International Management in North Africa - Research Paper Example

 Management Outline: Introducing the paper Popular uprising Introduction to popular rising in Middle East General effects on economy and businesses Specific effects on three international companies 1. Company # 1 + actual example 2. Company # 2 + actual example 3. Company # 3 + actual example Management Lessons learnt Work Cited Introducing the paper: This paper is written in consideration to the subject of “International Management”. It specifically considers three international/ multinational companies and explain how the recent popular uprisings in North Africa (Tunisia, Egypt, Libya), has affected each of the company’s business. The paper ends with drawing on general and specific lessons out of the case study for management today. The Issue mainly in concern is the importance of political instability in management decision making. Popular uprising Before starting this paper let’s have a look at the word popular uprising. Popular Uprising as defined by the free dictionary has got two meanings: Widely appealed 1. Revolt against a state authority or constituted government or its laws; a rebellion. 2. Act or any instance of rising or of rising up. While the reverso.net dictionary defines it as Popular: An act widely accepted or appealed Uprising: A revolt or a rebellion Introduction to popular uprisings in Middle East Between the late 2010 and the early 2011 a wave of many spontaneous revolts in Tunisia along with Egypt led to the downfall of local regimes. The foreign exporters and the investors in these countries are being affected by the ongoing events, including industrial action, supply chain disruptions, looting, and increased counterparty risk. Furthermore, the success of initial protests ignited new tensions across the Middle East and the North Africa (MENA), threatening the very stability of Bahrain, Iran, Jordan, Algeria, Libya and Yemen. Uprisings in Tunisia and Egypt The catalyst for uprisings in Egypt and Tunisia revolts was the suicide of, Mohamed Bouazizi, in the Tunisian town in December 2010; he set himself on fire to revolt against a decision by local authorities to seize his wares. Within few weeks’ demonstrations spread in whole country, as many Tunisians took to the street for protest against political repression and living conditions. Unrest in Egypt Overthrown President Hosni Mubarak’s regime in February led to an unprecedented uprising that was unable to stop. The aims of the revolt were to topple Ben Ali and replace his authoritarian reign with a multi-party democracy. General effects on economy and businesses The wave of recent uprisings that is sweeping across the Middle East along with the North Africa is set to have a major impact on the risks of doing businesses in such country. As political instability keeps on rising in these regions, companies around the world would need to prepare for thereafter knock on effects on the supply chains and business costs occurring across most sectors. This would in the short term cause political instability and economic breakdown in the affected countries which is likely to impact the supply chains around the world; and the textile companies in Europe and consumer goods producers from China and other Asian economies are the ones most vulnerable to these shocks. The careful monitoring of such political and economic trends, the alternative sourcing and the stockpiling are the strategies that can reduce the impacts of these disruptions. The longer term effects would include heightened political risk that could lead to deteriorating economic conditions and tighter access to credit, raising the payment risks for the companies that are dealing with MENA (other emerging markets). Adequate political and export risk insurance cover and safe trade terms, such as the documentary credit, will be essentials to mitigating counterparty risk. In the wake of the recent crisis in the MENA region, the lenders and insurance companies are likely to upwardly re price the risk premium that is attached to dealing with such emerging markets, thus raising operating costs for exporters and investors. The ever growing instability in such oil exporting economies would most probably cause the disruptions in supply of oil boosting its prices both in the short also in long term; as energy costs rise, the companies would aim to shorten and lessen their supply chains and would adopt less energy intensive production processes, wherever possible, to minimize risks. Additionally, the risk of disruptions in the natural gas supply to Europe would have a negative effect on companies that are energy-dependent in Spain and Italy, potentially resulting further supply chain dislocations and raising payment uncertainties in these countries. This would escalate hydrocarbon prices which will offer more opportunities for businesses operating in the renewable sector, as the governments and companies are likely to step up the energy-source diversification to mitigate supply risks. In such context, the country risk information and the market intelligence will play an increasingly vital role for companies that aim to minimize costs and risks