FDI Strategy of Coca Cola in Myanmar - Essay Example

FDI Strategy al affiliation Briefly describe the MNE you selected (who they are and what they do Coca Cola Company is a multinational corporation based in America and mainly deals with the manufacture of beverages. This company owns a franchised distribution system, where they produce the syrup concentrate that is then sold to various Coca Cola bottlers all over the world. This global company was founded in 1892 by Asa Griggs Chandler. The company has its headquarters situated in Atlanta Georgia. In 1886, john Pemberton, a pharmacist created a soft drink by combining soda water, lime, Brazilian shrubs, cinnamon and coca leaves. This mixture was later sold in a chemist in Atlanta as a soda fountain drink. Later on, Frank Robinson suggested the actual Coca Cola trademark. In April 1891, Asa Chandler, a pharmacist and a businessman purchased Pemberton’s recipe and turned Coca Cola into the internationally recognized brand it is today. In 1892, the company grew by ten times as a result of merchandising. Currently, the company operates beyond Georgia and the United States and has nearly 400 brands in over 200 countries (Ford, W. et al., 2007: 2). Currently, this multinational company does not operate in Myanmar, but is planning to venture into this market soonest possible. This event is after the U.S government lifted a ban on investing in Myanmar, in May, 2012. 2. Analyze the challenges and advantages of FDI for the MNE in the country you selected.  Foreign Direct Investment involves investing money in a company incorporated in another company. There are several advantages that Myanmar will gain, when Coca Cola Company establishes its operations there. First of all, employees of Myanmar will get exposure to globally valued skills. Once established, Coca Cola Company will have to train its employees, hence an improvement in the country’s human resources. Second, Myanmar will have a chance to be integrated into the global economy. Coca Cola Company is a corporation that has its operations in many nations across different continents. Its investment in Myanmar will expose this country to the world economy due to possible access to a wide market all over the word. Additionally, Coca Cola Company will bring along with it advanced technology and processes. This will lead to increased competition in the domestic market, hence posing a great challenge to other companies to improve their products and processes. These factors lead to improved quality of processes and products in a certain industry. Moreover, Coca Cola Company can use its foreign expertise in upgrading the existing technical processes. This country will also strengthen technical assistance on crucial regulatory issues such as taxation, due to adaptation of home country measures to support Myanmar. Coca Cola Company will also help boost aid for productive capacity, and this will be achieved through supporting technical and vocational training and entrepreneurship. Coca Cola Company also enjoys benefits of FDI, which include the ability to make use of potentially cheap and skilled labor. Myanmar is not a fully developed country; therefore there is a possibility that skilled labor provided by her citizens is not expensive. Coca Cola Company will also have access to a larger market in the host country. Finally, the company will be in a position to make use of Myanmar’s resources, while undergoing diversification and optimization of costs, thus pursuing goals and objectives of the company’s growth. However, there are some challenges that are associated with this investment. Coca Cola Company may not prefer to form a joint venture with any local company. As most multinational companies do, Coca Cola Company will offer high and attractive salaries to employees, hence attracting all skilled employees; thus being a threat to other firms operating in the country. Better infrastructure and heavy investments can pose a threat to local firms that can hardly match to Coca Cola’s capabilities (Birkinshaw and Hood, 2010: 150). Coca Cola has world class products which have high quality and its brand name is highly valued. This may be a threat to domestic brands as they may not attract many consumers; thus unfair competition arises. Most multinational companies enjoy economies of scale that lead to cost reduction, thus they sell their goods at considerably low prices; hence posing a barrier to entry by any new firm into this industry. 3. Determine the best way for your MNE to minimize foreign exchange risks.  