Stock Options and Multinational Corporations - Essay Example

David Smith, CEO Your the Memo New Venture of a Pharmaceutical Company in China As part of a continuous growth of the company, venturing in a foreign country provides both advantages and disadvantages that can dictate the success, and failure of the step that will be taken. Through real options analysis, proper evaluation and assessment of the host country as well as the current company status as an organization can be done, before attempting to invest in order to ensure success and decrease downward risks.

The VentureThe expansion of the company by transferring part of its technology or product line into a foreign country has to be properly studied and all possibilities considered. Being a manufacturer of pharmaceutical products, the market is global and consumer range is broad; and this will not pose any problem in terms of the location of the venture. China is currently the leading economic zone in Asia, and expanding to this part of the globe will be beneficial for the company. The Pros and ConsChina is a good source of cheaper labor, consequently resulting to less production costs.

It is also a good location for logistics since consumers in the Asia-Pacific region can be reached much faster and easier. The study conducted by Tong and Reuer (2007) showed that venturing in a foreign country has an almost direct relationship with downside risks, both in terms of return on assets and return on equity. This is because cultural similarities have to be considered in order to minimize the negative effects. The fact that China’s language is the main barrier, plans have to be laid out in order to overcome this weakness.

Course of ActionBy adapting the methodology done by Tong (2007), the use of a Heckman two-stage model will be a good technique to for real options analysis. Variables such as cultural distance, trade restrictions and GDP should be evaluated to determine if the results are favorable. China’s language barrier can be solved, by getting business partners who can communicate both in English and Chinese. By doing so, the company will be able to penetrate billions of consumers, and provide even more opportunities in the future.

The company is at the stage where the opportunity to expand becomes global in nature. I am committed to help you make another step towards a worldwide success and accomplishment.ReferenceTong,T.W. and J.J. Reuer. (2007). Real Options in Multinational Corporations: Organizational Challenges and Risk Implications. Journal of International Business Studies. 38. 215 – 230. doi: 10.1057/palgrave.jibs.8400260