Research Articles Base: Investment Policy Statement Samples

HOW DO FOREIGN DIRECT INVESTORS DEAL WITH CORRUPTION IN THE HOST COUNTRY

HOW DO FOREIGN DIRECT INVESTORS DEAL WITH CORRUPTION IN THE HOST COUNTRY

Introduction The problem of corruption is on-going right at this very minute and seems to be disturbing for everyone in the society. It...

ALTERNATIVE INVESTMENT SCHEMES ARE NOT PENNYWISE AND POUND FOOLISH

ALTERNATIVE INVESTMENT SCHEMES Introduction The alternative investment schemes are popular because of the extremely high interest rates being offered – an average of 10 per cent per month – and they see a real chance of lifting themselves out of poverty. Those who are caught up in the vortex of greed are mesmerized and are willing to risk their money for the prospect of a comfortable life. Many have worked all their lives, saved and invested their hard-earned money only to receive a little pittance, while they see the owners and executives of the established institutions which receive their money are living the extra mile. Ironically, the recent collapse of alternative investment scheme companies with losses estimated as high as 0 billion, has left a lot of people surprised. Many believe that it was the formal financial sector which brought down the schemes. They say that the sector was concerned about losing funds to the informal sector and conspired to bring about it’s downfall by pressuring the financial services sector to close down the companies (2003). The efforts of these companies to spread the wealth around is admirable, but they failed to use some basic investment strategy. First, most companies forgot that you do not use short term money to invest in long term assets such as businesses and property. Secondly, companies breached the rule that if you are taking money from people they must be able to account for it by refusing to present financial statements. Predicament of Alternative Investment Scheme             Others believe that the companies involved in alternative investment schemes were nothing more than pyramid schemes. A pyramid scheme operates on the basis that money is paid out of new proceeds being received and not on any earnings that are generated (2000). This scheme obviously will depend on people continuing to bring in new money which will only happen as long as there is confidence in the scheme. Of course given that no income is being generated, it will inevitably fail. Furthermore, the 1990s meltdown of the local financial sector left thousands of depositors confounded and out-of-pocket because of the issue of alternative investment schemes. The current level of participation in these financial schemes is close to unprecedented, and logic suggests that there is a good reason for their popularity. Moreover, there are several standpoints which need to be faced frontally, not merely from a point of view of those who have been victimized. The owners and investors in the schemes must be dealt with accordingly together with their perceived competitors, and the established financial institutions.     Olint and Cash Plus             The two leading alternative investment schemes were Cash Plus and Olint. And they are slowly, but surely, being revealed as fraudulent. Initially, everything was rosy. Olint was once hailed as “a revolution in the local investment scheme” (, 2008). In 2006 the founder David Smith was lauded as “Business Personality of the year”. Cash Plus was supposed to be another financial miracle. It (apparently) acquired real assets including the       and the 800-acre      . The founder      boasted of investments in telecoms, financial, shipping, hospitality, fuels/chemicals and real estate. He claimed that he was going to build up an array of businesses in an “expanding and diversified portfolio of companies”. But there was no real documentation about how these, and other such investment schemes were making their money. Yet people did not seem to care and still invest without actually having a firm background of what they are getting into. Conclusion             People’s greed always gets the better of them.“Get rich quick schemes” will not solve financial problems in a snap. People need to be risk-takers as entreprenuers. What is needed is a national debate, where looking at the issue as a national family will bring the nation together. Determining if these non-traditional means of prosperity should be accepted as a sustainable alternative to most poverty will harm us in the long run if people will not equip themselves with the right knowledge. Research and think first before investing. It is important to remember that investors can easily avoid fraud by spending a little extra time verifying the validity of all potential investments. It is rare for an investment scam to pass a thorough due diligence process. If all else fails, instinct and common sense may serve a skeptical investor best: If something seems too good to be true, assume that is until proven that is not a counterfeit. Reference                                     In retrospect, 2008 will be seen as the year that the alternative investment scheme bubble burst.   Mixed signalAnd in this respect, we await the early enunciation of the policy of the new government on this issue, certainly before it gets to the point where it tears our nation apart. It is clear that nerves are getting more jangled every day and we ignore this at our peril.   . We will require your balance sheet and we will demand that you prove capital adequacy.” What we will require, however, is your profit and loss statement Get back to basics      , whose background is in investment promotion, chided Jamaicans for putting their hopes for upward mobility innumerable other financial wrongdoings and scams. I took one thing away from all my years of investigating the good, the bad and the downright criminal. That is, if the return on an investment is too good to be true, it is exactly that. It is not true. This is not a difficult principle to understand. But somehow             Credit:ivythesis.typepad.com

