FINANCE HOMEWORK HELP.

Issue: Given the success of being one of the world’s largest global payments technology companies, MasterCard has an opportunity to enter into the country of North Korea to expand its technology basis and help build the North Korean economy.

Recommendation: MasterCard should research and investigate the costs and benefits of expanding itself into North Korea.

Justification: In its current state, MasterCard is the second largest global payments technology organization and could use this strength to enter into North Korea to help build their economy not only by introducing its products and services into the country, but to help a weak economy become stronger with the proper use of a global payment technology.

Issue: Attempting to expand into other third world countries increases the security threat. The security at MasterCard needs an update to prevent their customers from becoming targets of credit card breaches and fraud.

Recommendation: MasterCard should design a new digital debit/credit card that uses a thumbprint to authorize the use of the card.

Justification: Fingerprints are a unique feature that can provide great security assurance when dealing with theft. The fact that no two fingerprints are identical will make it hard for fraud to take place.

Task 1: A Research and Development (R & D) team will be established for a 12 month period beginning May 2014 and continuing through May 2015 to determine what areas within North Korea would be in the best interest for MasterCard to locate. The team would consist of accountants, lawyers, management, and several other individuals who would work solely on this project for the year. The estimated cost for this project could reach up to $2 million. The current budget is listed at $2.5 million. All correspondence and findings will be reported to the current CEO, CFO, and COO as well as the Board of Directors.

Throughout the year, the R & D team will spend ample time traveling and speaking with the delegates of North Korea to get a good feel of the acceptance of a large corporation entering into their country. Travel expenses during the complete project are estimated to be a total of $150,000 of the expected budget.

The initial expense per visit to North Korea is a $1000 required tour that does not include any other amenities such as airfare, hotel, or food. The estimated complete “tour” expense for the year is $5,000. The flight expense during the year for the R & D team estimates the cost of $18,150 during the year. It is estimated that each ticket would cost $726 and no more than 5 team members would travel at a time, with an estimated 5 trips per year. A budget of $25,000 has been allotted for flight expenses alone due to the current trips per year estimation. As the end of the research gets closer, there may need to be an additional trip or two that needs to be taken in order to ensure that everything is in place for the expansion into North Korea. In addition to the flight expenses, there will be a budget set aside of $10,000 per visit for lodging expenses. An estimate of a $250 room per person, per trip to North Korea is around $6,250. The added food expense is budgeted to $6,000 estimating $200 per person, per day during their business trip.

In addition to traveling time, the R & D team will be constantly researching the local North Korean government, economic status, and areas of interest to determine what areas would be the most marketable for MasterCard and its global payment organization. In preparation for this expansion, MasterCard has included training individuals on how to run the new organization. The training would consist of learning how MasterCard benefits the country and how the country could potentially benefit MasterCard. Such benefits could include more income for the country itself as well as the use of technology for faster processing of payments for governmental imports and exports as well as local businesses. The R & D team will prepare and present presentations to the North Korean Government to show how the location and development of MasterCard within their country will create more jobs for the citizens of North Korea as well as help their local businesses earn more profits.

The responses that the R & D team receive from the local delegates of North Korea will be presented to the Chief Executive Officer, Chief Financial Officer, the Board of Directors, as well as other key employees such as the Treasurer of the organization so that there can be well organized and informed financial decisions in regards to locating in North Korea. Such discussions would include the cost of locating to a new country which would also include the discussions of the possibilities of merging or acquiring an existing company or to decide solely own property in North Korea. Each decision would be discussed as what the cost versus the benefit is to the MasterCard organization to locate within North Korea.

Task 2: When talking about if MasterCard would merge, acquire an existing company or own property out right, the R & D team needs to think about the time it would take to set up MasterCard in North Korea. The R & D team has estimated that it would take MasterCard approximately one year to become established. Then once it is set up in this country the businesses have to be able to switch over and/or set up their business to be able to accept MasterCard as a form of payment. This process could take up to another year after MasterCard has been initially set up.

MasterCard is not well known in North Korea. The information researched by the R & D team during the year will represent a major decision process on how to locate within North Korea. In response to the information researched, MasterCard has made a decision to solely own property in North Korea rather than merging or acquiring with existing corporations. In view of the fact that, North Korea will develop more as a country if they solely own property since MasterCard is well known all over the world.

North Korea will benefit with having MasterCard in its country due to the growing travel and students studying abroad from the United States and other countries. Since the U.S. and many other countries use MasterCard as a major form of payment when traveling and shopping North Korea will grow as a country in more promising ways, and when MasterCard expands to North Korea more people will be wanting to travel and study abroad to this country. While students are traveling abroad with their career path they do not want the hassle of keeping up with currency. It is easier to carry around their credit card. With this being said, having a more versatile form of payment businesses and people traveling to a foreign county will be more able to pay for needs and wants with their card instead of having to only pay in cash. Especially since more and more countries are going towards a cashless society.

Since the decision has been made for MasterCard to solely own property in North Korea, this will expand the businesses more and let MasterCard grow within this country. While more of the economies in all countries are relying more on the electronic technology instead of cash and coins, the more MasterCard expands to other countries like North Korea the more of a profit MasterCard will receive. Also, North Korea will grow and gain a profit as MasterCard grows and becomes better known and used more in this country. North Korea is still a developing economy and once MasterCard grows in this poverty level country the card spending by customers will continue to jump just as it has in the European countries.

In year one, the costs of start-up to the anticipated profit are estimated to be $750,000. With MasterCard still being really new to North Korea the profit is not to be a drastic change from pre-MasterCard, but it is still expected to be a profit. In year two, it is estimated to grow by 4.3% from year one. This 4.3% increase is of the almost 25% estimate of profit increase within MasterCard. In year three, the growth of the anticipated profit from year two is estimated be increased by 8.4%.

