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Conclusions - Conclusions 1 Outline • The Company Company...

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Unformatted text preview: Conclusions 1 Outline • The Company Company • Toward FDI in South America • Setting up Foreign Operations • Day-to-Day Operations Operations • What Happens to the Company? 2 1 I. Jackson North Carolina Brewery North (JNCB) • Brewery Products Products • HQ. Charlotte, North Carolina, USA • Markets: domestic, exporting Markets: overseas, later some foreign operations set up 3 II. Major Financial Goals • Stock Price Price • Liquidity • Long-run growth in earnings per Longshare 4 2 III. Export Activities EC Asia South America • Credibility L/C → B/L → B/E (draft) → B/A FCIA • Financing B/A • FX Risk Forward contracts 5 IV. Toward FDI in South America Gov’t Encouragement on setting up local operations Oligopolistic Competition Brazil Financial Feasibility Study Colombia • Attractions: – IDB – Gov’t builds infrastructure – 3 yr. Grace periods for tax • Estimation of Cash Flows: k • Sensitivity Analysis e • Discount Rate: WACC (1-t) Chile Political Risk Analysis • Expropriation/Blocked Funds • Forecast: – Ex - CIA – Grand Tour k d 6 3 V. Setting up Foreign Operations Setting up Trade & Financial Links Reducing Political Risks • Establishing trading links with • Concession Agreement other units • Agreement of Unbundling • Financing – front loans with a local subsidiary of a U.S. bank – Seeking inexpensive sources of fund Euromarket – personnel requirement – Calvo Clause • Buy OPIC Policy • Maintain Technological Secret Organization & Control • Int'l Finance Executive • Centralized Cash & FX Mgt. • Evaluations by ROI Comparing with Budget (Projected Rates) • Two sets of books 7 VI. Day-to-Day Operations Day-toCash Management • Integrated Program – Lockboxes → CHIPS → NY Correspondent Bank → FED Wire → HQ Bank → Report to the Company • Intracompany Accounts – Netting – Centralized Depository • AR AP Inventory Mgt. FX Management • Economic Exposure – Diversification • Subscribe to Bank Forecast Service – Econometric + judgmental eco. & political analysts • Forward Mkt. Hedge, if • not available MM; also, lead lead-lag, transfer-pricing transfer Translation Exposure not emphasized esp. after FASB 52 8 4 VI. Day-to-Day Operations (Cont’d) Day-toIntracompany Flows • Transfer Pricing (Cheaper to Parent) – Tax arbitrage – Blocked funds • Leads-Lags (Faster to Parent) Leads• Unbundling – Royalties 5% sale, 1 million free Performance Evaluations • To Maintain Morale – Second set of books – Budget & evaluation with projected FX rates – ROI compared with history, competitors, budget 9 VII. What Happens to the Company? • Operations very efficient very efficient • Morale not hurt by transfertransfer- pricing since 2nd set of books kept • High profit, low taxes, stock price↑ 10 5 VII. What Happens to the Company? (Cont’d) S. American countries getting suspicious: little tax paid each year? • Colombia, S.A. put the company under surveillance → find 2nd set of books • Expropriation • The Company tries to rescue the operation Company tries to rescue the operation – Persuade, significance of company – Persuade with power tactics, neighboring countries and international agencies – Appeal to ICSID, going to be a lengthy process 11 6 ...
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