ALTERNATIVE INVESTMENT SCHEMES ARE NOT PENNYWISE AND POUND FOOLISH

ALTERNATIVE INVESTMENT SCHEMES Introduction The alternative investment schemes are popular because of the extremely high interest rates b...

ECONOMICS OF FINANCE AND INVESTMENT: ESSAY INSTRUCTIONS

ECONOMICS OF FINANCE AND INVESTMENT: ESSAY INSTRUCTIONS

ESSAY QUESTION: EXPLAIN THE PORTFOLIO FRAMEWORK FOR INVESTMENT DECISIONS IN THE CONTEXT OF GLOBAL FINANCIAL MARKETS. DISCUSS HOW INVESTORS...

ECONOMICS OF FINANCE AND INVESTMENT

Introduction Investment appraisal is a strategic decision-making process for determining how a firm’s management should allocate limited capital resources to long-term investment opportunities. Investment decisions will not be made in isolation from other business decisions and plans; the question of strategic fit arises. Accordingly, investment decisions should be made in the context of the firm’s strategic business plan, with the goal of maximizing the long-term market value of the firm and the realization of its strategic objectives. The investment decision-making process involves identifying, evaluating and implementing long-term investment opportunities which will enhance shareholder wealth and achieve the firm’s objective ( 1999).   The costs and benefits of these investment opportunities will be spread out over time. Because the outcome of long-term investment decisions, more so than any other type of business decision, will directly affect the firm’s future and its value, it is vitally important that investment proposals are properly evaluated before they are implemented. The essence of investment is to forego present consumption of resources in order to increase the total amount of resources which can be consumed in the future. The objective of an investment decision is to acquire an asset for less than its value, this way corporate or personal wealth can be increased. Acquiring an asset for at least its value will maintain wealth or value. It would not make good financial sense to acquire an asset for more than its value as wealth would be eroded (1999). From the corporate firm’s point of view the financial manager’s objective should be to invest in projects which add to corporate and shareholder value. The problem is that at the outset it is often difficult to determine which assets or projects will be wealth enhancing and which will be wealth reducing. All the more reason people should employ good appraisal techniques and procedures to help us make the right choice. For a wealth-maximizing business enterprise, the most common form of investment is in real corporate assets. Such assets are clearly very important since, for most firms, they represent the largest financial investment and are the key earning assets of the firm. In business, investment decisions are made for many reasons, but although the motives may differ, the techniques used to evaluate them are essentially the same (1999).     Typically investment proposals may be motivated by one or more of the following:  First motivation is Competitiveness. New investment may be required to improve the firm’s competitive position and gain competitive advantage. Second motivation is Expansion and growth. New/additional facilities or operating capacity may be needed to meet increases in activity and sales.  Third motivation is Replacement. Due to advances in technology and operating methods old equipment and buildings may need to be replaced.  Fourth motivation is Renewal. Rebuilding, overhauling or refitting existing buildings and equipment may be necessary to improve operating efficiency, to comply with legislative requirements and/or to improve quality standards. Fifth motivation is Acquisitions and mergers. A firm may seek opportunities to grow by acquiring another suitable company.  The last motivation is Foreign direct investment (FDI). There may be opportunities to grow by building a factory or acquiring a company in a foreign country ( 1999).  The paper will discuss about portfolio framework for investment decisions in the context of global financial markets. The paper will also discuss about how investors can use historical data on international stock market returns.   Global financial markets Within the neo-classical paradigm, capital flows where its marginal product is higher. As a result, the allocation of capital is more efficient and global welfare is higher when capital flows freely across national borders. As trans-border capital flows increase, economies are progressively integrating globally. The financial structures of economies as well as the world of finance are changing. This applies to both domestic and global financial markets. A quarter century ago, a businesswoman was restricted to borrowing from her domestic market. However, if she operates in an emerging market economy, several options are presently open to her. For instance, she can choose between issuing stocks and bonds in the domestic or foreign financial markets ( 2004).    