international finance

Foreign Direct Investment

Different large companies aim at expanding their business operations into international markets. Therefore, these companies explore different global market entry strategies. Foreign Direct Investment is a global market entry strategy that involves the company’s real investment (direct investment) into the building or establishing a new plant in a foreign country to strategically place itself in the new market while the core investor retains full control over the investment (Sell, 2001). The FDI has three major constituents: equity capital, reinvestment earning and intracompany loans. Direct placement of a company in a foreign market provides the organization with new technologies, capital resources, products, management skills from the diverse and skilled workforce, organizational technologies and potential cooperation and get a larger share of cross-border opportunities for the local businesses.(explain what will you cover in this assignment :example:in this assignmet I will cover theories of FDI, pollical risk, and operating exposure)

Theory of FDI. ( cut the words of Greenfield investment as u talked a lot about it keep the most relevant things and add the monopolistic advantage theory as I only have Oli theory in the assignment ,and I need another theory ,so add monopolistic advantage theory speak about the most relevant things of this theory what is used for, then how is related to my project in a small paragraph plz )

There are two primary forms of FDI theories that have continued to be applicable in the global business: Greenfield investment and Brownfield investment. The Greenfield Investment would best explain Coca-Cola's investment in South Korea .It stipulates that multinational corporation enters into the new international market and build new factories, plants, or stores from scratches (Stepanok, 2012). In addition to the new facilities, the project also encompasses building of new hubs for distribution, offices and living quarters for staff members. Many companies and businesses prefer Greenfield investment because it is more cost-effective in the long run. They are also interested in having a high degree of direct control over the new foreign investment project (Stepanok, 2012). Greenfield is very resourceful in guaranteeing companies entering the international market of retained total control over the operations and production. Moreover, multinational corporations use Greenfield investment because of its ability to aid the corporation into forming of marketing partnership to increase its market effectiveness in the foreign country. Reference?

Strategically, the best way to enter into a new market is through directly investing in that country from scratch. Greenfield provides corporations with strategies of production and pricing that allows the business to adapt to the new target market by having a highly segregated market and customers according to their demands reference?. Also, Greenfield, unlike the brownfield investment where the corporation leases or purchases existing production facilities to launch a product line in the foreign market, provides the corporation with complete ownership of any of its subsidiary firms to enable it to extend its products to potential customers with attractive discounts, warranties, among others (Watkins, 2002)?? Reference. Coca-Cola Co. is among the US greatest firms that invest in the significant global Greenfield projects. Thus, there is a robust applicable background for the Greenfield to the project in South Korea.

The two types of FDI used by many corporations are the Vertical and horizontal FDI. According to Dlabay and Scott (2011), horizontal FDI is where the corporate investment is made for conducting the same business activities in a foreign market as at the home country of that business. However, vertical FDI is concerned with the expansion of a firm into a series of production processes that differ from the original one. In other words, different types of operations are carried out in foreign countries (Dlabay and Scott, 2011). Coca-Cola company uses Horizontal FDI; the benefit would be the existence of an already established relationship between the parent and the subsidiary firm who get the access product requirement from the parent.(U CAN CUT FOR THIS VERTICAL AND HORIZONNAL IF U NEED WORDS COUNT)

Another theory is “OLI” which stands for Ownership, Location, and Internalization; three facets that determine the firm’s decision to venture into Multinational business (Hoshino, Turnbull and Ghahroudi, 2018). The Ownership advantage concerns itself with the benefits specific to a nation and the nature of the owners of the corporation. There are three major categories of firm specific advantages that enable the MNE to thrive in the market (Hoshino, Turnbull and Ghahroudi, 2018). First, monopolistic advantage provides the MNC with the privileged access to input and output resources in the market through ownership of intangible assets. Second, technology advantages broadens the firm’s scope of knowledge and innovativeness in the market and lastly, economies of scale advantage provides the MNE with a large scope of economies, benefits from the international diversification of international business risks and broaden the access to financial assets.

