Business Exam Paper - Assignment Example

EXAM PAPER Name: Course: Instructor: Institution City: Date: QUESTION ONE Part I 1) Gross Domestic Product (GDP) Growth From the World Bank datasheet, Morocco experienced an average annual GDP growth of 5.1% between 2011 and 2015. As an emerging economy, therefore, this implies low economic growth hence portending a medium economic risk for the country. Having experienced a general growth in its GDP for the last two and a half decades from 2.7% in 1991 to 5.1% in 2015, Morocco may be said to be exhibiting genuine economic growth progressively, though at a low pace. With an equally progressively increasing GDP per capita from 1.2% in 1991 to 4.1% between 2011 and 2015, the low economic growth may be said to be uniformly distributed across Morocco’s general population. With this type of low growth, therefore, Morocco is deemed to be experiencing such undesirable GDP conditions as poor exploitation of resources, poor competitiveness, and low creation of wealth by its citizens. 2) Inflation According to World Bank statistics about Morocco, the country’s Implicit GDP Deflator for the latest available year (2011) stood at 1.5%. This implies an inflation rate of 1.5% which consequently shows that there is price stability in Morocco. Such price stability, demonstrates that the country’s economic risk is potentially low and, therefore, quite attractive for would-be investors in the Moroccan economy. 3) Current Account Deficit (CAD) Morocco’s Current Account Deficit (CAD) stood at -6,808 US$ millions in 2011 according to World Bank statistics. Its Current account balance/GDP percentage, though, stands at -6.8% as at 2011. This shows a high economic risk for would-be investors in the Moroccan economy as it is far much lower than the average recommended ratio of -2.0%. Part II Morocco is indeed prime for Foreign Direct Investment (FDI) especially in the agricultural sector. This is because the literacy levels are relatively low (56%) hence implying cheap unskilled labour for such menial tasks in agriculture. It should be noted that with lower literacy levels, the only sector that may still boom is agriculture since it doesn’t require a lot of skilled labour. Additionally, the country’s Life Expectancy is far much higher at 72, which implies that the Moroccan government is taking good care of its people through such strategies as improved maternal health and overall improvement in health situation in the country. For a potential foreign investor, this is as assurance of stable labour force that may not be so costly to maintain health-wise. The agricultural sector is one such sector whose success is largely dependent on a healthy population. High life expectancy also simply implies that Morocco’s citizens are generally healthy due to healthy foods produced through agriculture hence implying an already booming agricultural sector in the country. Also, looking at the trend for Gross Domestic Product (GDP) per capita in Morocco for the past 2 decades or so, it implies that the country’s productivity is generally on the rise. For any interested foreign investor, this is an important aspect to consider. For the agricultural sector, higher productivity is a positive aspect because it implies that the yield produced by a single labourer is high hence ensuring high productivity of the overall investor’s investment. Of significance is that the agricultural sector requires a lot of labour force hence profitability is attained mainly if an individual labourer’s productivity is high. QUESTION TWO Mercantilism Theory refers to an international trade theory coined by the major trading countries between 16th and 18th centuries whose premise was that in order for increase national wealth and power, it is paramount that a country increases its exports and accepts precious metals as the mode of payment for its exports. The Absolute Advantage Theory, on the other hand, may be defined as the model coined by Adam Smith that held the belief in a country’s ability to produce a commodity at a per-unit cost that is far much lower than the per-unit cost incurred by any other country to produce a similar good or service. According to Adam Smith, only then would international trade be made possible such that a country only exports commodities for whose per-unit cost is lower than the country for which such commodity is exported to and vice versa. The Theory of Comparative Advantage, on its part, refers to a theory devised by David Recardo in which he posited that international trade is aided through specialization where a country should only specialize in producing goods and services for which its opportunity cost is far much less. From the definitions of each of the three theories of international trade, some differences may be derived between them. While the theories of Absolute Advantage and Competitive Advantage are concerned mainly about each of the trading partners gaining some benefits out of the trade, the theory of Mercantilism is mainly concerned about one country maximizing its own national benefit out of the international trade with other partners. Of the three theories, the comparative advantage trade theory has gained much dominance in the in international trade compared to the other two. This is because of the fact that this theory is keen on ensuring a mutual benefit by each of the trading partners. Ideally, given two trading partners A and B, every country has advantage in producing a given product or service. According to Ricardo’s model, country A should consider trading with country B when B’s production of main product or service is higher than A’s and vice versa. This ensures that both trading partners benefit from a trade which is actually what every country wants. Bertil Ohlin’s Modern Theory of International Trade may serve well for such a corporation as Oracle. According to