Finance for International Business - Fenland Foods Plc - Case Study Example

FINANCE FOR INTERNATIONAL BUSINESS Introduction The current wave of globalisation that has taken toll on businesses has seen many of them changing their methods and strategies of doing businesses in order to exploit the numerous business opportunities emerging. With globalisation, business can effectively identify and exploit the huge opportunities and returns that come with business expansion and new ways of conducting business activities. Many businesses in the contemporary world are relying on extensive research in order to identify various ways in which they can apply in order to increase their market share and competitive advantage (Eitman, Stonehill & Moffett 2010, 65). One of the ways that most international businesses are relying on is strategic alliances and creation of subsidiaries and branches in different countries. In this case, businesses trying to globalise and reach many countries often consider the cost factors, so that they can minimise their operation costs and maximize their returns (Shapiro 2010, 54). With creation of subsidiaries and franchises, business can effectively develop and sell their products and services in different countries while reducing the costs that would have been incurred in developing their branches in those countries (Buckley 2004, 87; Arnold 2007, 29). Business expansion is not always; instead of bringing the anticipated returns, the process can be expensive and bring about unanticipated diseconomies of scale when not done with due regard of the vital elements like consideration of market trends among others (Rugman 2001, 41; Dimson, Marsh & Staunton 2002, 134). Some businesses often looks for other business dealing in similar and related businesses then make arrangements to buy and merge those businesses. In this case, the business cuts the costs of building new structures and business strategies. Instead, the business only adds new physical and non physical resources in order to improve those businesses and exploit their potential. This paper will examine the Fresh Farm Foods Co., in order to find out if it is worth being purchased by Fenland Foods Plc. Fenland Foods Plc Fenland Foods has been a successful company since its time of establishment in the 70s. During this time, the company was owned by Williams family; with a small arable land in Lincolnshire, the family used to plant and sell fresh foods directly from the farms to the residents of the town. At that time, many people had not found the opportunity to enjoy foods that cam fresh from the farm. This was an added advantaged to the company since it managed to create a large demand for the foods. The high demand for fresh foods propelled Fenland to huge growth and expansion; however, the business maintained its status of being family-owned. Later the family decided to restructure the business so that it would take on the increasing opportunities in its growth and expansion. This development saw the business being re-invented as a registered limited company, what followed was a subsequent growth that followed the company all the way until 1991. At this time, the people that were managing the company decided that the business was not effectively exploiting its potential amidst the increasing opportunities in its market niche. For this reason, the company needed to have a new face that would enable it to enjoy economies of scale in the huge unexploited market of fresh farm produce beyond its city (Atrill 2009, 67; Arnold & Hatzopoulos, 2000, 461). In this case, there was need for the company to repackage itself and develop large-scale expansions that would see it compete effectively with other non-organic foods producers (Graham & Harvey 2001, 190). This process required an injection of capital in order to build a business that would set itself as the market leader. Unfortunately, Wiliams family did not have the needed funds that would be used in this development. However, the directors of the company were fully convinced that the company had enough capacity to get these resources and position itself effectively in the fast developing market. The directors of the company were unmoved in their quest; they embarked on an investigation of the various opportunities that would be used in meeting this objective. They explored various opportunities and possibilities that would see them increase the capacity of the business to take on new and great opportunities in the non-organic food industry (Pike, Neale & Linsley 2012, 54). after much investigations, they settled on expanding their production facilities and establishing their packaging and distribution systems, in this case, their new branded products was to be sold by various independent and quality food retailers. After getting the finances they required for their business expansion, they decided to embark on the strategies they thought would be effective for their business, and true indeed they have lived to their expectations. With further expansions and growth in the market, the company directors developed systems that would enable them to keep abreast of the market trends and other changes in order to remain successful. They have kept on updating their machinery and other physical resources, motivating their staff and investing in research and development in order to remain effective and efficient in the changing market. Besides the profits from their business, the company has been issuing debentures as ways of raising additional finances to enable the company run its production and marketing activities. The current phase and future prospects of the company The directors of Fenland Foods plc have been dedicated to the success of the company, managing to establish it as a giant and market. The company is still looking for various strategies and approaches that will see it position itself as the giant in the production and marketing of fresh and non-organic foods in the whole world. For this to be achieved, the directors believe that the company needs to be actively involved in expansion and market diversification. However, the company must first make a successful appraisal of its financial position before embarking on changes that will see it diversify its activities across the world. Market Diversification Generally, market diversification for businesses involves increasing the presence of a business in the market. In most cases, this is often achieved by use of various strategies and approaches (Rugman & Hodgetts 2003, 36). One of this is creation of branches in places where the company does not exist and has the potential to enable the company to achieve its returns and set goals and objectives. Alternatively, it may also involve creation of subsidiary companies especially for multinational organisations and establishment of franchises among others (Brotherson 2013, 341). Another important aspect of business diversification is buying already existing businesses. This is often achieved after a business engages in negotiation with the owners of the particular businesses, makes a valuation of the business and agrees on the amount to be paid (Neale & McElroy 2004, 42, Boakes 2010, 21). However, before this process is arrived at, the buying business needs to have made an a analysis of the business so that it becomes a lucrative and successful step that can see the business achieve its set goals and objectives. Fenland Food Plc., is