The Location advantage arises from the various locations that the MNEs choice to be located that provide them with different resources, essential institutions, and conducive regulations. The location benefits vary from country to country. They mainly exist in three forms; Economic ,Political, and Social advantages (Wilson & Baack, 2012). Economic benefits relate to the quality and quantity of factors of production provided by that particular country’s economy such as market, production, transport and telecommunication costs. Secondly, Political benefits instigates those specific and general governmental policies that will affect the cash flows of the FDI and international productiveness. Lastly, social advantages revolves around the cultural and language differences which could also be a barrier, attitude of host country towards foreigners and the general beliefs towards free enterprising. (reference )

Internalization advantage relates to the transfer of ownership benefits across national boundaries against the edges of export, licensing, joint venture strategies. This benefit arises from difficulties in documenting controllable and enforceable contracts to provide real market advantage through partnerships. Internalization of MNEs is characterized by incremental procedural process from domestic to higher global market involvement because of limited local resources and knowledge.(reference) (add this sentence but u need to paraphrase it as I took it from my friend: The process helps to evaluate the alternative ways in which firms might organize the creation and the exploitation of the core competencies (word economic)) .(Talk about the internalization theory and how is related to OLI)

Application of FDI theory

The OLI theory is vital in explaining the business venture of Coca-Cola in the South Korean Market. First, Ownership advantage will potentially address the concerns over why some corporations go international and present some of the Coca Cola’s firm-specific privileges that will minimize the operating costs abroad. Coca-Cola has a collection of (proprietary/firm-specific)assets which is higher than average in the industry(rephrase). These assets can be used in production operations at different locations globally without any signs of ineffectiveness reference?. For instance, the product development, management structure, and marketing strategies and skills of the company are it most valued assets something termed as “headquarter services” (Helpman, Melitz and Yeaple, 2003). Location advantage addresses concerns on the exact location in South Korea that Coca-Cola chooses to operate. Related to this is the horizontal FDI which would be critical in a plant located in South Korea to improve coca cola’s foreign market access. Coca Cola’s horizontal FDI is facilitated by the corporation’s secret formula for all its sodas and support for all its brands globally with this ingredient. Internalization will influence Coca-Cola’s choice to operate in the South Korean Market, trading off savings in transaction activities, holding up and monitoring costs involved in the wholly owned subsidiary against the other modes of market entry. Notably, positive changes have been reported over decades in the South Asia relative GDPs and substantial difference in the restrictions on FDI among these Countries (World Bank, 2018).

Coca-Cola continues to use the Greenfield approach to all its global operations and investments. The company has consistently maintained an intense adoration for full control over its global investments (Stepanok, 2012). Also, Coca-Cola is among the world greatest marketing companies that aim at attaining economies of scale and scope for its products. Therefore, Greenfield Investment would bring a significant theoretical perspective of how Coca-Cola penetrates the global market, specifically entry to the South Korean market. It would enable the company continues to strive for economic globalization.

South Korea is a better selection than any country because of various components. First, the labor cost for the employees that would work in the project would cost less(rephrase). Based on the notion that Coca-Cola aims at maximizing profits and reducing costs to edge it competitors in the market, such facets would be important. In connection(RELATION) to this the Korean MNEs approaches to Subsidiary firms provides a hybridization through blending of locals and global standards in the practice of human resource and its management. Secondly, Korea has continues to have economic growth over the past few years. According to the statistics Portal (2018), the revenue in Food and Beverage sector in South Korea accumulates to US$8,317M in 2018 with an expected annual growth rate of 4.9% thus expected to be US$10,057m by 2022. Thus, to share in this growth the country proof suitable.

The South Korean wage per hour is adding up to an average wage per month of 1382.92USD (Tradingeconomics.com, 2018). The wage rate proves to be lower than the France and United Kingdom’s wage rates of 1684.17 and 1645.20 USD per month for the labor employed. As a result, South Korean market labor costs cheaper and low salary. South Korea has heavily integrated international trade and finance. After the economic stagnation period, the country’s GDP growth rose slightly to 3.1% owing to household consumption, improvement in real estate businesses and measures in both the fiscal and monetary policies (Heritage.org, 2018).where is the full reference

Thus, to be profitable, Coca-Cola would have to venture into a long-term commitment and prosper as the economy improves. The company should commit to explore the major market aspects that the South Korean venture presents. Due to the presence of the parent countries exercise of control the minimum transactional cost would significantly be less and shared by the parent reference?. The Demand for the product of the FDI would substantially increase because of the existing market awareness of the product being brought in to the market and the use of marketing to facilitate the product sales by the parent company in South Korea reference?

