
Table 1: Cash Flow for USA based expansion
(Source: Excel)
| Discount Rate | 10% |
| Variance | 4 |
| Standard Deviation | 2 |
| Beta | 2 |
| NPV (Million) | $4.27 |
Table 2: Rates for USA based Expansion
(Source: Excel)
Data for European expansion of business shall be discussed below in this same format as above. This will give a comparative scope of analysis for both projects which can be assessed in this next part.
| Year | Cash Flow Europe (Million) | Average Cash Flow | Difference | Sq. Difference |
| 0 | € (20) | |||
| 1 | € 2 | € 5 | € (3) | € 9 |
| 2 | € 3 | € 5 | € (2) | € 4 |
| 3 | € 4 | € 5 | € (1) | € 1 |
| 4 | € 8 | € 5 | € 3 | € 9 |
| 5 | € 8 | € 5 | € 3 | € 9 |
| € 25 | € 32 |
Table 3: Cash Flow for European based expansion
(Source: Excel)
| Discount Rate | 10% |
| Variance | 6.4 |
| Standard Deviation | 2.53 |
| Beta | 2.53 |
| NPV (Million) | € 4.25 |
Table 4: Rates for European based Expansion
(Source: Excel)
This is how net present value of both projects have been obtained and computed in order to exaggerate which project shall be more beneficial for this company. It shall classify each investment option based on their capacity to value future cash flows based on their discounting rates. This will specify further growth options for this company and investors will be enabled to rethink those available options.
c)
Discussion of Calculation
Computations have been done to obtain results for the net present value of each project. In that same order beta for each project has also been computed through standard deviation method. Difference in present value of each cash inflow and cash out flow is computed to obtain net effect of cash flow for a particular project. Similarly, variance was calculated through a table from given cash flows. Thereafter, standard deviation was obtained from such computation. This was ascertained as beta or quantity of risk involved in each project. Calculations were done with appropriate accuracy to sustain justified results.
Comparative Analysis of Each Project
USA based project could be ascertained as a better option than European project. Such has been determined on the basis of cash flow given for each project. Net present value had been calculated for both projects to understand which is more beneficial for this company. Based on that, the NPV of USA based expansion was marginally better than that of European expansion. NPV of USA based cash flow was 4.27 million dollars while that of European expansion stood at 4.25 million dollars. Moreover, beta of USA based expansion was ascertained at 2 while that of European origin was computed at 2.53. Thus, it can be specifically mentioned that expansion in USA was better off than European expansion due to reduced risks and increased NPV.
Justification
Comparing both projects helped to determine that expansion in USA was better in terms of expanding in Europe. It is said so because expansion in USA had reduced risk involvement than that of European expansion. This will certainly specify that European expansion was a riskier option for this company. Moreover, when net present value was computed, it resulted in more for expansion in USA than in Europe. Thus, it can be justified that sorted results from such calculations have given a true image of prosperity for this company in terms of USA based expansion.
d)
Current World Economic Climate
Current status of world economy suggests that it is at a revival stage after such an outbreak of pandemic during 2019 and 2020. It had suffered largely during that time but with reopening of markets has created a buzz for investment initiatives. Many small and medium sized industries are incorporated to support their respective domestic economies. Larger companies are trying to expand their scope of activities through internationalization processes. As opined by Siqueira et al. (2019), these companies are trying to create new bases of revenue to increase their market opportunities. In this manner, it could be stated that economy on a global basis could certainly rise with gradual growth in years. Asian economy is suggested to grow at a better rate than other economies in this world. It is a prospective option for investment for many investors. Sustainable development is the new buzz for this world’s economy, currently. Therefore, restoration is one of those important factors which every company will have to sustain while conducting their daily set of operations (Puaschunder, 2017). Moreover, it is suggested that world economy will rise by a margin of 4.5 percent on an overall basis.
Uncertainty of Future Exchange Rates
Exchange rates between countries are very uncertain because they are supposed to fluctuate due to balance of payments and other interest rates determined in one country. As per Wang et al. (2022), they are subject to change based on governmental policies introduced during a particular time period. Thus, it shall be unknown how exchange rates shall be in near future. Inflation rates often influence such changes along with factors of political stability in such a country.
Anticipation of Exchange Rate Fluctuation
Fluctuations can be anticipated to a certain extent but not up to an optimum level. It is influenced by multiple factors in a market. In certain cases, like, instability in political balance will certainly devalue a currency in terms of global rate. As suggested by Qiang et al. (2019), excessive loans on part of a country towards a foreign nation will impact their currency value. Circumstances like this can be anticipated to increase rates of fluctuation of a currency.
Proposal for Mitigating Fluctuations
In order to bring stability in exchange rates of a country, it shall be important to supplement their political ratio along with sufficient support from domestic businesses to commit against public demand. As per Xie et al. (2017), domestic sources should be sufficient to meet those domestic requirements. Similarly, allowing foreign businesses to operate in such countries will allow mitigating such differences by establishing stable geo-political relations.
Conclusion
In this scope of study, globalization has been explained by considering its impact on the environment. This study will give brief understanding upon economic changes brought by international businesses and knowledge about exchange rates relevant to expansion of such businesses. It was further analyzed by challenges and opportunities that could come into effect in future. Along with information, analysis has been done on a given cash flow scenario on which project shall be more beneficial for a company. Lastly, exchange rates have been discussed on an explorative basis to culture upon its fluctuations and mitigation of the same.
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