She can reduce her cost of capital if foreign currency loans are available at more attractive terms than the domestic loans, and these loans can be hedged by using a variety of financial products. She can also consider selling equity at foreign Bourses, which are far more liquid than the domestic ones. A functional definition of financial globalization is the integration of the domestic financial system of an economy with the global financial markets and institutions. The enabling framework of financial globalization essentially includes liberalization and deregulation of the domestic financial sector as well as liberalization of the capital account. In a globalized financial environment domestic lenders and borrowers participate in the global markets, and utilize global financial intermediaries for borrowing and lending. Trans-border capital flows tend to integrate the domestic and global financial markets and systems ( 2004).   Although the global financial markets remained in a state of flux throughout the twentieth century, transformations since the early 1970s have been nothing short of dramatic. The Global forces for change included advances in information communication technology (ICT), making remote access to trading systems ubiquitous. Also, innovations in ICT and the development of new instruments in the financial market became self reinforcing. Furthermore, financial deregulation and liberalization at the national level, opening up to international competition, and globalization of financial and real markets, were significant change agents ( 2004).    Additionally, changes in corporate behavior, such as growing disintermediation and increased shareholder pressure for financial performance, were the prime movers behind the transformation in the financial services sector in the emerging market economies. Advancing globalization during the 1980s and the 1990s increased trans-border capital flows and tightened the links between financial markets in the emerging markets and global financial centers. Growth of global financial markets was further accelerated by improvements in the fundamentals, particularly by more rapid economic growth in the emerging market and matured industrial economies. It was also assisted by economic and structural reforms in the emerging market and transition economies. Lastly, the recent spate of banking and financial crises has accentuated the pressures for transformation. Notwithstanding the recent decline in capital flows, the evidence of the preceding quarter-century suggests that financial markets in the emerging market economies have become increasingly deep and resilient ( 2004). The state of global financial markets changes as different things happen in the environment.  The global financial markets are affected by different situations such as increase or decrease of the interest rates. It is also affected by improvements in the society, such as new trends in different industries.   Stock market returns Nominal returns are unadjusted for inflation. Real returns are corrected for inflation and are thus a more accurate reflection of the growth in an investor’s purchasing power. Because the goal of investing is to accumulate real wealth an enhanced ability to pay for goods and services the ultimate focus of the long-term investor must be on real, not nominal, returns. In the stock market’s early years, there was little difference between nominal returns and real returns. In the first period, from 1802 to 1870, inflation appears to have been 0.1 percent annually, so the real return was only one-tenth of a percentage point lower than the nominal stock market return of 7.1 percent. Inflation remained at an extremely low level through most of the nineteenth century. In the stock market’s second major period, 1871 to 1925, returns were almost identical to those in the first period, although the rate of inflation accelerated sharply in the later years ( 1999). Nominal stock market returns compounded at an annual rate of 7.2 percent, while the real rate of return was 6.6 percent. The difference was accounted for by annual inflation averaging 0.6 percent. In the modern era, the rate of inflation has accelerated dramatically, averaging 3.1 percent annually, and the gap between real and nominal returns has widened accordingly. Since 1926, the stock market has provided a nominal annual return of 10.6 percent and an inflation-adjusted return of 7.2 percent ( 1999).   