especially when dealing with foreign counterparties. The country risk service product, such as the monthly Country Risk line Reports, can provide such information. The unrest will have a greater effect on the business risk for international companies; let’s have a look at three multinationals and how political instability affects their operations and their profits. Arab Petroleum Investments Corporation (APICORP) The Arab Petroleum Investments Corporation (APICORP) came in to being in 1975 in accordance with the international agreements between the governments of ten Member States of Organization of Arab Petroleum along with the Exporting Countries (OAPEC). The Corporation has its great headquarters in Al-Khobar or the Dammam, which is in the Eastern Province of Saudi Arabia along with an operating Banking Branch in Manama, Bahrain. (A pioneer in financing the Arab Oil and Gas Corporation ) Building further on its strong performance amidst the challenging global economic environment, it is The Arab Petroleum Investments Corporation (APICORP) today, which has reported the highest ever annual net profit, the total assets and the total shareholders’ equity. The government of Libya has a 15% stake in APICORP. In the 2010 the net profit of the multilateral bank that was owned by the ten member states of Organization of Arab Petroleum Exporting Countries (OAPEC), surged to the US$95 million, contributing to a 62 % increase above 2009 profit of US$58.5 million. The total assets for the period if seen had risen to US$4.3 billion that is a 5% increase over 2009 levels of US$4.1 billion, while the total shareholders’ equity also rising by 13% to reach $1.1 billion. APICORP’s Board of Directors had approved the Audited Financial Statements for annual year ended 31 December 2010. Ahmad Bin Hamad Al-Nuaimi who is the Chief Executive and General Manager of APICORP said: “The historical results for 2010 reflect the continued commitment of maintaining strong banking fundamentals through strategically and prudently managing the equity and debt portfolios. “Since its very foundation, the APICORP has consistently played a counter cyclical role by being exceptionally resilient to un favorable economic conditions. This was despite the tight credit conditions which is prevalent these days, we have maintained an exceptional level of stability and a steady growth momentum.” “The recent 2010 results provided an impetus to the five-year plan of expanding the equity portfolio with some midstream sector projects. Currently, company is investigating petroleum opportunities in tank farms, refining shipping and the related infrastructure investments. The CEO says that they are confident that APICORP will meet the target of doubling direct investment portfolio by the year end of its 2010-2014 five year plan.” The Al Nuaimi pointed out that the APICORP has even continued to maintain a strong presence in the project finance market with robust debt portfolio. This is despite the recent popular uprisings in North African countries which has slowed down the financial markets in general, but luckily APICORP was able to identify the unique projects, corporate and trade finance opportunities in oil and gas industry throughout the MENA (Middle East and the North African) region in the Financial Year 2010, where it negotiated the transactions valued at US$3.3 billion with APICORP’s total commitment aggregating at US$320 million. Encouraged by such solid financials and the Moody’s Investors Service’s first time issuer rating of A1 for the long-term debt and the Prime-1 for short-term debt, this APICORP is now seeking to just expand as well as to develop new finance products. This very much reflects the distribution pattern of natural gas and crude oil reserves in the region. Of the US$530 billion of actual capital needs in the Arab world, the oil supply chain accounts almost for 42%, the gas supply chain accounts almost for 36%, while capital requirements in the oil, gas and the nuclear fuelled power generation sector represent the remaining 22%. Future Predictions Though, luckily APICORP has survived uptil now showing positive movements in its financial statements. However, such position cannot be maintained for long this is because Singapore (Agencies) had said that oil prices have escalated in Asian trade, with Brent crude touching USD 103 as uprising in Libya has fuelled concerns over instability that spreads out across the oil producing Arab states, the analysts says. (Libyan tension escalates oil prices in Jagran Post 2011) Both the benchmarks have zoomed ahead this morning. The central driver is really the protest and unrest in the Middle East, said Victor Shum, the senior principal for Gertz and Purvin energy consultants. (Asia stocks mixed on Middle East woe, oil rises under Asia one News 2011) "Libya is the member of OPEC and though Libya's oil production isn't very significant on the global basis, it's still very threatening close to the major suppliers of crude oil worldwide, mainly MENA (Middle East and North Africa)" he added. He said that the fresh violence in Organization of Petroleum Exporting Countries (OPEC) members state Libya is one who is igniting