THE FIRST PART NEED TO BE AROUND 1200 WORDS PLZ NOT MORE

Political and country risk Assessment.what you wrote is all good but put it as PESTEL analysis

What type of country is ?

Check the government risk again how it affect my company ?

President Moon continues to run in the frontline for support of FDI activities in the country. Personally, the president implored conglomerates to undertake investment activities back to the home country as well to create more jobs for the state (Salmon, 2018). In connection with the political and sovereignty risks, the president has exceeded expectations in a summit with the North Korean Kim Jong-un to yield an agreement that sought to eliminate the risk of war and work in unison towards denuclearization of Korea (Turak, 2018). Political risks such as risks of foreign exchange shortages, revolutions, wars, arbitrary government action have continued to decrease. The average value of political risks of South Korea has continued to remain at the minimum of 1 index point since 2014 (TheGlobalEconomy.com, 2018). All these are because of the administration of the president.

President Moon Jae-in political move to replace the two key economic officials in his administration amidst the pressure on his administration on starting growth in the Asian economy (Harris, 2018). Over the recent months, the economic aspects have been on the first row of the South Korean politics with the slowly growing job opportunities weighing down the approval ratings of Pres. Moon. The president upon his election pledged to create jobs and minimize the national inequalities predominated by few wealthy conglomerates (chaboel). Therefore the move to replace the finance minister and the presidential chief of staff for policy focused on revitalizing the trademark of “income-led growth” policy, a key concern for the president (Harris, 2018). The political efforts are focused on creating incomes, consumptions, and employment for the South Korean population

The political move aimed at liberating the country from the South Korean 4.6% unemployment rate, deflate the inflation rate from the 1.94 % being experienced and create an economically fair community. (where are the graphs)?? FOR THIS PART

South Korea Government on FDI.

The government of South Korea is desirable for an FDI market entry. The government has a well-established Foreign Investment Promotion Act which provides protection as well as restrictions for FDI.(cant be under l of oli paradigm???) The President of South Korea has a great interest in establishing a fair economy in the country. According to Harris (2018), the president’s economic democracy initiative through the fair economy aims at making the ordinary citizens, businesses from small, medium and conglomerate well off in unison. Thus, the government promotes foreign direct investments in the country through guaranteeing external remittance, the similarity in treatment as any other South Koreans enterprise, simplifying procedures for commencement and existence of state mediator position to FDI and providing for tax reliefs (Nordeatrade.com, 2018). All these works towards achieving the state goals.

The major challenge in the Korean economy is political risks, transfer risk, war risks, and expropriation risks (TheGlobalEconomy.com, 2018). Political risks are concerned with export transactions on a credit period in the country. The risk of expropriation covers any breach of FDI contract by the Korean government or possible negative change in attitude towards the foreign businesses. Transfer risks relate to an economic consideration of the countries solvency, and war risk refers to the looming tension that may precipitate to a brutal violence.

Name the figures!!!!!

Add some references in this part

From the above figures, the South Korean economy has recorded a progressive economic development over the few years. The first figure shows the country’s GDP growth in USD that has had progression based on the first and third quarter annual reports. As of 2017, the GDP as at the third quarterly was 394.6. This implies that the economy has consistent been productive in both local and international market. Most certainly the productivity and business nature of the country is considerably rising and constant. The inflation rate must be declining. The second figure shows how the average wage of the country has changed over the years. There has been a slow but progressive increase. Low average wage economically implies that more potential workers are hired into organizations in the country at least wage rates. As a result, the level of unemployment declines, with the production cost. Most certainly, the consistency in the cost of labor over the years means that little of industrial unrests is expected. The third figure shows FDI contribution to the GDP of South Korea. In 2017 statistics show a decline to 1.957 trillion (World Bank, 2018). The South Korean market and government policies has promoted both in and out FDI operation with other international MNCs. Thus, The FDI statistical data provides that the sector has met a series of successes worth being part of.

Relations of the Political and country risks to Coca-Cola FDI.