Since the Second World War, inflation has been especially high. From 1966 to 1981, for example, inflation surged to an annual rate of 7.0 percent. Nominal stock market returns of 6.6 percent annually were in fact negative real returns of -0.4 percent. More recently, inflation has subsided. From 1982 to 1997, during substantially all of the long-running bull market, real returns averaged 12.8 percent, approaching the highest return for any period of comparable length in U.S. history. The high rate of inflation in the modern era is in large part the result of nations switch from a gold-based monetary system to a paper-based system. Under the gold standard, each dollar in circulation was convertible into a fixed amount of gold. Under the modern paper-based system, in which the dollar is backed by nothing more than the public’s collective confidence in its value, there are far fewer constraints on the U.S. government’s ability to create new dollars. On occasion, rapid growth in the money supply has unleashed bouts of rapid price inflation. The effect on real long-term stock returns has nonetheless proved neutral. Even as nominal returns have risen in line with inflation, the rate of real return has remained steady at about 7.0 percent, much as it did through the nineteenth century ( 1999).    Different variables determine stock market returns over the long term this includes the dividend yield at the time of initial investment; the subsequent rate of growth in earnings; and the change in the price earnings ratio during the period of investment.  The total of these three components explains nearly all of the stock market’s returns over extended holding periods. By analyzing the contribution to total return of the three factors, reasoned consideration of future returns can take place. The initial dividend yield is a known quantity. The rate of earnings growth has usually been relatively predictable within fairly narrow parameters. And the change in the price earnings ratio has proven highly speculative. Total return is simply the sum of these three factors. For example, an initial dividend yield of 3 percent plus a forecasted earnings growth of 7 percent annually over the next 10 years would bring the return to 10 percent. A change in the price earnings ratio from 15 times at the beginning of the period to a forecasted 18 times at the end would add 2 percentage points to that total, bringing the return on stocks to 12 percent ( 1999). Portfolio Framework for investment decisions In investment decisions in the context of global financial markets; a portfolio Framework serves different kinds of purpose. The portfolio framework helps in determining what should be considered before making any investment decisions. The next figure will show the portfolio framework. The portfolio framework describes that when investment opportunities come, decisions should not be hastily made. Different considerations have to be analyzed.  One consideration is the profitability of the investment. When one wants to engage in an investment, there should be assurance that the investment will be profitable so that investment will not be put into waste. Another consideration is the change in financial climate. The financial sector might be doing well in one instance but some other time it may be having some difficulties. Investing during a time of financial problems can cause a company or any individual lost opportunity. Lastly a consideration should be the longevity of the investment. Using Historical Data on international stock market returns Investors can make use of historical data on international stock market returns as a means to predict the outcome of the stock market return. Through the historical data the different trends in the stock market can be observed and then the possible outcome can be predicted. The historical data on international stock market can also help in observing what causes the changes in the stock market and how often the said changes happen. The historical data on international stock market can help in analyzing specific information on the data such as the causes of the changes and the frequency of increase or decrease or stock market returns. Moreover the historical data on international stock market helps in determining the level of decrease or increase of the stock market returns.   Conclusion In business, investment decisions are made for many reasons, but although the motives may differ, the techniques used to evaluate them are essentially the same. Growth of global financial markets was further accelerated by improvements in the fundamentals, particularly by more rapid economic growth in the emerging market and matured industrial economies. It was also assisted by economic and structural reforms in the emerging market and transition economies. The portfolio framework has described that when investment opportunities come, decisions should not be hastily made. Different considerations have to be analyzed. References Credit:ivythesis.typepad.com

