Accounting International Finance - Research Paper Example

Research Paper, Finance and Accounting International Finance  Research Paper, Finance and Accounting International Finance Abstract In developed market, Multinational Companies are now shifting their interest towards emerging markets. This markets are in Africa, Asia, Middle East and South America. Economy may be lucrative while emerging especially due to the current clients and the possibility of growth, which is strong in the near future. The research studies business strategy that is employed by Multinational Corporation on entering the emerging markets and the research method is single-case study. The research concludes that the MNC have implemented the differentiation strategy to enter the emerging markets.  Research Paper, Finance and Accounting International Finance Introduction Background Globalization Globalization is the absence of imaginary walls and fences that countries had built up against each other, for the purpose of ambition, security and traditions. The world is no longer a big space anymore, everything is now close together, and tightly connected this feels like we all a part of a global village. We are all connected to one another like never before in this new era. Commodities are produced in part of the world and consumed in other part of the world. Places are not far anymore since people fly from one country to another in the whole world, nothing is distant anymore. Literature Review Walmart Walmart is a multinational retail company based in US. This company deals with general merchandise and groceries. It is the largest retailer in the world’s and third biggest public company and largest private employer and it is one of the world’s most valuable companies (Edwin, 2011.  Wal-Mart’s Strengths Scale of operations: With more than $400 billion in revenue and 10,130 stores, Wal-Mart is the largest retail company in the world and the giant that no other retailer can match. Corporate exercises strong buyer power on suppliers, which reduces prices due to large-scale status of operations. Also because of its size. The company can achieve higher economies of scale compared to its competitors. With higher economies of scale, the consumers get lower prices for what they buy. Competence in Information Systems: Due to the extensive information systems that track orders, Walmart achieves significant cost savings in inventory levels, sales and any other related information in real time. It is easy to access this information instantly, analyzed the information and make decisions at each store. Walmart’s success is attributed to the effective management of supply chain and logistics, which is one the most important, factors (Edwin, 2011). Wide range of products: Walmart offer a wide range of products compared to other retailer. It is supplies entertainment, grocery, health and wellness, apparel and home-related products and more other categories and offering branded and own label goods. This attracts more customers to Walmart (Zou, 2011). Cost leadership strategy: The strategy is the reason of Walmart becoming the low cost leader in retail market. The company offers products at the lowest price and provides no frill services, which make it, achieve higher economies and attract masses of consumers (Zou, 2011). International operations: Walmart being a multinational corporation means that it does not depend on local sales only like its competitors do. Walmart has earned $135 billion in sales from in international operations in 2013; this growth rate is faster than home market sales (Zou, 2011). Weaknesses Labor related lawsuits: Every year Walmart faces labor related lawsuits, this costs the company millions of dollars. It is criticized for, low wages, unpaid overtime work, poor work conditions and female discrimination. The reputation of the company has been damaged and so skilled workers are not willing to work for the company. High employee turnover: The Company incurs high cost to train new employees more often due to the high turnover of employees Caused by poorly paid jobs and low skilled workers (Zou, 2011). Little differentiation: With comparison to its competitors, Walmart has no differentiation this might hurt the business in future if the commodity prices or average consumer income increased Negative publicity: The company has often been criticized of questionable practices such as poor work conditions, bribery of authorities. This negative publicity damages business reputation. Opportunities Retail market growth in emerging markets: Last year the average growth of retail markets was at least 5% on average in emerging markets. The countries where the business is operating currently are Mexico, China, Brazil and India markets (Terrence, 2011). Rising acceptance of own label products:  Sales of private label products went by 40% and more in the last 10 years. This shows that there is increase in consumer acceptance of supermarket chain products this is with comparison of national brand products. With this the company has an opportunity to add the number of private label products available at its stores to earn higher profit margins (Terrence, 2011). Trend toward healthy eating: At present the trend of eating healthier food has resulted in higher demand for grocery products. The company now has an opportunity to increase its grocery stores to earn more (Terrence, 2011). Online shopping growth: With the growing technology the company has introduced online retail buying and in 2011 the market grew by 4.7% in US, reaching $197 billion. Threats Increasing competition from brick and mortar and online competitors:  Amazon, Tesco (in UK) Target, Costco, are Walmart’s competitors and they are putting huge efforts to eliminate price differences that the company has enjoyed over years (Terrence, 2011). Increasing resistance from local communities: The Company’s superstores have a negative impact on local communities who own retail shops. Whenever Walmart opens a superstore they are forced to close their stores which affects the families and the community at large (Terrence, 2011). Rising commodity product prices: This squeeze the company’s profit margins, which erode its competitive advantage Coca Cola The multinational serves in the beverage industry. It is a multinational corporation. Its headquarters are in the USA. The strengths of