Investing In Early Developing Country - Research Paper Example

Investing In Early Developing Country with One of the 500 Fortune Companies In my endeavor to invest in early developing country with one of the 500 fortune companies, I selected Kenya as the destination country for purposes of investment and the company chosen among the fortune 500 is Capital One Financial. My choices were informed by several factors including the nature of the country and sector of investment. I preferred the banking sector due to its huge potential of growth and development. Furthermore, the banking and financial sector being a service industry bestows excellent opportunities for expansion and investment. The aspect of globalization was the core consideration with regard to the type of company selected. Since I was more inclined to a service company particularly in the baking and financial services sector, I settled on Capital One Financial, which is a reputed banking corporation with a global presence as well as being among the fortune 500 companies. Capital One Financial Corp is a bank holding firm based in the U.S and focuses in auto loans, home loans, and credit cards banking along with savings products (Icon Group International, Inc. Staff and Icon Group Ltd 12-15). An associate of the Fortune 500, the corporation helped establish the mass marketing of credit cards in the initial periods of 1990s, and it is currently the fourth-largest client of the American Postal Service and its deposit assortment is ranked fifth in the country (Paige 14). Capital One Financial firm is the mother corporation of Capital One Auto Finance, or COAF, stationed in Plano, Texas. Subsequent to buying PeopleFirst, it grew to be the largest Internet auto lender and one of the highly ranked US auto lenders in general (Hitt et al 85). Kenya is my country of choice for investment for a number of reasons, first is the fact that Kenya is the fastest growing economy in the expanse and its performance is robust making it a viable destination for investment (Ndung’u, Collier and Adam 89-92). Commercially, Kenya has made numerous gains and its financial sector along with general economic environment is based on the contemporary economic standards. Kenya’s financial and banking sector is among the most robust and lucrative not only in East Africa but also in the entire world. Therefore, investing in the Kenyan financial and banking sector is a lucrative idea. The investment plan by Capital One Financial in Kenya’s financial and banking system will be organized in a number of stages to achieve the required results (Goodman and Downes 106). In essence, the investment program will echo the relevant realities in Kenya regarding the investment protocols that ought to be followed. Essentially, the investment will be done through joint ventures that represent the most convenient way of investing in Kenya. Therefore, Capital One Financial will seek joint venture with local banks in Kenya through which it will launch its services and operations in conjunction with the local bank. The choice of local company will be done in a categorical manner to make certain that the concerns and goals of the investing company are safeguarded. Nevertheless, the option of foreign direct investment (FDI) will be left open so as to ensure that Capital One Financial may invest directly in the Kenyan financial system. However, this will depend on the probability of success of FDI by the company on request of the Kenyan authorities. Financial banking is the discipline of administration of money along with other valuables pertaining to a particular business. It is obvious that banks tender basic advances, deposits in addition to financial counsel, though they as well facilitate dealings on complicated financial instruments like private equity, bonds along with mutual funds (IBP USA Staff 56-61). The majority of top performing contenders typically perceive careers in Banking as the pinnacle of accomplishment, and sectors such as coffers, equity trading, speculation banking along with private banking is perceived as the most worthwhile jobs for innovative graduates. Besides traditional banks, other monetary institutions like credit amalgamations, trust companies, credit loan companies, insurance firms, brokerage corporations and asset administration firms also present a host of financial counsel. For this reason, when observing the opportunities in the segment, one must as well carefully deem these other dedicated financial institutions. The financial disaster of 2007-2008 was activated by a bankrupt United States banking system (mediums of which were sub-major lending, over leveraging, as well as poor guideline) resulting in the crumple of great financial institutions, the rescue of banks by national administrations and declines in stock markets across the world. The deterioration of the banking division in the U.S. had a domino consequence on the worldwide financial commerce, with effects experienced in Europe, the Middle East in addition to the Asia Pacific. 24 months later on, the global financial manufacturing still has not recovered its lost glory, along with even countries with profound pockets like the U.A.E. along with Singapore have displayed limited sectoral enlargement. The Kenyan financial sector underwent quick conversion post liberalization in the early 90’s, ensuing in greater inflow of outlays from FII's into the capital market. In spite of the incursion of foreign banks in the nation, nationalized banks persist to be the main lenders in the state, above all due to their size and diffusion of networks. In fact, commerce estimates point out that over 80% of profitable banks in Kenya are in the community sector. In addition to of the 50-odd confidential banks, fewer than half are overseas banks. The chances in this realm remain tremendously promising owing to its comparatively low infiltration, in addition to superior financial products. Despite the fact