ECONOMICS OF FINANCE AND INVESTMENT

Introduction Investment appraisal is a strategic decision-making process for determining how a firm’s management should allocate limited...

USING HISTORICAL EXAMPLES PRESENT AND EVALUATE THE MAIN THEORIES WHICH EXPLAIN THE DECISION TO EMBARK ON A MULTINATIONAL INVESTMENT

Introduction             According to (2005), entrepreneurs and managers face a range of costs and challenges when they expand internationally particularly due to liability of foreignness (p. 15).  However, especially in the case of banana growers in the US, integration is necessary to resolve concerns regarding quality (1970).  Cross-border connection is crucial.  In the US, banks that are under the Edge Act in 1970s are induced to support US exports by providing the platform for ease of borrowing and to lure foreign deposits to support the former (1974 p. 50).  Under this circumstances and historical account, the interest of studying multinational corporations (MNCs) and the cause of their existence are stimulated.  How MNCs weigh benefits and costs of an international engagement?                       In our analysis of MNCs, six theories will be used that can relate MNCs international growth to specific motivations.  Industrial organization (IO) approach assumes that there is an opportunity to create monopolistic dominance through multinational investments (1970); international product life cycle (IPLC) on minimization in costs of factors of production (1966, 1979); behavioral (BEH) on avoiding high-levels of retaliation from market leaders and competitors (1973 & 1976); internationalization (INT) on minimization of transaction costs (1981 & 1985: also 1937) and the ability to choose between hierarchy or market strategies (1986); resource-based (RB) on creating competitive advantages (1991 1959 & 1993); and network theory (NT) on the incentive to prevent tedious and costly understanding of firm behavior and performance (1992; 2000).   The Case of News Corporation              In a case study entitled, “News Corporation (NC): Entering the US Pay Television Industry” (cited in 2004), cross-border diversification of NC is eminent (see attach 1 and 2).  Through its history, this international media company had exemplified acquisition strategies to be able to grow.  But the case does not explicitly provided rationale behind its multinational investments.  In a chronological thinking, NC bought newspapers in London, Britain and US to gain initial entry to the industry (pp. C101-C102).  In a hasty analysis, RB theory seemingly drove NC because it has the financial as well as business resources to create synergy with then financially-troubled but established and known local firms.  NC money complemented local embeddedness giving rise to investment outflow outside the home country of Australia (p. C101).  On the second thought, what really infused investment motivation was explained by NT.  If the drive is merely resource / competency-based, NC would have created synergies with other Australian firms which may prove to be more culturally feasible and manageable.  Homogeneity in assets can also give way for economies of scale to apply that will make cross-border operations less costly.               Comparatively, the home and host prospective partners have converging cost advantages with reference to RB view.  However, NT suggests that no strategic networks would ensue in multinational investments rather the incentive of NC to acquire embeddedness in the host country.  Without emphasis on NT, NC cannot have rights (specifically, competitive rights) to operate in host markets.  This is because host firms have already developed social (to customers), professional (to forward and backward suppliers) and economic (to employees, managers and government) ties through time.  This excludes their knowledge on how to handle deviations/ conflicts arising on the course of such relationships.  Even if a foreign firm will enter the market internally strong, its external environment may not allow it to apply its strengths without their operations/ strategies becoming acceptable to host stakeholders.  Since NC was then held only newspaper business as well as its host targets (pp. C101-C102), the inability to imply that the content of their paper is adjusted from Australian point of view suggests dissolution of the future in the host market.                 Such argues that RB cannot support NC rationale on such host firm acquisitions.  This argument is intensified by the fact that even some are loosing in business, NC saw such as a business rather financial opportunity to resolve NT issues.  It may not need financial, organizational, physical or technological resources instead minimum level of reputation-based resources from brand name of the host firms.  On that respect, the matching process of NC and host firm resources is less significant.  Instead, initial entry and operational stability in the early years of host operations are necessary that makes NT the determinant of NC strategy.  The question in the minds of NC’s managers is “how to get into the game?” not on “how to win the game?”  If any, RB is dealt in the later stages of host operations in which resource matching and discovery of competitive advantage (like synergy or market power) are done for long- rather short- and immediate-term existence.               In addition, with regards to the main issues of NC multinational investments to US pay television industry, IO confirms that the firm wanted to acquire Digital TV to serve as the platform for possible monopolistic dominance.  