the organization are the following. It is considered to be one of the best brand for the 77839 billion worth. It has the weaknesses of increased focus on the carbonated drinks. It has the focus on the undiversified product portfolios (Terrence, 2011). The strengths and opportunities of the firm have also been realized as follows; Strengths Coca Cola is best global brand in the world in terms of value: This is according to the Inter-brand; The Company is valued $77,839 billion brand in the whole world. Coca Cola is the world’s largest market share in beverage: The Company holds the largest beverage market share in the world of about 40% (Terrence, 2011). . Strong marketing and advertisement: The company’s advertising expenses was more than $3 billion in 2012 this raised the firm’s sales and brand recognition. Coca Cola has the most extensive beverage distribution channel: The company serves 200 countries and more with 1.7 billion servings and higher a day (Terrence, 2011). Coca Cola Customer loyalty: The company has one of the most loyal consumer groups. Coca Cola has a bargaining power over suppliers: Being the largest producer of beverage in the world, the company exerts power to give the suppliers lower prices of their product. Coca Cola has a Corporate Social Responsibility (CSR): The company is focusing on this programs, such as packaging and recycling, energy conservation and climate change, active healthy living, water stewardship and many others, these boosts the company’s social image and as a result it has competitive advantage over competitors (Terrence, 2011). Weaknesses Focus on carbonated drinks. As the world moves into healthier living, Coca Cola is still selling carbonated drinks like Coke, Fanta, Sprite and other drinks. This will only work for the company for a short term and it will prove weak for the company (Lee, 2011). Undiversified product portfolio: Coca Cola is disadvantaged by its focus of selling only beverage, this is unlike its competitors. This has stagnated the company and it will be hard for it to penetrate to markets like for example selling food or snacks for it to sustain the growth level currently (Terrence, 2011). High debt due to acquisitions: Coca Cola acquired almost $8 billion debt from CCE’s acquisition, which increased the company’s debt significantly, with interest rates, and borrowing costs (Terrence, 2011). Negative publicity:  Since the company consumes a lot of water while producing the beverage, the company is criticized in areas where water is scarce. Brand failures or many brands with insignificant amount of revenues: As a result of the company selling more than 500 brands, the company is not able to avail the drinks when needed, this is because the firm’s success of introducing new drinks is weak and in most cases result in failing (Terrence, 2011). Opportunities Bottled water consumption growth: The company should take the advantage of the growth of bottled water consumption which is expected soon (Zou, 2011). Increasing demand for healthy food and beverages: The company has an opportunity to focus on expanding the range of its drinks which includes low sugar and low calories drinks. This is due to the demand of health food programs to fight obesity and other health conditions (Terrence, 2011). Growing beverages consumption in emerging markets: The company could increase and even maintain its beverage market share since consumption of soft drinks is still significantly growing in emerging markets. Growth through acquisitions: The company will find it very hard to keep up with the current growth levels and will find it even harder to penetrate new markets with its existing product portfolio, but it is now easy by acquiring other companies (Zhang, 2011). Threats Changes in consumer tastes: With the consumers now becoming more health conscious and by reducing the consumption of carbonated drinks, drinks with high sugar, high calories and high fat, the company is at a serious threat as it mainly serves carbonated drinks (Zou, 2011). Water scarcity: This is a major threat as water is becoming scarce everywhere and since the company needs a lot of water for the production of the drinks. Strong dollar: More than 60% of the company’s income is from other countries other than US, the company’s overall income may reduce drastically due to the strong dollar performance against other currencies (Terrence, 2011). Legal requirements to disclose negative information on product labels: Some of the company’s carbonated drinks have health consequences and sometime this information is required to disclose on the product labels, this may be negative and the company may lose customers. Decreasing gross profit and net profit margins: The company’s gross profit and net profit margin has decreased over a few years ago and this may go on due to the high cost of water andraw material (Zhang, 2011). Competition from PepsiCo:  The main competitor of the company is PepsiCo and is competing fiercely with the company over market share in many countries Saturated carbonated drinks market: With the company relying significantly on carbonated drinks sales, it is a threat for the company as the market is stagnated in the world.   Advantages & Disadvantages Of Globalization   Positive Side Of Globalization  Economically Globalization results in more job opportunities because people from developing countries seek jobs in the developed countries. There is also free trade among the nations, which have been established which means the countries are able to produce goods, import them with affordable tariffs. In the case there is increased investment and more financial projects in developing countries by the established economies, these accelerates growth in this countries (Terrence, 2011).   Culturally Globalization, has opened a way of sharing information across the world. The knowledge and understanding of different cultures is now available on global level. When people know different cultures exists they will be interested to know about each other and this will lead cultures blending well for a better co-existence, this will increase tolerance, acceptance and there will be no racism (Zhang, 2011).   