Question

Packard Inc., a pharmaceutical company with a focus on health products started its operations in the United States. Its revenues have remained flat over the last 3 years and the company is contemplating selling its products in Country X. Jaris Consultants was hired to make feasibility study and has recommended that it proceeds with its plans. They have advised that Country's X consumers are fiercely loyal to products that are produced locally, the government has recently imposed tariffs on similar health care products and has placed restrictions on remitted funds.

1. Give four reasons why the company is considering expanding to Country X.
2. What method should be used to enter the country? Justify your answer.
3. How should the company protect itself from hostile takeover?
4. What financing arrangement would you recommend for the project.

Answer 1

1.) Four reasons why Packard Inc. is considering expanding to Country X:

(a) As its revenues have not increased since the past three years, the company wants to increase its sales by selling its products in Country X.
(b) It might be scared for a hostile takeover taking place because its revenues have remained flat over the last three years.
(c) The people of Country X are extremely loyal to products that are produced locally, giving the company an investment opportunity.
(d) The costs of production can also be reduced in Country X as marketing efforts would be minimal because customers there are very loyal.

2.) A "Wholly owned subsidiary" should be established to enter the country.

• This is because of the fact that customers are fiercely loyal to the products that are manufactured locally, thereby ensuring increase in sales.
• Also, government of Country X has imposed tariffs on similar health care products, which will increase the prices of the Company’s products.
• By establishing a Wholly Owned Subsidiary, Packard Inc. can reduce the price of its products, simultaneously ensuring that its products are demanded by customers as it will be a local company.

3.) Protection from Hostile Takeover:

• The company can protect itself from a Hostile takeover by establishing stock securities that have Differential Voting Rights (DVRs), thereby leaving only few voting rights with shareholders.
• The Company can also go forward with issuing ESOP (Employee Stock Ownership Plan). By doing this, more percentage will be owned by the employees of the company, who will vote for the company, knowing its future plans of expansion.

4.) The Company should go for Local Borrowing from the Banks present in Country X.

• This is due to the fact that the government has imposed restrictions on funds remittance.
• Therefore, loan can be taken indigenously to ensure continuity of funds.
• Exposure due to change in the prices of various currencies will also be reduced.