Question

What additional factors must be considered when evaluating international investment opportunities when compared to domestic ones? In what ways is appraisal of investments with an international element more difficult for the financial manager to deal with than domestic investments with no international implications? How is such an appraisal complicated by it being a joint venture or one in which there is a minority interest? (600 WORDS)

Answer 1

1. People

The most important consideration when evaluating a location for a business is the people. Without the right people to execute the tasks that drive success, most companies will fail. Not only is it crucial to find readily available skilled labor at the right level for the job and with the necessary language skills, but it may also be crucial to be able to recruit employees from HQ or other offices to move to this new country.

2. Costs

The cost of operating in a foreign country touches on many aspects, not only the direct cost of space and personnel, but also indirect costs that affect the bottom line and level of productivity. Factors to consider include: the level of taxation for both corporations and individuals, government incentives, employer overhead in the form of social costs, local labor laws regulating the number of hours that employees work and the general motivation, reliability and commitment of the local workforce.

3. Innovation

In today’s fast moving market, a country needs to provide the institutions, human capital, infrastructure, partnership opportunities, market sophistication and business aptitude to help an enterprise succeed. These conditions can affect a business even if the operation is only for the local market. It is also important to build off of an existing ecosystem of innovation whenever possible.

4. Government regulations

Onerous labor laws can prove to be a prohibitive burden even for small operations. Companies are used to having flexibility and freedom to make decisions to react to the market, such as personnel adjustments, especially in the early stages of starting in a new location. Businesses will want to make sure they are legally protected in every manner. A few of the factors that can determine how business-friendly a government is from a legal and regulatory standpoint include: open and transparent local government on taxes and permits, IP protection, liberal labor laws and freedom to manage personnel.

Ultimately, companies want to go where they can take the fastest path to prosperity, while avoiding unnecessary risk. Keeping these factors in mind will help determine the best option for your next international office or production facility.

A joint venture is one of the most important mechanisms by which enterprises can cooperate with each other and enter new product or geographic markets, especially in the context of international business.

A joint venture creates a synergistic effect: each enterprise in a joint venture can make up for its partner's deficiencies and the marriage of the enterprises in a joint venture can create a new entity whose power is greater than the sum of the powers of the separate enterprises. The formation of a joint venture enables each parent company to gain instant access to key technology, new markets, distribution systems, cheap production methods, or major customers faster and less expensively than if the corporation attempted a takeover or independent development of these assets.

Because a joint venture may bring together companies with different interests, management styles and goals, it creates a potential risk that the parent companies will not be able to cooperate on a practical level as business partners.Conflicts of interest arising from self-dealing, corporate opportunities, and disclosure may cause friction between parent companies.

Interlocking directors and officers often present a fiduciary duty problem in joint ventures. Individual directors and officers may owe fiduciary duties to both the joint venture and their parent company simultaneously. When the interests of the joint venture conflict with the interests of the parent company, the interlocking directors and officers are in contradictory fiduciary duty positions.