Politically Issues concerning the world are now discussed and shared by all leaders in global forums. In this case since all this issues are shared together politically, culturally, economically, socially, decisions are also taken for the benefit of the whole world. Other issues addressed on political level and affects the entire are; natural resources depletion, increasing pollution in oceans, degrading ecosystems and global warming among others (Terrence, 2011). Negative Side Of Globalization  Economically Economically, globalization a disadvantage of making the rich to be richer and the poor to be poorer, this is because the opportunities have benefited the high ranked officers and investors and the workers and labourers have remained in hardship. The developed countries still holds the power, which means that there is no equal distribution of profits. The countries of the world are joined together economically, so one country’s economic hardship will affect the other (Terrence, 2011).  Culturally Media plays a big role in bringing people from different countries globally the information available, It is easy for the media of powerful nations to circulate negative information of a lesser powerful nation to every corner of the world, this means that they decide the information to be shared and the people’s opinion. Developing world countries are now adopting the western ways because the feel inferior. Most young people are not familiar with their culture and also there is an increase in the spread of communicable diseases due to the easy access of travelling (Terrence, 2011). Politically The western countries are still colonizing the developing countries in a different manner. The developing countries form their decisions following manipulations, suggestions and pressures of the developed countries. This means that the developed countries are still taking advantage over the developing countries politically. Analysis The intermediate entry mode has been suggested for internationalization. The financial experts offer suggestions on the need to assess the joint ventures, contract manufacturing, franchising and licensing. This offers the assessment of the different issues that affect the local partners. The correct entry strategy assures that the competitive edge for the multinational corporation. The organizations are able to offer the opportunity for the grabbing of the best market place. The technological leadership offers the assurance of the profit for the performance of operations for the organization. The opportunity to rebuild the brand loyalty is assured by the analysis of the operations for the organization. The best strategy assures the enhancement of the organizations reputation in the new market (Terrence, 2011). The different companies have offered the presentation of the market attractiveness due to the scale of opportunities and risks. The market entry strategy for the different corporations have focused on the assessment of the timing for the entry, entry mode and market selection. The businesses are required to choose whether they will be the early entrants in the market or the late entrants to the market. This is part of the assessment on the time to enter into the market. The strategizing requirement for the new market penetration has assured the overall growth opportunities for the multinational corporations (Terrence, 2011). The global markets have been seen to increase in the consumer spending as compared to the westernized markets. The entry to the markets ensures the economic growth for the different companies. The markets have been considered to focus on the assessment of the market roles and the broad nature of the corporate strategy. The strategic positioning was seen to be affected in the state of the corporate and capital requirements. The increase in the shares and the long-term profitability growth has forced the different organizations to seek the entry to the different markets. The improvement of the customer base has forced the search for the enhancement of the corporate culture and requirement for the different Multinational corporations. The management has been able to assess the achievement of the operational effectiveness through the market analysis and identification (Terrence, 2011). The MNC assess the following issues before they enter in to the market. The market size to the broad range of small and large markets has to be considered before the market entry. The management has been forced to assess the economic stability and the overall GDP growth for the markets. This assessment allows the identification of the economic interest’s rates and the state of inflation. The geographic borders and business infrastructure assure the identification n of the transport and the IT requirement. The business ethics for the management plays a part in the way that the organization will operate in the market. The state of the competitors and the availability of the local suppliers are the other issues that are considered in the analysis of the performance of activities in the organization. The management will be required to assess the local supplier’s performance and assessment of the labor market requirements and costs. The partners form the identification of the credibility and potential for the local business. The management are forced to search for trademarks, marketing advice, technical advice and manufacturing knowledge for the assessment of activities. The model assures that the manufacturer is near the customer base. The strategy offers the MNC the ability to have little capital investment. The management products are able to be exploited and bought in the market. This assures the fast provision of profit for the organization (Terrence, 2011). Conclusion In conclusion, the intermediate form of market entry is the best for market performance. The research was grounded on the need to offer insight on MNC. The assessment of the state of the market entry ensured the identification of the different approaches that could increase the profit for the organization. The management works all the time to assure the success of operations for the organization. Wal-Mart and Coca cola Corporations have implemented the cost leadership strategy. This assures the provision of services that are considered cheaper than that of the other individuals. The research methodology was qualitative. This assured the analysis of the different operations and activities that different Multinational corporations have used. 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