Finance and International Accounting - Assignment Example

Finance and Accounting 09 November Finance and Accounting International Accounting GrupaZywiec SA is considering using Sechaba to assist them in their international business operations. What issues will GrupaZywiec SA have to address with respect to any business transactions between GrupaZywiec SA and Sechaba? Discuss. The key part of the activity of GrupaZywiec SA is the manufacturing and supply of beer, as well as supply of various other intoxicating beverages and soft drinks. The leading unit within Grupa Kapitałowa Żywiec is Grupa Żywiec S.A.2, with its registered office in Żywiec at ul. Browarna 88, which deals with the breweries in Żywiec, Leżajsk, Warka, Elbląg and Cieszyn. Grupa Żywiec, is a joint-stock company that has its shares listed at Warsaw Stock Exchange. The company gives importance to implementing the principles of risk management and corporate governance. Grupa Żywiec, considered as the pioneers of the brewing industry in Poland, has taken up the mission to promote the “beer drinking culture” (Patterson & Pullen 3) as that of Germans by which the company can use their products to stir up constructive relations within the society. The alcohol policy of the company stresses on the responsible marketing and advertising of its products and promotes dependable consumption. For this the company concentrates on product innovative techniques by the introduction of flavored beers, alcohol free beers, induction of low quantity packing etc, which helps in reducing the alcohol consumption among minors and enables the company to be an example for others in its commitment towards the society. The main aim of the company is to enhance the daily lives of its regular customers. The employees take satisfaction in working for an organization like Grupa Kapitałowa Żywiec due to its commitment towards tradition, international premium brands, procedure of hiring personnel with passion The company is emotionally quite involved with the local communities in the areas of its operations and so the company takes care of the local inhabitants in their surroundings with great care. To make sure of complete fulfillment with the principles of corporate governance in the company, the management has formed and put into practice the Code of Business Conduct for Grupa Żywiec compulsory to all the units from Grupa Kapitałowa Żywiec. The manuscript portrays the principles and regulations which leads the demeanor of the company and which must be abided by all the workers and the management panel. “Sechaba Brewery Holdings Limited (SBHL)” (Annual Report 2012 7) is Botswanian company that has interests in Kgalagadi Breweries (Pty) Limited (KBL) and Botswana Breweries (Pty) Limited (BBL). They manage four conventional alcoholic drink breweries, a plain beer brewery, and gleaming soft drinks manufacturing plant and six marketing and distribution stores. The SBHL considers their business as a part of the society. So due to that, wellbeing of Sechaba and society as whole is linked with each other. The Company takes care to produce and provide premium products according to the desire and demands of the society. According to the company’s management team, to succeed in a free and competitive market, it is necessary to maintain relations effectively, and make use of the resources to fulfill the needs of the consumers. This healthy approach to “sustainable development” (Patterson & Pullen 111) highlights the company’s capacity to grow. Sechaba advocates for enterprise development, as it is favorable for business and economic growth. They rely upon local vendors for their raw materials, as they believe it is more cost effective, and according to the management, it is a measure adopted to create employment openings and encourage the Bostwanian entreprenurers and, thus, promote the country’s economy. The globalization of economies resulted in the international competition among the companies to lessen the adverse effect of competition, and many rival companies engaged themselves in different types of alliances. These joint ventures enabled the companies to capture competitive advantage as they had an access to their rival partner’s resources, which included the technology, capital and manpower. GrupaZywiec SA and Sechaba are planning to enter into a joint venture in South American market. Each joint venture is planned differently according to the nature of the companies involved, locations of the parent companies, their individual investments and above all their goals and objectives. Both the companies included in the venture should spend their resources to find out the issues related to control and administration of the international joint venture, because otherwise the business will be a failure. At the time of negotiating about these issues, a detailed study about the structure of the delegation of responsibilities, as well as outline of the final organization will add advantage to the venture. There should be a clear image of the procedures that are going to be adopted for the control of the venture. The implementation of “management control” (Yan & Luo 87) in a joint venture is more complicated than a standalone venture. Control is habitually the motivating power for an entity to come into a joint venture or association. The quantity of control will typically be reflected in the intensity of management, which every member of the joint venture will exercise. It is often seen that the “ownership structure” (p. 71) of a joint venture stands as a vital issue on which the prospective partners often negotiate firmly. Both the companies have their own objectives, market demands, and shareholders and so the initial challenge for the two may be to create and maintain a “strategic alliance” (Clegg & Hardy 32) among themselves. Government interference is another major issue that the companies will face while entering into a joint venture in South America. The procedures of foreign direct investment, labour laws etc will have to be followed by the companies. Beverages in South America are entitled to apply self-regulation procedures to