Digital TV and Echo Star are under duopoly competition in the direct broadcasting satellite (DBS) systems in the US since 1981 (C104).  When NC would be able to combine its completely vertically integrated satellite (C102) and other related business, its industry presence alongside Digital TV can easily defeat the competitiveness of Echo Star.  Through its history, Digital TV continuously outperforms Echo Star through acquisition of small and loosing industry players (C105) implying that NC integration could ultimately lead to bold leadership in the duopoly market structure.                    Again, it is easy to think that RB approach can have its significance as the acquisition due to considerable synergies of the two companies’ assets.  However, the end result for a combined firm goes out from a typical competitive advantage rather features of monopolistic dominance.  There is likely market power, costs savings and lesser affiliation fees from the US law benefit of “One license, two stations and one market” (C 106).  Citing IO as explanation of NC motivation is supported by the fact that NC’s President aimed his company to be the worlds biggest media firm (C101).  As NC, before the intended acquisition, has already established newspaper, book publishing, radio, film and cable in the US which provided an impression that Digital TV is the bridge to achieve the aim.               BEH approach has also have augmented reasoning why NC prefers to expand internationally.  The firm preferred to face minimal competition that de-focuses its multinational investments from a broad line of media products and broad geographical markets.  In the case of Digital TV, NC may enter US market using its own satellite facilities and expertise in Australian, Asian and European subsidiaries.  However, the reasoning of BEH suggested that it should acquire or merge with Digital TV to avoid intense competition that can result to significant losses in US infrastructure investments.  In the contrary, BEH assumption that in the end of the investment, the firm would pursue follow-the-leader strategies does not hold.  Rather, there is a likely possibility that its merger with Digital TV will result to Echo Star going out of business.  Hence, a more suitable monopoly motivation and thus IO approach.                                                     NT also has some validity.  Technological innovation is embedded in the US pay television industry which can undermine other foreign technologies to the detriment of NC competitiveness.  Backward and forward suppliers are embedded within the American culture which can be problematic to NC managers and employees.  Legal environment can also be hostile to foreign investors as the benefits are embedded to local cable providers.  Lastly, the branding of the duopoly players also has bearing in customer’s preference of service provider.  On the other hand, these motivations are all inserted in IO model with more significant roles in the success of NC.  NT is merely complement to OI model wherein the latter provides the level of importance for each embedded features of the US duopoly industry.  With simply NT as reference model, Echo Star (the duopoly underdog) would have been the target.            The Case of Perdue Farms             Established in 1920, the US-based firm is known for geographical expansion as theme of success (2001 C416).  However, multinational investments came later in 1990s to Asian and European countries including Russia (C422).  The initial market entry in China by selling chicken feet can be explained by IPLC approach.  Since US do not approve chicken feet for human consumption, the increasing harvest on poultry and subsequently the production wastes from the feet was resolved by market expansion.  The maturity stage of poultry products suggested that if the company would not able to find a market, it would not efficiently sells its products due to too much waste.  Chinese people treat the “paws” as delicacy (C422) making it viable to sell chicken feet there.  IPLC assumes that best factor endowments are not equally or universally distributed providing the bearing for the firm to export the restricted product parts outside the home country.               On the contrary, IPLC is blemished on its rationale of Perdue’s strategy.  First, the search for the best factor endowments may not be the firm’s motivation because the Chinese poultry market is not particular in branding.  It is contradictory in the US operations.  With this respect, RB is automatically discarded as the firm actually lost competitive advantage from its trademark, processes, technology and biological know-how (C423).  Poultry industry is seen as commodity industry in China.  Going back on IPLC, Chinese ports and delivery trucks are designed inefficiently that makes the products short-lived leading to limited Chinese geographical distribution.  Although the products in US operations are in mature stage, supporting productive factors are lacking in the host country except for the “paw” market.               Due to this, INT approach can have its foothold as key features of the theory are relevant.  Opportunism and profit maximization are present in Perdue’s move because even though chicken feet are prohibited in the US, the company “dumped” them into other countries.  To maximize their gains, the firm “blinded” itself to the fact that Chinese consumers can develop adverse health effects upon consumption.  