International business

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International business

  1. 1. International Business
  2. 2. IntroductionsInternational business refers to all the commercial transactions that take place between two or morecountries, nations, and regions beyond their political boundaries. It can be noted that there are severalparties involved in international business with different objectives. Private organizations involved ininternational business with the profit motive and some organizations helps to international trading byproviding help and support to the governments and private organizations.Multi National Companies/Enterprises (MNC)Multinational company (MNC) or Multinational enterprise (MNE) is an organization that managesproduction or rendering in several countries. According to the definition of “International labororganization”, Multinational Company is an organization whose headquarters is located in one countrywhich is known as home country and performs is operational activities in different countries all around theworld which are called host countries”.The Coca-Cola CompanyFounded by Asa Candler in 1892 the Coca-Cola Company’s headquarters is situated in Georgia, UnitedStates. Subsequently taken over by Asa Candler in 1889, The Company’s main product was discoveredby Pharmacist John smith Permberton in 1886. The company is involved in manufacturing, retailing andmarketing of non alcoholic beverages and syrups. “Coca-Cola” remains as the company’s flagshipproduct since its inception which contributes to approximately 78% of the revenue of the company.Currently the company is listed in New York Stock Exchange (NYSE). Apart from its flagship brand thecompany involved in manufacturing of around 500 brands in the form of 3500 products covering over 200countries across the world. Most of these other brands also remains in the leading positions among theworld’s most valuable brands.The products of the company can be categorized as follows,  Soft drinks Coca-Cola, Diet Coke, Coca-cola Zero, Fanta, and sprite  Juices/Juice drinks Minute Maid, Bright & Early, Fuze, Simply apple, simply grapefruit etc  Energy drinks Gladiator, Burn  Sports drinks Powerade, Power Zero  Water Ciel, Dasani, Smart Water and Bonaqua  Teas Honest tea, Sokenbicha and Marocha  Coffee Georgia coffee which is the best selling soft drink in JapanInternational Business –Business Imperative Page 2
  3. 3. According to the information released by the company, at the inception in 1886 the company sold 9 drinksper day and in 2011 it has reached1.7 Billion drinks daily. The company holds 42% market share in UScarbonated soft drinks market while the main competitor, PepsiCo holds 29%. In 2010 coca-cola hasbecome the first brand to reach 1 billion pounds of annual grocery sales in UK. As per the informationreleased by the company the sales of the company has distributed across the world in the followingmanner. Region Sales % Latin America 27% North America 24% Europe 17% Pacific 17% Asia and Africa 15%According to the survey conducted by Interbrands, the company’s flagship brand “Coca-Cola” remains inthe first place having a value of $ 71,861 Million.Therefore it is clear that Coca- cola is benefitted through the international businesses. The Companystarted expansion of its operations to outside US in 1906 with the expansion of its operation in to Canada,Cuba, panama and France. From 1906 to up to date Coca Cola is expanding its global operations day byday by expanding its products in to more countries and regions. The Coca Cola Company started buildingits global network in 1920s after identifying the potential market outside its home country, United States.With the global approach of the company employed more than 100,000 employees all around the world.As a part of its international operations, the company took steps to initiate “Haiti Hope” project to developHaiti after the devastating earthquake.International Business –Business Imperative Page 3
  4. 4. International Finance CorporationInternational Finance Corporation (IFC) is a one of the four development institutions of World Bank and isowned by more than 179 countries whose share holders of the IFC. In 1950 with the inception of WorldBank it was proposed to initiate an organization to encourage private sector investment in the WorldBanks borrowing countries. With such proposal the United State government proposed to establish "anInternational Finance Corporation" as an affiliation organization to world Bank. It would finance privateenterprises in developing countries but:  Taking no government guarantees  Always work with other private investors  Never manage its investees/BorrowersIncorporation of IFC had major impact on the international business arena where organizations/countriescan do their business with less risk.The vision of the IFC is,“People should have the opportunity to escape poverty and improve their lives”The purpose of the IFC is to create opportunity for people to escape poverty and their lives by,  Promoting open and competitive markets in developing countries  Providing support to companies and other private sector organizations  Helping to create productive jobs and provide essential services to the communities whose needs were not fulfilled.  