the industry for advertising and promotion of their products along with the laws prevailing in Latin American countries. Another possible challenge is to generate a “governance structure” (Yan & Luo 63) that endorses collective managerial decision-making by both the companies included. To keep away from the duplication of cost, the proper management of economic interdependencies between the two companies is very essential and, thus, the majority of the joint ventures are planned accordingly. Another challenge faced by the two companies will be that of building a consistent, high-performing organization comprising of a dedicated permanent group of their most excellent leaders to put together the desired company. There may be disputes about capital “contributions” (p. 57) in a joint venture as, this type of organizational agreement demands a capital investment from at least one of them. The conditions of the capitalization should be incredibly precise, as it may turn to be the first area of challenges in discussions. Ancillary contracts are made in Joint ventures to lessen the issues related to technology transfer, asset transfer, study agreements and licenses. The terms of these agreements must unite perfectly to smoothen the relations between the ventures. The joint venture should be planned in such a way that it would enable the companies to build up a cordial relationship. This good relationship will enable the partners to continue to survive even in complex business situations and the final result of this will better economic performance by the whole company. 2. GrupaZywiec SA is considering purchasing a majority interest in Sechaba to make it easier to utilize Sechaba in their operations. What issues will GrupaZywiec SA have to address with respect to this decision? Will this situation alleviate any of the issues addressed in 1) above? Discuss. The Grupa Zywiec SA is a business enterprise functioning in beverage industry and has won a Golden Leaf Award for “CSR” (Chandler & Werther 181) and has been graded with the top ten firms in the food and beverages sector. They were producing beer, which is a controversial good in the views of society. Consequently, for changing the outlooks of the community for the Grupa Zywiec SA and to show the concerns towards the environmental elements, the firm has taken efforts for implementing and creating the “CSR strategy” (p. 181) in official terms. It is supposed to be highlighted that main shareholders have already been engaged in following the policy of “sustainable development” (Patterson & Pullen 111) termed as making an enhanced future. Though the period in which the aforesaid actions generated many doubts, such as whether the firm is capable of continuing its functions by achieving a definite level of flexibility or not, and so on, during the financial fiscal crisis that started in the year of 2008, maintenance of sufficient flexibility was the major issue. Thus, the enterprise will have to give particular consideration to this element. By keeping the above in consideration, the issues concerned with the financial “liquidity” (Yan & Luo 28) of the Grupa Zywiec SA emerged in the times of financial crisis and during the primary stages of implementing the “CSR strategy” (Chandler & Werther 181). In the case of Sechaba Brewery Holdings Limited, the operating profits and the profits after tax have been reduced to a large extent by the financial recession that took place in the stock exchanges and due to alcohol taxes. Launching of the temporary results for the half year ending on September 30th, the managing director has declared that the profits have been declined around 29% compared to the last year. Company’s earnings per share and profit after tax has gone downward by 31 to 38 percent and the dividends declared was also less. Sechaba Brewery Holdings Limited has also experienced a low amount of sale with higher amounts going downward by around 34.8% compared to a constructive growth of 16.9%, which has been experienced in the last year. During the same year, the sale quantity of other soft drinks brands also went down. The beer sales quantity has further declined due to the “financial crisis” (Chandler & Werther 391) and the taxes. For overcoming the situation, many alternatives were applied by the company management. They adopted an option of exporting the products to the countries that were engaged in the importing of these products, as they were free from the alcohol taxes. They again introduced a new limited quality beer for supplementing the existing quality profile and this has resulted in a hike of beer sales. The returnable bottle option was also successful, as the local people have accepted it. The weather conditions also affected the sale of drinks. Adverse financial positions and the cold climate conditions had adversely affected the products of the company. With the option of Grupa Zywiec SA to purchase majority shares in Sechaba to make it easier to utilize Sechaba in their operations, the difficulties on marketing the products will be solved, as both are popular brands. “Joint venture” (Yan and Luo 87) have also been the form of market entry for a lot of firms emerging in the rest of South Africa. Firms that desire to enter markets with attractive expansion chances than lack capital could also choose to undertake joint venture. In a number of countries and strategic areas, creating a joint venture is a proper precondition to conduct trade at all. Joint ventures could be prepared in various ways, the partners of venture could form a novel unit, which will perform the business ventures or can go into into contractual preparations given to that they will perform the business ventures directly. Partners of the venture, which choose to form a novel unit, can choose from various entity arrangements, including limited liability firms. The financial issues can also be tackled with this joint venture. The problems relating to the sustainable growth and importance on the social and ecological elements of commerce are increasingly being recognized. It has been reflected in the increased technical aspects on