Corporate managers are learned and informed about this fact.  However, as it created impersonal relationships (through exportation) in which face-to-face communication and long-term link with Chinese stakeholders are prevented, self-interest and opportunism is supported to meet its profit maximizing goal.  Chinese market is an inefficient system to know the adverse effects of such consumption which ultimately provided hierarchical organization of Perdue a perfect substitute to minimize transaction costs.  INT best described firm-market strengths/ weaknesses and their consequences that distinguished its contribution from factor-based IPLC.    Also, INT put importance to Chinese market conditions of environmental uncertainty, asset specificity exchange relations and frequency of transactions which.  The host government is under communism rule and anytime there could be policy that can derail all Perdue’s exports from international conflicts or protection of local producers.  It hedges this downside through naming Chinese exportation as small part of its business.  This makes the uncertainty less risky for the entire operations especially the major production in the US.  In this volatile environment, profits will continue to pour as there is currently high frequency of transactions while US poultry harvest has numerous production excess of chicken feet.  The Chinese market wants it and demands it creating asset specificity as the bond that build up trade relations.  These conditions are perfectly suitable for Perdue and tell significant rationale on this multinational investment.   INT can also explain Perdue’s de-motivated stance in pouring large amount of capital in Russia.  The country’s economy is crumbling coupled by rampant corruption.  Exportation is seen as the hedging mechanism to prevent excessive risks arising from this unacceptable environmental uncertainty.  Even if conditions of asset specificity and frequency of transactions are present, the firm chose hierarchical-orientation and stability.  Using IPLC, efficient factors of production would be an unlikely hedging mechanism to surpass possible not only financial but more importantly business losses.  It cannot explain why Perdue engaged in indirect multinational investments through exportation.  Rather, INT explains the benefits of such strategy as it is flexible and profitable (although in relatively minimal amounts).               The comparative advantage of Chinese market compared to Russia is also eminent when Perdue decided to create joint partnership with a Shanghai-based company (C423).  This ultimately suggested the higher motivation of Perdue to engage in Chinese investments.  INT offers justification.  The Chinese market has higher “opportunistic” features than Russian market in which the firm can gain more profit.  Hence, the engagement can satisfy more self-vested interest with minimal environmental risks.  The alliance can be explained by NT in reference to Perdue’s admonition that it did not attempt to go alone in the Chinese operations as the cultural differences is too risky for them (C423).  Without such alliance, Russian and Chinese markets may experience convergence on their market risk and uncertainty levels.               The Case of Nike             Since its inception in 1963, Nike is already outsourcing production to sub-contractors in Asia (2001 C367).  The strategy is proved to be efficient particularly in labor costs in which the home country in US cannot provide.  The most common contractors are found in South East Asia operated by Taiwanese and South Korean firms (C368).  The manner how Nike located its production facilities can be analyzed using IPLC approach.  Since athletic shoes have short product life spans (C367), what the home operations can efficiently provide is its design and research expertise.  On the other hand, host operations can augment the inappropriateness of investing in highly mechanized machines.  They serve as the house and pooling mechanism for laborers.  As a result, Nike did not only have product life cycle compatibility but also cost efficiencies.               The IPLC model is followed by Nike operations.  In the introductory phase, the home market designs and approves the market feasibility of the products (C367).  As demand grows and matures in both actual and forecasted figures, the mass production of the models is delegated to the host operations (C367).  The two operations are distinguished by the stages in the product life cycle in which they play both significant roles.  In addition, the assumption of IPLC holds in which knowledge as well as best factor endowments are not equally and universally distributed.  The home operations are the best source of innovation and design trend while the host operations on labor and standardization practices.  The host operations even provided other endowments like access to raw materials and lower tariffs.  Due to this features, RB approach can contribute in the analysis as Nike had created competitive advantages and efficiencies in the value chain not strictly due to product life cycle but more on comparative advantages of Asian natural resources and economic policies.                IPLC also explains the reason behind Nike’s move to retain 100% stake in subsidiaries in hockey equipment, dress and casual shoes and licensed team products (C367).  