Direct Foreign Investment

Direct Foreign Investment - PepsiCo PepsiCo: Direct Foreign...

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PepsiCo 1 PepsiCo: Direct Foreign Investment into Brazil University of Phoenix
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PepsiCo 2 While looking at a number of countries, the consensus for PepsiCo was to begin operations in Brazil. Now that PepsiCo has made the decision to select Brazil, the implementation of a direct investment strategy will help define the procedures of successful entrance and the policies that should be followed. For weeks, a broad analysis with regard to risk factors and the state of the Brazilian economy was completed, and PepsiCo can now begin the process of moving forward and beginning operations. A number of factors, scenarios, analysis, and calculations must be completed to ensure a positive outcome, which will include detailed information ranging from the decision to enter Brazil through contingency plans if the primary financing decisions need to be amended. This information can be broken down into four main categories, which include information gathering, conducting a sensitivity analysis, perspective valuation, and alternative investment procedures. The decision to enter Brazil was based on a thorough examination of foreign exchange rate data, determining appropriate capital sources, the affects on the parent company of block funds, the subsidiary providing the funds, the affect on the parent company and subsidiary with regard to capital sources, defining which capital sources will minimize the cost of capital to the subsidiary, Brazil providing incentives to invest, the expiration of project life, possible buyout options, economic impact on changing locations, nationalization or confiscation of organization, identifying all available alternative investments and financing decisions, making a final finance recommendation, using the capital budgeting technique to justify this conclusion, develop a contingency plan based on the sensitivity analysis, and changing the investment and finance strategy within the contingency plan will all work together to ensure the proper implementation of PepsiCo into the Brazilian marketplace.
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PepsiCo 3 The decision to enter Brazil was made when a series of examinations on the balance of payments in Brazil, relating this balance of payments to any fluctuations of exchange rates, and a full study on the current economic climate of Brazil had been made. Since PepsiCo already has a global advertising campaign, the addition of a new country was deemed to not vary the already existing marketing practices. One of the most important aspects of launching in Brazil was to make sure the economy and payment data prove that financial support is present. The balance of payments in Brazil, which is an accounting record of all transactions that are made by Brazil over time, looks at a comparison of the amount of foreign currency coming in and the domestic currency that is paid out. Looking over the past five years of data, a conclusion can be made that current account has seen limited movement, while the capital and financial account has been much more active. The current account was at just under $10 billion in January, 2002, and slow
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This note was uploaded on 08/17/2011 for the course BUS 200 taught by Professor Torres during the Spring '11 term at University of Phoenix.

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Direct Foreign Investment - PepsiCo PepsiCo: Direct Foreign...

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