the company, and the execution of the sustainable growth concept by an increasing amount of firms. Companies make efforts to take up the responsibilities for their functions, providing more and more importance to the society and environment. The new solutions were applied in a focused and planned manner. Occasionally, the introduction of the principle of “sustainable development” (Patterson & Pullen 111) and the “CSR strategy” (Chandler & Werther 181) within the company is well accepted. Therefore, executives who follow the political recommendations, outlooks of the public and the tendencies among the entrepreneurs take increased efforts to transform the procedures happening in their companies into eco friendly ones. They also employ a solution, which aims at reducing the harmful impacts on the environment by decreasing the use of harmful methods of productions and utilizing more energy saving production processes. Alternatively, the approaches towards the employees are also changing, they are not being treated as objects in the production process, and instead they have now become its subject matter. The company had also accepted many “corporate social responsibility” (p. 37) ventures containing funding to supporting parties with a transparent and open manner along with a hope to use it as the company intended. Within the other CSR projects, the company had introduced a website to educate customers about the perils of alcohol misuses. Economic upturns along with increased spending by government on the infrastructural schemes and complimentary climate conditions are elements that helped in stimulating the financial growth of company in the future. The joint venture will also be helpful for the Grupa Zywiec SA to avoid competition from Sechaba Brewery Holdings Limited. The company also can reduce the general expenses, and they can share it with the second company and can also gain the benefits of engaging in large-scale business. The opinions of experts existing in the Sechaba will be helpful for decision-making and policy generations. The capital position of the company will increase, as the Sechaba has to pay for the company for their assistance in business. New markets can be gained and the area of operation can be thus expanded. The pursuit of development and the need for accessing new market places have become the attracting factor for “joint venture” (Yan & Luo 87). In fact, this trend is now becoming the part of strategic planning of most of the corporate entities looking not only to utilize existing core capabilities but also to construct new ones for the future periods. The main and important element for the joint ventures is always the potential for gaining the financial power. Another benefit is that Grupa Zywiec SA will utilize the assets and liabilities of the Sechaba Brewery Holdings Limited. Further capital can also be raised if needed, for the starting of the new venture. The credibility of both the companies will enable the raising of additional capital smoothly and easily. 3) GrupaZywiec SA is considering forming a joint venture company with Sechaba, jointly owned 50% each. What issues will the new company have to address in doing business assuming the joint venture will be located in Chile? Discuss. GrupaZywiec SA and Sechaba are international beverage firms, and both companies are considering a joint venture to enhance the visibility of their goods in South America. These companies will jointly open a new company in Chile. A “joint venture” (p. 87) contains two or more companies pooling their capitals and expertise to attain a specific objective. The rewards and risks of the venture are also shared between the two companies involved. Joint ventures can involve firms in one or more states, and this type of organisation provides the weaker firms with the chance to work with better ones in order to expand, produce, and market novel products. They also provide firms of every sizes the opportunity to enhance sales, increase access to wider markets, and improve technical abilities through “research and development” (p. 9) underwritten by in excess of one party. On the other hand, the main disadvantages of joint ventures are possible economic losses, and if a venture fails, nationalization or expropriation, disagreements between partners and less than estimated results can occur. Chile is one of the most prosperous and stable developing countries and constantly ranks high on global indices relating to economic freedom, competitiveness and transparency. Chile is a continental district of “295,000 square miles” (Rafferty 211) without the Antarctic territory with a region of about “490,000 square miles” (National Academies 203) is a long limited ribbon of ground stretching about 2,700 miles along the South America’s west coast with an average size of only 110 miles, differing among 60 miles and 250 miles. The Chile is located between the Pacific Ocean on the west and the Andes on the east, contiguous Bolivia and Argentina on the East and Peru on the north. South Chile is an archipelago, with “Cape Horn” (Collier and Sater 3) at its tip. There are about five separate and distinct geographical areas: the high Andean sector, the northern desert, the central valley, the archipelago, and the southern lake area. Santiago is the center and the hustle and bustle of the country. The legal system of Chile follows the French and Spanish models. The Civil Code was performed in the year 1855 and has served as an example for other states in South and Central America. Several other laws and codes are in effect and a court judgment is only valid for the particular case for that it is delivered. This lawful arrangement is supported by a sovereign and ingrained judiciary, which contains Courts of Appeals, Supreme Court and Judges of First case. Criminal, civil and labor adjudicators are also present here. Additionally, recourse to a judge is given for so as to resolve commercial and civil disputes. Chile persists to follow market oriented plans, expand international marketable ties, and actively contribute in global issues and hemispheric “free trade” (Patterson & Pullen 158). Chile has privatized a lot of its communications and basic facilities, such as highways, ports, water supply and transportation. Additionally, there is important private sector participation in retirement/pensions, education, prisons and healthcare. American firms will find that a lot of what will be a government deal in an additional country is a deal to a private sector importance in Chile. At the same time, as government buying remains the chance of doing a new business in Chile is mainly a private segment experience. A lot of US firms think Chile can provide an outstanding platform for doing a new business in the area. Peru, especially, has received important awareness from Chile-based beverage, retail, mining, and agriculture companies, and Chile is South America’s biggest shareholder in Brazil. “Transfer pricing” (Yan & Luo 30) issues are one of the main issues of staring a new business in a country. Special specifications of the Income Tax Law control the costs charged among associated industries situated in Chile and industries located in other areas. The regulations controlled in the Income Tax Law on transfer pricing issues affect both operations among a branch and its headquarters, and business among a foreign industry and Chilean firms in which the previous participates in the control, operation or capital. These regulations permit the IRS to challenge the costs paid by the Chilean firms to their headquarters or to a foreign company, even when the costs agreed are not adjusted to those appropriate in operations among unconnected parties. So as to contest the costs, the IRS can take into account a logical profit, bearing in mind the features of the business, including the production prices plus a sensible profit margin. Similar regulations will apply regarding costs owed or paid for goods or services given by the headquarters, or by any of its branches or connected industries, and when those costs are not adjusted to the usual market costs charged in businesses between non connected parties. It would also be useful to take into deliberation the sales cost to third parties of goods obtained from a connected company, less the margin of profit examined in same businesses with or among independent industries. If the branch only has business with connected companies, the IRS will be allowed to challenge those costs taking into consideration the principles of the relevant goods or services in the global market. Chile is an associate of WTO, and thus, the goods are categorized as per the “Customs Cooperation Council Nomenclature” (Shim, Siegel & Levine 74). The price of custom duty is about 6%. Chile has a comprehensive system of Free Trade contracts, and nowadays, there is such contract in effect with United States, China, Japan, Mexico, European Union, Panama, Canada, South Korea and Central America. Consequently, non-existing or reduced rates of customs duties are available. Responsibilities on goods are imposed on the price of CIF, without subtracting special discounts. Generally, Chile has an extremely open financial system and there are no important barriers to foreign trade. There are two major kinds of associations in the financial market of Chile, they are, commercial banks and financial institutions. Commercial banks offer the complete range of banking facilities, whereas, financial institutions are controlled, as they cannot work with current financial records, underwriting, carrying out export and import operations etc. There are mainly two securities markets in Chile, one in Valparaíso and one in Santiago. Most of the dealings are made in Santiago, and a small number of public corporations are seen to be broadly held. In Santiago, there is also an electronic “stock exchange” (p. 14), where foreign shareholders are permitted to buy and sell shares. Other significant issues are the law of Chilean states deeming any agreement or act to be illegal, which tends to limit free competition in the country. The law provides for imprisonment fines when an infringement is proved, and there is a process whereby the payment trading with these matters can be consulted in advance of concluding a business, which can result in a “monopoly” (Yan & Luo 42). Under the rule to protect “freedom of competition” in Chile, the major bodies that contribute in both controversial and non-controversial antitrust process, are the “National Economic Prosecutor” (OECD Economic Surveys Chile 78) and the “Free Competition” (p. 76) Defense Court. Legislation applies in a fair method to both local and foreign entities, and thus, the surroundings of Chile have become a significant subject in the country. Chile has an open financial system; banks have the majority of the technological advances utilized in developed countries and are connected to global operation and information systems. Works Cited “Annual Report 2012.” Sechaba Brewery Holdings Limited. 2012. Web. 08 Nov. 2014. Chandler, David. and Werther, William B. Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation. 3rd Ed. London: SAGE Publications, Inc. 2014. Collier, Simon, and William F. Sater. A History of Chile, 1808-2002. Cambridge [England: Cambridge UP, 2004. Print. Studying Organization: Theory and Method. Ed. Clegg, Stewart R. and Hardy, Cynthia. London: SAGE Publications, 1999. National Academies. Public Health Problems in 14 French-Speaking Countries in Africa and Madagascar: A Survey of Resources and Needs. Washington: Division of Medical Sciences, National Academy of Sciences, National Research Council, 1966. Print. OECD Economic Surveys Chile. OECD, 2010. Rafferty, John P. Deserts and Steppes. New York: Britannica Educational Pub. in association with Rosen Educational Services, 2011. Print. Shim, Jae K., Siegel, Joel G. and Levine, Marc H. The Dictionary of International Business Terms. London: The Glenlake Publishing Company, Ltd, 1998. The Geography of Beer: Regions, Environment, and Societies. Ed. Patterson, Mark and Pullen, Nancy Hoalst. New York: Springer, 2014. Yan, Aimin. and Luo, Yadong. International Joint Ventures: Theory and Practice. New York: M. E. Sharpe, Inc, 2001. Read More