fears of instability spreading across the key oil supplying MENA (Middle Eastern and North African region). (Middle East woes weigh on Asia stocks, oil rises under Free Malaysia today 2011) Between the 300,000-400,000 barrels per day (bpd) of the Libyan output, that is normally pumping 1.6 million barrels per day (bpd), or almost 2% of global supply is shut down, marking to the first cuts in oil supplies related to recent wave of revolts in MENA (North Africa and the Middle East). (Oil Prices rise in the Volatile Trading under Tripoli post 2011) Broadcom Corporation Broadcom Corporation is one of the major technology innovator and a global leader in the semiconductors for wired and the wireless communications. Broadcom products ensure the delivery of voice, and multimedia video, data to and throughout the office, the home, and the mobile environment. This is not very surprising, that Technological companies have specifically acute risks to operating overseas. (U.S. companies in Libya uncertain about prospects) Broadcom has its several kinds of disquiet for its international business. The protest and revolts in Middle Eastern countries have severely been affecting the Broadcom business as not only does mainly all the company’s manufacturing, assembling and testing takes place outside the U.S, but also the Broadcom’s products even wind up outside as well. (Broadcom Form 10K) Currency Risk Given such export business, for Broadcom, the value of the American currency thereby creates much risk which is normally associated with the foreign governments (including North African states). Thereby, as the Broadcom is an international company so it expands as an international business, that’s why it can be increasingly exposed to various businesses, political legal and economic risks associated with the international operations. An increase in the quality of U.S. dollar relative to any foreign currency would make Broadcom products less competitive in the international markets or would require assumption of denominating certain sales in the foreign currencies. Therefore, any protests and revolts in North Africa would cause a retrospective impact on Broadcom’s business to a greater degree as management plans further expansion of Broadcom international business activities.” Operation Risk Through the internal growth and acquisitions, Broadcom significantly modified the scope of their operations and workforce in the recent years. Their operations costs are those that are fixed or difficult to reduce in the short term, such as R & D research and development expenses and our highly skilled workforce. Any economic instability would affect seriously in the ability of Broadcom to tackle market variations against fixed cost. Economic Volatility Economic volatility can result in extreme difficulties for Broadcom customers and vendors to just accurately forecasts and plan future business activities. Such unpredictability could result the customers spending less on the products and services, which would delay and even lengthen sales cycles. Furthermore, during the recent challenging economic times the customers and vendors face issues gaining timely accessibility to sufficient credit, this could even impact their ability to make payments. Owens Illinois Inc Owens Illinois Inc is one of the Fortune 500 Company which specializes in the container glass products. It is among world’s leading manufacturers of packaging items, holding the position of among largest manufacturer of the glass containers in various areas (after acquisition of BSN Glass pack in 2004 [Owens-Illinois acquisition receives EC approval]). Approximately one can see one of every two glasses made worldwide are made by O-I. While it was legally called as Owens-Illinois Inc (Owens-Brockway Glass Container) the company changed then its trade name to O-I in 2005. With so many of the U.S. companies outsourcing much if not all of their manufacturing operations, most suppliers of these consumer products would face similar risks. Owens Illinois Inc, for instance, will not face any specific risks posed by protests and revolts in North Africa. Still the company would face supply chain risks, even though—risks such as that which can compromise the ability to produce and the ability to deliver its products. Like many other U.S. manufacturers, O-I would definitely notice that the Foreign Corrupt Practices Act (FCPA) would put the company at a certain disadvantage to its competitors which may not be subject to other similar regulations. Owens-Illinois Inc would disclose significant concerns about a number of risks to the international operations. As O-I conduct much international operations it would face risks of operating internationally these would include many risks especially the Middle Eastern conflicts and popular uprisings. Owens Illinois Inc concedes that some of the regions, including the Middle East and Africa, Latin America, Asia, are inherently more politically and economically volatile and as a result, O- I business units that operate in such regions would be subject to significant fluctuations in the sales and operating income from one quarter to another. Because the significant percentage