Compared to production of shoes, these specific business areas are catered to specific markets that may have high bargaining power due to future contracts attached to Nike as well as complexity/ machine-based manufacturing involved.  These factors make the short product life cycle of shoe design into shorter, personalized and dynamic trends and needs customers may using these products may demand.  The production of hockey equipments and licensed team products are intended for specific markets while dress and casual shoes are easily replaced by fashion changes in developed countries.  The home operations can effectively handle these areas as sub-contracting to Asian shoe makers would result to sub-standard quality, expensive employee training or inefficient machine acquisition to complement the manpower of host operations.               On the other hand, IO has some symptoms in the strategy of Nike particularly in the aspect of labor.  The firm directly employed 20,000 while around 500,000 are indirect employees in 565 contract factories in 46 countries around the world (C367).  In 1990, Indonesian employees are paid at around / day compared to US / hour (C367).  Despite the huge difference, such dollar amount is viewed competitive compensation in the country.  Further, an operation of one factory in Vietnam accounted 9,465 factory workers within a pool of 10,000 total employees.  The entry-level wages averaged at a mere .50/ day which is one of the lowest of Nike international factories (C369).  However, such amount is considered above industry by the locals that resulted for Nike to enjoy the 18-24 bracket of new employees comprised mostly of women (C368).               With this, monopolistic advantage on labor is eminent.  Although several campaigns against Nike labor practices are enormously criticized by their home country stakeholders, the high wage benefits in the eyes of local people is maintaining their production efficiency in the host countries.  However, Nike has yet to dominate the shoe industry in host countries to create monopoly over them due to the intervention of global shoemakers as well as embeddedness of local shoe products.  More importantly, efficiency in factor of production (labor) and other local factor endowments serve as motivation why Nike continues to produce its shoes in the host countries.  IPLC resolves these issues while preventing to imply that Nike is a monopoly in the host country.                Conclusion             The decision to embark in multinational investments is proved to be satisfied by major motivational theories.  Our discussion shows that some of them are partial explanatory models and there is a need for critical thinking, theoretical knowledge and case evidence to be able to come up with a more consistent model that best describes corporate motivation.  As observed, both RB and NT theory play considerable roles in influencing multinational companies’ decision to geographically expand operations.  This can be the reason behind long-run profit-maximizing goal of the firm as well as adaptive requirements of host countries.  Generally, these two decision factors are at the fore in determining strengths and opportunities as well as the weaknesses and threats of a cross border investment.  It is also confirmed that the cross-border movement of foreign direct investments (FDIs) is not a self-evident strategy in viewing the existence of multinational corporations (MNCs) (1996 p. 6).  In the case of Perdue, they are exporting but international growth under specific motivations still hold.  In the contrary, the decision to become a true MNC (in which wealth-creating assets is owned and operating internationally) makes motivational theories more complex to an organization as in the case of NC and Nike.  This is so as costs and challenges intensify as the primary responsibility is to integrate the parent company’s activities within the region (2003).                           Appendix Attach 1: Regional Business Portfolio of News Corporation Business Region Film Australia/ United States Movie Studios Australia Satellite Pay Television Australia/ Asia/ Europe Sport Australia Newspapers Australia/ United States/ Europe Magazines Australia/ United States/ Europe Television United States/ Asia Cable Programming United States/ Asia/ Europe Book publishing United States Radio United States     Attach 2: Some Diversification History of News Corporation Year Acquired Firm Status Before Acquisition Location % Stake 1968 News of the World - London 49 1969 The Sun Under financial crisis Great Britain 100 1974 Texas Newspapers and San Antonio Express - United States 100 1976 The Star and New York Post - United States 100 1981 The Times and Sunday Times - United States 100 1985 Twentieth Century Fox Severe looses United States 50 1990s Star TV - Asia 100 1990s Sky Perfect TV - Japan 100 1990s Sky Multi-Country - Latin America 30 1990s Foxtel - Australia 25 1990s Stream Spa - Europe 50 1990s Premiere World - Germany 24 On-going Telepiu - Italy - On-going DirectTV - US/ North American Scope - Note in attach 2: The italicized firms-names are in the newspaper industry, the regular case-names are in the pay television industry and the bold is in the satellite pay television.    Bibliography       Credit:ivythesis.typepad.com

USING HISTORICAL EXAMPLES PRESENT AND EVALUATE THE MAIN THEORIES WHICH EXPLAIN THE DECISION TO EMBARK ON A MULTINATIONAL INVESTMENT

Introduction According to (2005), entrepreneurs and managers face a range of costs and challenges when they expand internati...