that the Kenyan finance along with the banking sector did undergo significantly in the course the precedent 2 years, it was moderately sheltered from the developments of the universal melt-down, misery instead because of monies from FII’s drying up, declining interest rates, hurriedly rising inflation and pitiable investor assurance. Annual reports recommend that nearly all of the superior Banks have started to rise from where they left off, although with more care, and most sector pundits are positive about the existing fiscal year. Joint venture corporations are the most preferred manifestation of commercial entities for doing commerce in Kenya. There are no strange laws for joint ventures in Kenya. The corporations integrated in Kenya, still with up to 100% overseas equity, are handled the same as local companies (Campbell and Netzer 41). A joint venture could be any of the commercial entities existing in Kenya. A typical Joint Venture incorporates: 1. Two entities, (persons or corporations), create a company in Kenya. Business of one faction is transferred to the corporation then as consideration for the transfer; shares are granted by the corporation and subscribed by the entity. The other party subscribes for the shares in cash. 2. The aforesaid two parties pledge to the shares of the joint venture corporation in agreed amount, in cash, and found a new business. 3. Promoter shareholder of a prevailing Kenyan company along with a third party, who/which could be person/company, one of them non-resident or both residents, work in partnership to jointly operate the business of that corporation and its shares are taken by the stated third party throughout the payment in cash. Some realistic aspects of configuration of joint venture corporations in Kenya in addition to the preconditions to consider are enumerated. Overseas companies are additionally free to launch branch workplaces in Kenya. On the other hand, a branch of an overseas company draws a superior rate of tax than a supplementary or a joint venture corporation. The accountability of the parent corporation is also superior in case of a branch workplace. All the strategic alliances in Kenya entail legislative endorsements, if a foreign collaborator or an NRI or PIO associate is involved (Fru 24). The endorsement can be attained from either RBI or FIPB. If, a joint venture is enveloped under usual route, then the endorsement of Reserve bank of Kenya is needed. In other particular cases, not taken care of under the repeated route, a special endorsement of FIPB is required. The Government has delineated 37 high precedence areas covering nearly all of the industrial areas. Investment suggestions involving up to 74% overseas equity in these regions receive usual approval in a period of two weeks (Luo and Yan 97). A submission to the Reserve Bank of Kenya is necessary. In addition to the 37 high preference areas, automatic endorsement is obtainable for 74% overseas equity holdings developing international trading corporations engaged mainly in export activities. Approval of overseas equity is not restricted to 74% and to elevated priority industries. Superior than 74% of equity, as well as areas external to the high precedence list are granted to investment, but government agreement is required. For these superior equity investments or areas of investment exterior of high precedence, an application in the appearance FC (SIA) has to be formed with the Secretariat for Industrial endorsements. A reply is given within 6 weeks. Full overseas ownership (100% equity) is willingly permitted in power generation, electronics, or a component in one of the Export dispensation Zones ("EPZ's"). For main investment suggestions or for those that fail to fit within the offered policy constraints, there is the towering-powered Foreign Investment Promotion Board ("FIPB"). The board is positioned in the office of the Prime Minister which can offer single-window clearance to applications in their entirety without being confined by any prearranged parameters. There are a variety of retail careers to go well with the most talent sets, including banking representative, probationary official, loan manager, assessor, credit loan sponsor, loan processing officer, accountant, merchandise marketing as well as sales administrative, and client service executive in the midst of others (Bhatia 56). On the other hand, job security is not exceptionally towering in retail banking as numerous players endure from lessening margins and meager customer withholding due to increasing contest and limited market segregation, leading to lay-offs. In the meantime, there are moreover more skilled professions available like actuarist, equity investigator, international currency trader, and securities tied products developer along with group manager. The principal opportunity in this segment remains in civilizing information surge to customers. Therefore, there is rising importance on in-house study and market intelligence. In the first 12 months, appointing is likely to linger robust. Countless banks are investing in teaching programs to promote worker proficiencies to enhance their spirited edge in anticipation of the division once additional regaining its fair place as the harbinger of expansion and progress. Investing in Kenya will not be an easy project for Capital One Financial, there will definitely be various obstacles and bottlenecks that will provide a huge challenge to the venture. Therefore, the investor ought to be prepared to surmount the many obstacles facing foreign banks and financial institutions in Kenya (Pratt and Grabowski 44). Among the many factors that will challenge the global bank is the fact that the Kenyan banking and financial sector is inherently localized. There are several local banks and other financial institutions already operating in the Kenyan banking sector and most of these have well established niches making it difficult for foreign banks to