Global corporations have emerged as a result of multinational enterprises. These large companies have their operations in different countries; thus being exposed to risks associated with foreign risks. Coca Cola Company being a multinational company also experiences these challenges. The company can sell its products based on local currencies so as to minimize foreign exchange risks. This ensures that transaction risks are automatically transferred to the buyer (Caves, 2009: 218). Additionally, the company can diversify its operations so that foreign exchange losses in one market can be offset by foreign exchange gains from other markets. The company can also transfer components of economic exposure to the final customer by rebranding the product in a way that foreign exposure turns out to be irrelevant to the firm. For example, Coca Cola Company can adopt a name that has close relation to its country of operation in branding its products. Investing in markets that are expected to perform well, and whose currency is expected to appreciate is also crucial. Currency appreciation in the market means a translation gain on foreign exchange, hence reducing foreign exchange risk exposure. Finally, the most significant way is through hedging. The company needs to identify cash flows that it needs to convert into other currencies. Later, the company needs to analyze the possibilities of exchange rate movements and possible effects on the company’s cash flows. The third step that the company needs to take is to plan for a hedging strategy. A review of different hedging options is crucial, with FX option being the most effective instrument. This option gives the buyer a right, but not an obligation, to purchase or sell a certain amount of currency, by a certain date and at a certain price. Finally, the company buys the instrument that will help in minimizing foreign exchange risk. It is highly recommended that one can buy more of FX options when the volatility in currency markets rises, and sell some if it falls. Regular examination of the foreign exchange market is vital as it will help a company know the most appropriate time to adjust its hedge option. 4. Determine how your MNE could leverage government policies to maximize the profitability of FDI.  Myanmar offers favorable government policies that encourage foreign companies to invest here. For instance, there exists incentives offered to foreign companies, so as to encourage them invest here. Coca Cola Company can take advantage of these incentives that include low interests on loans, grants, subsidies and tax concessions to increase its profits. While the government has put in place policies that encourage a desire to gain from the resource transfer, the company can take advantage of employment effects. Labor available is skilled and cheap due to unemployment. The company can use this as a platform to acquire cheap labor, hence cutting down on its expenses in terms of salaries and wages. A company can also take advantage of policies that encourage transparency, which depicts actions of authorities of Myanmar (Caves, 2009: 220). Removal of public complaints such as bureaucracies, red tapes and arbitrary decision is a sign of transparency; thus investors become ready and willing to invest here. Lack of transparency may lead to improper decisions, hence adverse effects. This country’s entry into the World Trade Organization has increased pressure for the country’s transparency. 5. Analyze the financial management, operations, marketing, and human resources needs resulting from the proposed FDI and outline a strategy for one area.  Coca Cola Company will have to manage its finance in this new region, since they have just entered the market. This means that the starting capital will be from retained earnings, funds generated by other markets and probably debt financing. This means that the company needs to plan wisely for the available funds, so that it does not shut its operations due to poor management of the available cash. The company also has to obtain a general license from the U.S government. It also has to obtain a license from the Myanmar government, so as to commence its operations. Places of operations must be established, by identifying a suitable location as well as where to establish its regional and operational offices. Recruitment and hiring of employees will then follow suit. Marketing of products can be done through intensified advertisements through the local media (Birkinshaw and Hood, 2010: 165). The retail and distribution of coca cola products will be a vital source of self employment to many citizens of Myanmar. The retail section will be a significant source of income to those people that are jobless. Many retailers will be small-scale retailers; hence they might earn inadequate income. The company should seek to build capacity at certain points in the value chain so as to eliminate this challenge. This can be accomplished by providing technical assistance and credit programs. Additionally, the company can also launch a program to boost entrepreneurial skills at various retail outlets. Retailers are trained by sales representatives on how to run their businesses and improve their business skills. There will also emerge need for the company’s employees to join a workers union. Lack of formal industrial relations between workers and management results to a limited scope for dialogue. Coca Cola Company should collaborate with local communities and workers to identify wage benchmarks. It should also find opportunities to improve productivity that increases wage levels, without necessarily extending working time that was initially agreed upon. Factors that undermine the ability of a retailer to pay a living wage should also be looked at. References Birkinshaw, J. and Hood, N. (2010). Multinational Corporate Evolution and Subsidiary Development, 10TH ed. USA: Macmillan Press. Caves, R. (2009). Multinational Enterprise and Economic analysis, Second Edition. Cambridge: Cambridge University Press. Ford, W. et al. (2007). Coca Cola Case Study: An Ethics Incident. USA: The Archive of Marketing Education. Read More