The major significant concern for a corporation intending to go international through the FDI strategy is the sovereignty risks associated with the new target market or foreign country (Dlabay, and Scott, 2011). Before the project proceeds to the next phase’s scrutiny of the South Korean ability to meet its public, domestic and external debt is important to estimate the risk of default that the FDI may face. In addition to this, the political risk of a political system that may affect the economy is important. President Moon has been on the front line in a fight to create an efficiently fair economy (Harris, 2018). The association of the political policies and systems with the economy poses a significant influence to the FDI in South Korea. Any slight changes political perspective will expose the new FDI to the risks of foreign exchange shortages, effects of revolutions and arbitrary government action that will result in losses.

The democracy of South Korea has continued to experience challenges of poor governance, corruption, incompetent leadership, political conflicts, volatile public opinion as well as social polarization ("Political Challenges in South Korea," 2017). The result of these challenges is the continued risk of the transaction, transfer as well as other economic uncertainties. The FDI project in South Korea will be exposed to all this kind of economic policies, political factors as well as the social culture in the country. As a result, what would make Coca-Cola successful through its protection policies count be the doom to its operations?(what is this question I don’t need questions in the assignment .) Because the fear that the political regimes in the South and North Korea government present to the worth through their war weapons has built upon a nuclear tension that could shutter down business operations any second. Such pressures are innovation and investment killers.

Coca-Cola seeks to invest in an economically sustaining environment, and any considerable risks could sabotage their goal for global operations. The risk of expropriation would affect the FDI in the case where the economy shifted, and policies disfavor the activities of MNCs in the South Korean market (Hoshino, Turnbull and Ghahroudi, 2018). Such risks from the country may affect the overall performance of the FDI as it poses to suppress the operations of foreign investments and narrow their profits.

Operating Exposure Implications. Add some references in this part

Economic or operating exposures have come one of the central concerns for MNEs. South Korean economic growth has globally landed it to the 11th most developed country. In the midst of these increasing global economic development, Currency volatility, shifting exchange rates subject a considerable influence and impact on the company’s or subsidiary’s operations and profitability in the foreign market (Dlabay and Scott, 2011). There are important types of exposures that result from currency volatility; translation exposure, transaction exposure, and economic/operating exposure. Economic exposure or competitive exposure or strategic exposure measures the degree to which “any change in the present value of a firm as a resulting from changes in the future operating cash flows caused by the occurrence of an unexpected change in exchange rates” (Eiteman, 2018). The future market value of Coca-Cola could be subject to future cash flows and market value uncertainty because of these unexpected currency fluctuations. By December 31, 2015, the South Korean won exchanged at 1169.26 against the USD, 1207.68 in 2016, 1063.11 by the end of 2017 and currently stands by November 1, 2018, it was 1126.19 against 1USD (Ycharts.com, 2018) where is the full reference?. These statistical figures provide that the South Korean won has experienced a significant fluctuation over the few past years. A fact which could pose a threat to the economic value to the Coca-Cola. However, the variation has changed more to the positive side except in 2017.

In the long term, a substantial or anticipated change in the exchange rate can affect the company’s competitiveness significantly not only overseas but in the domestic market. This is because the firm will sell its products cheaply in South Korea in case of an adverse effect on the exchange rate the same products they sell to other markets and local markets at a higher price. The consumers or large scale buyers may prefer importing the same product at lower prices from South Korea rather than from The U.S. this would deteriorate the market value of the company, the sales revenue as well as the competitiveness of the company. Economic exposure affects Coca-Cola’s competitive position. According to Reitman (2018), the company’s profitability and operations are changed when the home currency of the MNE strengthen making production more expensive, yet the profit yielded are dismal and persistently decreasing. Shareholders of the MNE are interested in the wealth maximization and successfulness of the project in South Korea may lead to further expansion and reinvestment in order to stay in an economical advantage scenario. Thus, investing in the South Korean market is advisable, but great consideration for the market fluctuation, economic factors as well as political factors are important.( REFERENCE)

ALL THE PROJECT SHOULD BE 2500 WORD PLUS 10% PLEASE

Reference.

Dlabay, L. and Scott, J. (2011). International business. Mason, OH: South-Western Cengage Learning.

EITEMAN, D. (2018). MULTINATIONAL BUSINESS FINANCE. [S.l.]: PEARSON.