currently in the process of purchasing another existing business in its line of non-organic foods, which is Fresh Farm Foods Co. Fresh Farm Foods Co. Fresh Farm Foods Co., has been a successful company, operating from Leicester City, where it has its headquarters. The company has enjoyed a good market presence, managing to establish itself as one of the most successful and promising companies in the non-organic foods industry. The company has many farms within which it plants various farm produce and sells it in its stores, which it has set across many towns in Leicester, with plans of expanding to other countries. The company was among the first to identify the opportunity that existed in non-organic foods, long before Fenland Foods Plc was developed in the 70s. According to the company’s history, it was established early in the mid 60s, when many people had never thought that non-organic foods would be a good business to venture. This means that at the time of the company’s establishment, the need for these fresh foods was very high, something that led to its drastic growth and expansion. The success of the company It is believed that the success of Fresh Farm Foods Co. was attributed to its excellent management and a ripe market that was receptive of the products and services that the company had. By having a good staff development and motivation program, the company managed to get better returns and a good market share (Barclay & Smith 2005, 121). The company has effective financial systems that have always been efficient in ensuring that the company devises and executes effective and successful plans that have seen it perform better (Griffith 2006, 457). In addition, the sound management and leadership that the company has had has made it manage to make reliable market research about new markets, something that has made it successful in its growth and expansion. One of the things that makes new businesses growth and become successful is a good identification of the market niche and taking full advantage of the opportunity that exists. This is the exact situation that happened for Fresh Farm Foods Co., at the time of its establishment. The company seems to have utilized this opportunity very well, managing to create outlets in most of these large cities, where the opportunity for fresh farm produce has remained lucrative. In this contemporary world, many people seem to be busy with their social and economic lives, having more preference for fast foods. However, there has been public campaigns against organic foods, especially the fast foods, which have been blamed for various health concerns. This has meant an increasing demand for non-organic foods, something that companies in this industry are using in the process of growing and exploiting market opportunities. The market price for Fresh Farm Foods Co Before considering the amount of money that a willing individual or company would be willing to offer in order buy this company, it is important to look at its current phase and state of the business. From the time of its development, the company has endured various turmoils in the market, including the economic downturns in the 2000s which affected many companies especially in Europe and other parts of the word. However, because of the sound management and leadership, the company managed to sail through, coming up again as a leader in the non-organic food industry. Currently, the company has managed to establish many branches and subsidiary companies not only in Leicester City but also in other cities in the United Kingdom. It has developed distribution centres and effective supply chains that ensure the company brings fresh farm produce to its consumers at their earliest convenience. This is something that has made the company successful in its marketing activities. Considerations for Fenland Foods Plc before buying Fresh Farm Foods Co Before making the decision to purchase Fresh Farm Foods Co., it is important that Fenland consider some important factors that would advice its decisions. First, the company has to ensure that it has the much needed financial muscle that can enable it to buy the company and maintain its market position (Folsom, & Gordon 2009, 34). Of course, it goes without mention that the decision of buying the company will be effective in increasing its returns and competitive position. However, the company needs to ensure that it does not buy the company and end up facing some financial constraints in managing its activities especially the welfare of its staff. It is important to appreciate the fact that buying this company will be an essential step for Fenland Company to create its market position and competitive advantage (Hill 2005, 18). The company may have to retain the staff at Fresh Farm Foods because they already understand the company’s operations and the market in general. Later, the company may change its organisational culture to be in tandem with that at Fenland so that it achieves the same mission and vision as well as goals and objectives. Another important consideration that Fenland Foods Plc, should make is the legal provisions and requirements for such a move. By considering the legal provision, the company will manage to make to have a smooth transition that will save it from unprecedented court battles and other associated issues (Parker 2007, 51). Involvement of lawyers and other important financial advisors will enable the company to make an effective company valuation that would inform it of the best price with which it can pay the owners of the company after reaching an agreement over its sale (Perold 2004, 15; Fama & French 2004 26). Additionally, Fenland Foods Plc should consider its ability to manage the enlarged business. In most cases, many companies prefer expanding in order to operate in large scale because of the many economies of scale that come with such a move. However, economies of scale for companies are often associated with diseconomies of scale, which if not effectively managed, cause the downfall of the once lucrative and successful companies (Baum, Sarver & Strickland 2004, 217). For this reason, Fenland Foods Plc should make effective analysis of its financial and human resource ability to manage the increase company and maintain its associated economies of scale. With an asset base of more than $200,000 and more than 100,000 workers in its branches within Leicester and other cities that Fresh Farm Foods Co has reached, it can be estimated the current market value could somewhere about $1 to $2 million. This is an amount that Fenland Foods Plc can effectively afford. After a careful and comprehensive analysis and evaluation of the above mention issues, the company should make the best decision of purchasing Fresh Farm Foods (Weaver 2001, 16; Connolly 2007, 65). Just as Fenland has managed to grow its business from scratch, the same will apply after the effective purchase of this new company. It is important to note that currently, has the ability and financial ability to manage this develop and increase its competitive advantage Conclusion Market diversification is one of the most important approaches that companies use in order to increase their market share. In this case, Fenland Plc should not hesitate on this move because it has the potential of enabling it increase its market share and position in the market (Quan 2002, 235; Bender 2013, 67). 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