of operating income coming in recent years from these regions, adverse fluctuations in operating results in such regions could have the disproportionate impact on Owen illiinois’s results of operations in future periods. Owens Illinois Inc then goes to cite the specific risks confronting especially from the company from its operations in North Africa, and that portion experiments with currency manipulation include In 2010, Owens Illinois booked around $4.7 billion in net sales from its international operations worldwide, representing almost 71% of the company’s sales. Additionally, to the garden variety happening political risks disclosed by virtually all the companies doing business abroad, O-I is also the one citing the risk of hyperinflation in countries it does business. Management Lessons learnt General Lessons It can be contributed here to understanding that the variations in political stability all around the world can attribute to the variances in financial development. It contributes to significant, consistent, and a substantial impact over financial position, on debt and the stock market development. Foreign currency risk is nothing newer; the risk of war, terrorism or the civil unrest has never been very far away even in most placid times. In spite of their many in common denominators, varying industries still maintain differing levels of exposure to at times similar or unique risks. The challenge for management would always be to anticipate when and where these risks will pop up next.(chapter 3: Why Management should be concern about organizational capacity) Specific Lesson to the Scenario Poor economic conditions are in the primary overseas markets, specifically in Libya, might negatively impact the demand for the products abroad. All of the international sales to date are ones denominated in the U.S. dollars. Accordingly, an increase or decrease in the value of the U.S. dollar against the foreign currencies would make the products less or more competitive in the international markets. Changes in Oil prices through change in the demand and supply curves of oil will tremendously affect the world economy and the price of US dollar. Management must consider that unrest in the Middle East would threaten oil supply and crude has been rallying, almost breaking above $100 last week. Libya being the 12th largest exporter of the oil in the world, the 3rd largest producer in Africa, and the largest of the holders of crude oil reserves in Africa, has now cut oil production by almost about 50%, (country’s oil chief )on Monday. Conclusion Therefore, for a manager, considering political variations is important for any multinational company to understand its progress, opportunities and threats. Only if the company can plan properly today than realize bad results tomorrow, it would be able to survive. It is thereby important for management to take immediate methods to reduce political instability effects on their employees, on their customers and on the organization as a whole. If such is taken care of the organization do not need to fear from any repercussions of any popular uprisings whether in North Africa or elsewhere. Work Citerd 1. Asia stocks mixed on Middle East woe, oil rises in Asia one News (2011) fromhttp://multimedia.asiaone.com/News/Latest%2BNews/Business/Story/A1Story20110221-264688.html 2. At Least 27 Dead After Series of Bombings in Iraq in VOA News (2011) from http://www.thefreedictionary.com/uprising 3. Attempted Baghdad Prison Break Kills 17 in VOA News (2011) from http://dictionary.reverso.net/english-definition/%20uprising 4. A pioneer in financing the Arab Oil and Gas Corporation http://www.apicorp-arabia.com/html/cms/ 5. BROADCOM CORPFORM 10K http://files.shareholder.com/downloads/BRCM/0x0xS950123-11-8273/1054374/filing.pdf 6. Chapter 3: Why Managers should be concern about organizational capacity in http://www.idrc.ca/en/ev-43621-201-1-DO_TOPIC.html 7. "History of DJIA, globalfinancialdata.com". https://www.globalfinancialdata.com/articles/dow_jones.html. 8. Libyan tension escalates oil prices in Jagran Post 2011from http://post.jagran.com/libyan-tension-escalates-oil-prices-1298266560 9. Middle East woes weigh on Asia stocks, oil rises in Free Malaysia today (2011) from http://www.freemalaysiatoday.com/2011/02/21/middle-east-woes-weigh-on-asia-stocks-oil-rises/ 10. Oil High on Libya Concerns; Oil Prices rise in Volatile Trading in Tripoli post (2011) from http://www.tripolipost.com/articledetail.asp?c=2&i=5464 11. "Owens-Illinois acquisition receives EC approval". PackWire.com. 2004-06-11. http://www.packwire.com/news/ng.asp?id=52753-owens-illinois-acquisition. Retrieved 2007-10-16. 12. Owens-Brockway Glass Containers, Plant Comptroller in Muskogee, Oklahoma (ok) 13. Summary of the American and International Press on the Libyan Revolution - Morgan Stronghttp://www.tripolipost.com/articledetail.asp?c=1&i=6034 14. US international business from http://www.wikinvest.com/stock/Broadcom_(BRCM)/International_Business_Expands_Increasingly_Exposed_Various_Legal_Political 15. U.S. companies in Libya uncertain about prospects (2011) http://www.usatoday.com/money/world/2011-03-10-Libyabusiness10_ST_N.htm Read More