operate in the country. Additionally, Kenyan customers trust local banking services and solution and have little or no trust at all for foreign entities. The joint venture arrangement may work well for the foreign bank, but still the reception will be cold and suspicious. Perhaps Capital One Financial will require rebranding in order to peal to the Kenyan tastes; this will definitely take a very long time. Apart from the hostile environment and the flooded banking and financial sector, Capital One Financial will encounter government restrictions through legal and statutory frameworks will in essence favor local banks and financial institutions. Foreign banks are perceived suspiciously by the government and their operations strictly scrutinized. The best way to overcome the aforesaid challenges will of course be through a joint venture arrangement, which will have a reputation effect on the company. Collaboration with a purely indigenous bank will make the foreign bank in a better position to weather a hostile market reception, as well as a step motherly treatment by the government. However, in the course of operation the bank will require to quickly adjust to market environment realities by taking an inventory of the local needs and inculcating them in its policy frameworks (Marquardt 25). The investment of Capital One Financial in the Kenyan market will have multifaceted implications on various perspectives. First it will represent the expanding commercial muscle of the global bank, which by investing in Kenya will send signals around the world of its endeavor to spread through the world. Secondly, the investment venture will be a good sign for Kenya, which will be perceived an investment destination. A successful investment by Capital One Financial will bring good tidings to Kenya, which will be perceived by other countries as a welcoming business environment (Kazmi 67). Generally, the investment will improve the Kenyan banking and financial system which is inherently local thus lacking foreign input. Through the introduction of new products and services to the Kenyan market, Capital One Financial will change the shape of the Kenyan banking and financial system (Hitt et al 51-54). Hence, the proposed investment is a great idea that will undoubtedly bring a lot of change to the investing company, destination country along with the industry. The investment similarity has great potential of success and will be perfect case study on globalization, banking and financial sector, Kenya along with Capital One Financial. In summary, my plan for investment involves the banking and financial sector as the industry, Kenya as the destination country, joint venture as the model of investment and Capital One Financial as the investing company. I preferred the services sector for the reason that it is very lucrative and convenient to operate; my choice of the country was informed by my understanding of the Kenyan economy particularly the banking and financial services sector. I opted for Capital One Financial because of its enormous experience and reputation in global banking system. Kenya is a little conservative with regard to foreign investment, most government policies encourage local participation in economic affairs and seek to thwart and discourage direct involvement of foreign companies. Therefore, I decided to use the joint venture model that will be convenient in enabling the company to penetrate the Kenyan market. Through the joint venture arrangement, I will select a well entrenched local bank that will partner with Capital One Financial. There is huge potential for the venture, and I strongly believe that the venture will be very successful. However, there will be several challenges and obstacles through the way that will require strategy to overcome. There is a need to build up a clear guideline on how to penetrate the local market. This will start by the understanding the local market tastes of the Kenyan market and developing product and services that are in line with the needs and requirements of the local market. However, my hope and belief is that the venture will be greatly successful, and it will be of greater wider implication to the company, Kenya, banking sector as well as to the investing company. Through proper planning and administration, it is possible to make the venture a great success. Works Cited Bhatia, Sethi. Elements of Banking and Insurance. New York: PHI Learning Pvt. Ltd., 2007. Print Campbell, Dennis and Netzer, Antonida. International Joint Ventures, Volume 30. New York: Kluwer Law International, 2009. Print Fru, Valentine. The International Law on Foreign Investments and Host Economies in Sub- Saharan Africa: Cameroon, Nigeria, and Kenya. Washington: LIT Verlag Münster, 2011. Goodman, Jordan and Downes John. Finance and Investment Handbook. New York: Barron's Educational Series, 2003. Print Hitt et al. Strategic Management: Competitiveness and Globalization: Cases. New York: Cengage Learning, 2009. Print IBP USA Staff. Doing Business and Investing in Kenya Guide. Washington: International Business Pubns USA, 2009. Icon Group International, Inc. Staff and Icon Group Ltd. Capital One Financial Corp.: Labor Productivity Benchmarks and International Gap Analysis. Washington: Icon Group International, Incorporated, 2000. Print Kazmi. Strategic Management and Business Policy. New York: Tata McGraw-Hill Education, 2008. Print Luo, Yadong and Yan Aimin. International Joint Ventures: Theory and Practice. Washington: M.E. Sharpe, 2001. Print Marquardt, Michael. Building the Learning Organization. London: Nicholas Brealey Publishing, 2011. Print Ndung’u, Njuguna, Collier, Paul and Adam Christopher. Kenya: policies for prosperity. Oxford: Oxford University Press, 2011. Paige, Christopher. Capital One Financial Corporation. Washington: Harvard Business School, 2001. Print Pratt, Shannon and Grabowski, Roger. Cost of Capital. Washington: John Wiley & Sons, 2008. Print Read More