this theory, international trade is made possible by there being a difference in commodity prices in any two countries as a result of the difference in factor prices. As Oracle continues to expand into the global market, it may adopt this theory by targeting countries where labour costs are relatively lower than those in the United States. That would mean Oracle exports capital (which can easily be acquired in the US) while importing labour (which is costly in the US). QUESTION FIVE Just like in any other type of investment, an investor in FDI should critically review various parameters regarding the FDI prior to making the final decision about the investment. A decision making process is, therefore, critical before the manager decides to commit to a Foreign Direct Investment. To begin with, the manager should project the required capital for their FDI project so that they can direct their energies into preparing the required capital well in advance. It is always advisable to prepare oneself with enough capital such that they are able to exhaust the available investment opportunities without being limited by financial constraints. Taking the example of Samsung Corporation, if it had interests in FDI in, say, Ethiopia, the first step in its decision making process would be to counter-check the corporation’s financial capability. The second step in the decision-making process is to identify a number of the desired investment opportunities the corporation is interested to venture in in the foreign market. In an ideal situation, this step entails the corporation selecting at least four options in which it has interests in in its destination of choice. For the case of Samsung Corporation, the manager would come up with a list of specific areas of investment in Ethiopia where they would want to invest the corporation’s funds. This step requires that a team of experts be sent to the foreign market, Ethiopia in this case, to evaluate the various investment options that exist there. The third step is the assessment of all the selected projects for costs and benefits i.e. a Cost Benefits Analysis. It should be pointed out that not all the selected investment options in the foreign market would be viable enough for the corporation to commit itself especially in the long term. For the case of Samsung Corporation, the manager would appoint a taskforce made of experts in the areas of interest as indicated by the selected fields of interest. This assessment will culminate in the approval of one main area where Samsung can invest its moneys in the Ethiopian economy. The final step in the decision making process is the actual investment process which goes hand in hand with such preparation processes as complying with government regulations in the foreign market. For the case of Samsung Corporation, the management of Samsung Corporation would set up a management team to take charge of the Ethiopian wing of Samsung. They will be in charge of implementing all the required initial preparations such as tax compliance mechanisms, human resource management, among other responsibilities. QUESTION SIX As it extends into the global market, a corporation benefits a lot from international strategic alliances. To begin with, through international strategic alliances, a corporation spreads its global business risks. When a corporation enters into a global strategic alliance, the business risks it would otherwise have incurred alone are then shared between the partnering corporations usually on a fifty-fifty basis. The partnering corporations can spread the business risks by jointly doing marketing of their products and services which goes a long way in improving their overall profitability. Moreover, through sharing of such costs as research and development costs, corporations are able to immensely reduce their individual costs on the same expenses if they form international strategic alliances. An example of such strategic alliance is Nokia’s partnership with Microsoft for the development of software for Nokia’s Windows Phones in which the two technology giants have shared costs on Research and Development for this software. In order to manage the life cycle of the alliance, Nokia and Microsoft should both improve their marketing of the Windows Phone so that the two corporations can continue to gain from this partnership at least in the long term. Secondly, corporations gain from entering into strategic alliances by setting new benchmarks for their otherwise diminishing brands. When two corporations enter into a strategic alliance, either of them is likely to rejuvenate one of its brands that had been seemingly diminishing. This is made possible as the two partnering corporations cost-share in marketing their new products or services. A good example of such an alliance is that between America’s Abbott and Ahmadabad’s Zydus-Cadila. In this strategic alliance, Abbot was to licence a total of 24 branded generics of Zydus and market them in over 10 emerging markets. This strategic alliance could be well managed if Zydus was completely taken over by Abbott if that would be allowed by Zydus. The final benefit a corporation would derive from entering into a global strategic alliance is overcoming competition which is fundamentally a product of thorough marketing strategies. Global strategic alliances require that the partnering corporations implement extensive marketing of their products and services. It is through such thorough marketing that a strategic alliance is likely to thrive amongst its competitors due to the combined marketing force provided by the two partners. An example of such strategic alliance is one in which Nestle and General Mills agreed to have Nestle’s product Honeynet Cheerios manufactured in General Mill’s premises. This product competed aggressively in the industry’s market in France, Portugal, and Spain. Read More