Creating and making available other sources of finance for private enterprises to develop those enterprises.IFC mainly provide following services,  Investment services IFC investment services offer vast range of financial products to worthy enterprises and encourage entrepreneurship. Under this service IFC provides following financial products to private investors, Loans IFC provides fixed and variable rate loans for its own account to private sector projects around the world. Such loans are called “A loans”. These loans have a maturity period of 7to 12 years if warranted by the project, IFC will grant long term loans which have tenure of 20 years. Since IFC is a profit oriented organization it pays major attention in to the profitability of the projects and market interest rates are charged for the financing facilities. Syndication loans Through Syndication loans, commercial and other financial institutions are offered to invest in projects where IFC will also invest where otherwise such banks and investors will not consider otherwise.International Business –Business Imperative Page 4
  5. 5. Equity Finance IFC invests in equity capital of private commercial banks and other investment companies. IFC makes equity investments in long term basis for a period of 8 to 15 years. Quasi-Equity Finance IFC also invests in capital which are having both equity and debt characteristics. Equity and Debt Funds IFC promotes private equity funds and debt funds in foreign markets where there are emerging equity and debt market in developing countries by helping to establish equity and debt funds. Structured Finance IFC provides structured financing facilities such as partial credit guarantees, Risk sharing facilities and securitization facilities to its member countries. Intermediary services IFC extends its investments in financial intermediaries such as private equity and investment funds, leasing companies etc. Risk management Products IFC enters in to derivative products with private organizations to mitigate their financial risks such as interest rate risk and foreign exchange rate risk. Local currency financing IFC provides local currency finance to private organizations in order to mitigate foreign exchange risk. Trade Finance facilities Global Trade Finance Program is a program initiated by IFC to facilitate to commercial bank operates across the globe to mitigate risks associated with trade related transactions.  IFC Advisory services To help private sector IFC provides advisory, problem solving and training programs to companies, industries and governments. In order to achieve its objective IFC provides advisory services in following areas, Access to Finance Investment Climate Sustainable Business Public Private partnershipsInternational Business –Business Imperative Page 5
  6. 6. Multilateral Investment Guarantee AgencyMultilateral Investment Guarantee Agency (MIGA) is one of the members of World Bank Group whosemission is to “promote foreign direct investment (FDI) into the developing countries in order to help andsupport economic growth, reduce poverty, and improve peoples lives”.The agency was established in 1988 with the intention of insure public and private sector investmentsfrom non commercial risks in developing countries. Backed by World Bank and developed and developingcountries helped to increase image of the agency in its operations in all around world. Members of MIGAinclude 175 countries and the initial investment was amounted to US $ 1 Billion.The main activity of MIGA is to helping developing countries by issuing guarantees for non commercialrisks faced by cross border investments. The Agency protect investors and lenders against risks such as,  Risks associated with inconvertibility of currencies and restrictions on transfer of currencies In situation where investors incur losses due to the inability convert local currencies to hard currencies or hard currencies to local currencies MIGA pays compensation In hard currency to the investor or lender.  War, Terrorism and civil unrest Losses incurred by the investors due to the destruction, damage or disappearance of physical assets of the investment or due to the interruption of the total business by war, terrorism and civil disturbance. Temporary business interruption also considered in certain circumstances.  Expropriation Losses incurred by investors due to the government interventions that will result in deterioration or loss of ownership of the insured investment will be covered by MIGA. In the case of block of funds MIGA will pay the amount of funds blocked by the respective government and in the case of equity shares compensations will be paid based on the value of the share computed on net assets basis.  Violation of contract by the governments MIGA protects the investors from losses which they incurred due to the violation of contracts by the government. It should be noted that in some situations MIGA will cover the contractual obligations of government stipulated in the agreement.  Non Honoring sovereign financial obligations MIGA will protect investors from the losses they incurred due to the non honoring of sovereign financial obligation due under irrevocable financial payments such as sovereign bonds etc by respective governments. Compensation is based on the unpaid capital and interest amount.International Business –Business Imperative Page 6