Task 3: A special design team from R & D will create a new card design for MasterCard, planned by top management, with a budget of 1% of company revenues. The team will include staff from accounting, finance, marketing, and human resources, essentially all departments in the company. The R & D team will be required to meet every Monday, Wednesday, and Friday, in three hour increments for a month. Each meeting the team will discuss many factors of the card including its technology, target markets, financial implications, etc. Each week the data will be recorded from the meetings and reviewed by top management, in order to become final.

The new and improved card will incorporate features that will eliminate fraudulent activities from occurring. Card size will remain the same in order to fit conveniently into current wallet designs. The only major difference with these cards will be the thumbprint square at the top left hand corner of the card. When swiping a credit card, the consumer will have to hold their thumb in the designated solar powered square in order for the transaction to be processed. By using forensic technology, theft will decrease significantly due to the inability to recreate inimitable prints.

It is important to implement a design that will not be costly to integrate into stores all around the world which is why these cards will be made compatible with current card swiping systems. All stores that currently accept MasterCard debit and credit cards will be able to accept the new thumbprint card without any technology changes. ExemplarCard will be the new name of this card innovation. Exemplar is a name given to fingerprints that are deliberately collected from a subject. Add the word “card” to the end of exemplar and you create MasterCard’s new masterpiece. For a customer to activate the new ExemplarCard, they will have to go to their nearest bank and provide a scanned digital print of their thumb. By doing so, client profiles will be easily updated within a matter of seconds.

Task 4: A sales force team of ten employees will be created. These new hires will have the responsibility of traveling to the top ten banks’ headquarters in the United States to inform their top management of the new card system that will be implemented. Each sales force employee will receive a $30,000 salary, as well as, reimbursed travel expenses of about $1,500 each for plane tickets and hotel expenses for three days.

Presentations given by the sales force members will be thirty minutes long. Each presentation will include a PowerPoint explanation of the card benefits, followed by an actual demonstration of how the card is used at banks, as well as, retail stores. These demonstrations will be given on the company laptop carried around by the salesforce employee. The main focus of the sales force team is to present to banks how this system will be highly advantageous to them, considering they lose almost ten billion dollars annually because of credit card fraud. Each bank will have to buy a thumbprint scanner and new computer software in order for the new cards to work at the bank. A scanner and software update for one computer will come in a bundle for $950. It is the sales force’s job to sell these bundles to banks. It is important for the sustainability element of the product to be emphasized when explaining the benefits of the product. Although the cost of the bundles seems high, the benefits defiantly outweigh the costs.

For every bundle sold, the sales representative will receive $1 in commission. Once this product hits the market, word of mouth will play an important part in spreading the awareness of ExemplarCard. To aid in spreading awareness, MasterCard’s current marketing team will be in charge of creating a strategic marketing plan. Their duties will be to update the website and send out informational flyers and emails about the new cards to current MasterCard holders. The budget for flyers will be set at $2 million.

Task 5: A trial run will be established at certain locations for a twelve month period to get feedback from customers and to fix any technical problems before making the new card available to all customers. An overall customer survey will be conducted at the end of the trial and adjustments will be made according to the feedback received. The budget for the trial and survey will be $750,000. The trial will take place in the United States and begin January 15, 2015 and conclude January 15, 2016. The two largest bank providers in the Unites States will be used for the trial. JPMorgan Chase was ranked the number one bank in 2013 and has approximately 5,400 branches. Bank of America was ranked the number two bank in the United States with approximately 5,600 branches. The first fifty customers to volunteer from each branch will participate in the trail, making the total participants being 550,000 people.

MasterCard will set up a technical support, customer service, and research group to conduct the trial run. The research group will keep track of who is participating in the trial and what kinds of transactions are being used on the cards. A customer service call center will be set up for the volunteers to be able to contact someone specifically about the trial when they are having trouble or have a comment. A technical support team will be standing by to take care of any technical problems that may arise for the customers. Representatives from each group will meet once a month to consolidate data and address any issues that have not been taken care of. The research team will then conduct a detailed survey at the end of the trial. The results of the survey will be passed on to the technical support group to address any problems that have not already been resolved.

Task 6: The marketing department will have the large task of letting all current MasterCard debit and credit card users aware of the new ExemplarCard. A budget of $1.5 million will be allocated for reaching out to all users and for general advertisement. General advertisement will consist of posters and ads located at the bank branches that offer ExemplarCard. General advertisement will also consist of creating two different television commercials to advertise and convince non MasterCard users to switch to their new safe and secure card. Developing the commercials and inquiring the air time needed will use up $1 million of the advertising budget. The commercials will only air during the most watched national events such as the The Academy Awards, The Grammy’s, The Golden Globe Awards, etc.

The remaining $500,000 of advertising will be allocated to reaching out to every current MasterCard user. A letter will be sent out to each user explaining the details about how the card works and the advantages of using the card. The goal set by MasterCard is to have all MasterCard users swapped over to the new ExemplarCard within three years. The letter will give the customers two options to choose from. For the customer’s eager to receive the new card and immediately increase their security, they can go to their local bank and get the new card for a onetime fee of $15. This fee is in place to help cover the cost of creating and implementing the new card. For each card that is activated through the bank $10 will be sent to MasterCard and the bank keeps the remaining $5 to cover the expenses of having to buy the new card and fingerprint software. The second option mentioned in the letter will be for the customers that do not want to pay to get the new card. As the customers’ current card expires they will automatically be sent an ExemplarCard as their replacement to ensure that all MasterCard users will eventually be carrying the new ExemplarCard.