Harris, B. (2018). South Korea’s president replaces top economic officials | Financial Times. [Online] Ft.com. Available at: https://www.ft.com/content/53f5cb4c-e3f3-11e8-a6e5-792428919cee [Accessed 13 Nov. 2018].

Helpman, E., Melitz, M. and Yeaple, S. (2003). Export versus FDI. Cambridge, Mass: National Bureau of Economic Research.

Heritage.org. (2018). South Korea Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. [online] Available at: https://www.heritage.org/index/country/southkorea [Accessed 22 Nov. 2018].

Hoshino, Y., Turnbull, S. and Ghahroudi, M. (2018). Foreign Direct Investment. Singapore: World Scientific Publishing Co Pte Ltd.

Nordeatrade.com. (2018). Foreign direct investment (FDI) in South Korea - Investing - Nordea Trade Portal. [Online] Available at: https://www.nordeatrade.com/fi/explore-new-market/south-korea/investment [Accessed 13 Nov. 2018].

Political Challenges in South Korea. (2017, April 6). Retrieved from https://www.eastwestcenter.org/research/visiting-fellow-programs/posco-visiting-fellowship-program/political-aspects-of-korea-related-issues

Salmon, A. (2018). South Korea expands its investment destinations. [Online] Atimes.com. Available at: http://www.atimes.com/article/south-korea-expands-its-investment-destinations/ [Accessed 13 Nov. 2018].

Sell, A. (2001). Foreign direct investment, strategic alliances and the international competitiveness of nations. Bremen: Institut für Weltwirtschaft und Internationales Management.

Stepanok, I. (2012). Cross-border mergers and Greenfield foreign direct investment. Kiel: Institute for the World Economy.

TheGlobalEconomy.com. (2018). South Korea Political risk, long-term - data, chart |

TheGlobalEconomy.com. [Online] Available at: https://www.theglobaleconomy.com/South-Korea/political_risk_long_term/ [Accessed 13 Nov. 2018].

The Statistics Portal. (2018). Food & Beverages - South Korea | Statista Market Forecast. Retrieved from https://www.statista.com/outlook/253/125/food-beverages/south-korea

Tradingeconomics.com. (2018). South Korea Total Wages | 2008-2018 | Data | Chart | Calendar | Forecast. [Online] Available at: https://tradingeconomics.com/south-korea/wages [Accessed 13 Nov. 2018].

Turak, N. (2018). Korean leaders plan an end to war and 'complete denuclearization'. [Online] CNBC. Available at: https://www.cnbc.com/2018/04/27/korean-leaders-release-statement-promising-to-eliminate-risk-of-war.html [Accessed 13 Nov. 2018].

Watkins, C. (2002). Greenfields, Brownfields and Housing Development. Real Estate Issues. Blackwell Publishing.

Wilson, R., & Baack, D. (2012). Attracting Foreign Direct Investment: Applying Dunning's Location Advantages Framework to FDI Advertising. Journal of International Marketing, 20(2), 96-115. Retrieved from http://www.jstor.org/stable/23268748

World Bank (2018). Foreign direct investment, net inflows (BoP, current US$) | Data. [online] Data.worldbank.org. Available at: https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?end=2017&start=2013 [Accessed 13 Nov. 2018].

World Bank (2018). Trends and Determinants of Foreign Direct Investment in South Asia. [Online] Openknowledge.worldbank.org. Available at: https://openknowledge.worldbank.org/handle/10986/16522 [Accessed 13 Nov. 2018].

South Korea's FDI net Inflow from 2013 - 2017

FDI net Worth

2013 2014 2015 2016 2017 2.1379999999999999 1.8440000000000001 2.4079999999999999 2.4369999999999998 1.9570000000000001

Years

FDI net inflow in Trillions USD

GDP of South Korea since 2013 - 2017

Q1 2013 2014 2015 2016 2017 296.7 312.20999999999998 326.61 343.44 358.81 Q3 2013 2014 2015 2016 2017 321.3 332.48 351.88 366.99 394.6

First and third Quarterly reporting 2013 - 2017

South Korea GDP in billion USD

Average wage

2013 2014 2015 2016 2017 33033 32840 33424 34555 35191