  7. 7. MIGA covers,  Foreign Direct Investments  Acquisitions of public entities  New investments in to enhancement of capacity, introduction of new technology or restructuring of existing projects  Investments which are having high development potential and with the investors whose willing to exercise its long term commitment to such project.Since its inception MIGA has provided more that US $ 24 Billion for insurance for over 600 projects inmore than 100 countries. Its current guarantee portfolio is amounted to over US $ 9 Billion.MIGA guarantee will not provide only a assurance but will benefitted investors and lenders by,  Preventing harmful actions Being a member of the World Bank Group and its relationship with shareholder governments will help to provide additional leverage in protecting investments against non financial risks.  Resolving Disputes When a dispute arises MIGA will intervene to resolve the dispute before it reach to claim status.  Accessing Funds Investors are able to obtain project finance from banks and other financial institutions at lower rates due to the recognition the project received from the guarantee provided by MIGA.  Lowering Borrowing cost MIGA Guarantee will help investors to obtain funds at low cost due to the low project risk.  Increasing Tenors MIGA is able to provide insurance coverage up to 15 year which will helps investors to obtain more tenor when obtaining project financing.  Providing environmental and social expertise MIGA is capable of providing investors and lenders with world’s best social and environmental policies and practices.International Business –Business Imperative Page 7
  8. 8. Oil and petroleum Mining CompanyAmong other multinational companies, Oil and petroleum companies act a main role in international arenasince the impact to the global economy by the petroleum companies are very high.British Petroleum CorporationBritish petroleum Corporation PLC (BP), whose shares are listed in both London Stock Exchange andNew York Stock Exchange, is global oil and gas giant operates in more than 80 countries across theglobe and headquarters is situated in London, United Kingdom.Compared by the revenue, BP is the third largest energy company and fourth largest company in theworld. Among the six oil and gas sumpermajors, BP is also listed as one company out of six.BP carry out its operations in more than 80 countries across the globe producing approximately 3.8 Mnoil equivalents per day and operating more than 22,000service stations across the globe.Inception of the BP is rooted to 1909 with the inception of Anglo –Persian Oil Company to explore the oilin Iran and in 1954 it becomes British Petroleum and currently listed in two stock exchanges. Theoperations of the company is falls in to the following categories,  Exploration and production of oil and gas The main task of this division is to discover, production and transport of oil and gas to the markets where BP is carry out its operations. This division operates more than 30 countries employs more than 20,000 employees.  Refining and marketing of oil and gas The main task of this unit is to supply, trading, refining, marketing and transportation of oil, gas and petroleum products.  Air BP This unit focused on providing of aviation fuel to the air lines and providing other lubricants and services required by air line services. This division operates in more than 50 countries across the world.  BP shipping This division provides the logistic service to transport BP products to the markets across the globe. This division manages large fleet of vessels which can transport Crude oil, Liquid natural Gas and liquid petroleum gas. The main brands of BP are,  ARCOInternational Business –Business Imperative Page 8
  9. 9. BP uses this brand as its retail brand as United States west coast in seven states (Viz, California, Oregon, Washington, Nevada, Idaho, Arizona, and Utah).  ARAL As part of its global approach “ARAL” operates in Germany and Luxemburg as petrol retail chain.  Castrol “Castrol” is the brand that BP uses to promote industrial and automotive lubricants across the globe.  Ampm This is a convenient store chain attached to “ARCO” gas stations situated in US west coast and in several countries such as Japan. This provides customers with beverages, readymade sandwiches and other fast foods.With series of mergers and acquisitions BP is now operating all around the world employing around79,700 employees.Amid the recent deepwater horizon oil spill in gulf of Mexico, BP still remains as one of the biggest oil andpetroleum company due to the strengths it has such as wide spread of its operation across the globe.However BP had to face criticisms from around the world and US governments named BP as theresponsible party. Subsequently BP compelled to establish a $ 20 Billion fund in this regard and such willnot be capped or floored on BP liabilities.In addition to its oil and gas operations BP operates solar power company called “BP solar” whichencourages renewable energy consumption. It had 20% market share in “photovoltaic” panels.International Business –Business Imperative Page 9
  10. 10. References  International Finance Corporation 2011, International Finance Corporation, Washington, viewed in 09 December 2011,< www.ifc.org>  Multilateral Investment Guarantee Agency 2011, Multilateral Investment Guarantee Agency, Washington, viewed on 09 December 2011 < www.miga.org>  World bank 2011, World Bank, Washington, viewed in 08 December 2011, <www.worldbank.org>  British petroleum PLC 2011, British petroleum PLC, London viewed in 09 December 2011, <www.bp.com>  The Coca-cola Company 2011, The Coca-cola Company, Atlanta ,viewed in 09 December 2011, <www.coca-cola.com>  The Coca-cola Company 2011, The Coca-cola Company, Atlanta ,viewed in 09 December 2011,<http://www.thecoca-colacompany.com>International Business –Business Imperative Page 10

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