Essay on "International Business Identify the Risks"

Essay 6 pages (2009 words) Sources: 12

[EXCERPT] . . . .

International Business

Identify the risks associated with global capital markets. Explain in detail, why you consider them risks. Are there solutions to mitigate those risks?

The risks of global capital markets center on the velocity, quality and latency of market information supporting cross-border capital flows of investments (Hill, 2011). Hill (2011) and others have argued that it is the alacrity vs. stability of capital flows that in large part determine how economically stable and growing a given region is over time (Hill, 2011) (Hasan, Kobeissi, Wang, 2011). In this dynamic of the accuracy, latency, reliability and quality of information flow across borders is found the stability or vulnerabilities of capital flows as well (Tong, Wei, 2011). These two dynamics form the foundation of the risk factors that impact global capital markets, leading to highly destabilized economic systems and performance, as is the case with Mexico for example (Hill, 2011). The risks of inaccurate, incomplete and often completely different information flows lead to short-term, temporary gains in international investment (Bracke, Schmitz, 2011). The lack of long-term investment in global capital market in turn leads to a lessening in the priority of investing in new information sources, further exacerbating these trends and lessening the willingness of investors to develop long-term capital market strategies in emerging nations (Hill, 2011). The risks of global capital markets as exemplified by limited investment in new information sources, coupled with a lack of long-term orientation, can only be solved by changing the incentives and tax-based relief programs in emerging and established economies (Tong, Wei, 2011). This approach to mitigating these shortcomings will also lead to a higher quality of information being developed.

References

Bracke, T., & Schmitz, M.. (2011). Channels of international risk-sharing: capital gains vs. income flows. International Economics and Economic Policy, 8(1), 45-78.

Hasan, I., Kobeissi, N., & Wang, H.. (2011). Global equity offerings, corporate valuation, and subsequent international diversification. Strategic Management Journal, 32(7), 787.

Hill, C.W.L. (2011). International business: Competing in the global marketplace (8th ed.). New York, NY: McGraw-Hill/Irwin.

Tong, H., & Wei, S.. (2011). The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis. The Review of Financial Studies, 24(6), 2023.

What are the main uses of foreign exchange markets for international business?

The main uses of the foreign exchange markets are to create a transactional system that is global in scope, capable of financing the imports and exports of goods and services, direct and indirect inflows of investment, and cross-border investments (Hill, 2011). Frequently the imbalance of trade and payments in one nation will cease an imbalance across all nations participating in the foreign exchange markets (Hegerty, 2011). This often leads to stabilizing investment and payment strategies aimed at ensuring a higher level of overall stability through exchange rate stabilization strategies (Choi, 2011). The foreign exchange market also acts as a clearinghouse of receipts of product sold globally, defines the level of transaction velocity and efficiency of the markets, and also defines the level of shared risk across all transactions by stabilizing terms of inter-country transactions (Choi, 2011).

Foreign exchange markets are also extensively used for capital market transactions and support for complex long-term investment platforms to finance a nation's future growth (Weber, 2011). The focus on how to create more value through these shared transactions has transformed the knowledge management and information sharing aspects of the foreign exchange market into a critical catalyst of economic growth globally (Hill, 2011). Based on the benefits of greater accuracy and efficiency of information and knowledge management, there continues to be strategies put into place to alleviate unnecessary risk from lack of market insight or intelligence (Choi, 2011).

References

Choi, M.. (2011). Momentary exchange rate locked in a triangular mechanism of international currency. Applied Economics, 43(16), 2079.

Hegerty, S.. (2011). Is exchange-market pressure contagious among transition economies? Applied Financial Economics, 21(10), 707.

Hill, C.W.L. (2011). International business: Competing in the global marketplace (8th ed.). New York, NY: McGraw-Hill/Irwin.

Weber, E.. (2011). What happened to the transatlantic capital market relations? Economic Modelling, 28(3), 877.

When does concentration of production make sense? Explain in detail why

There are many benefits to a firm when they choose to concentrate or consolidate production into a single facility or area, the foremost being the potential to achieve the experience effect of cost reduction and increased learning (Hsu, Li, 2009). One of the primary determinants of how quickly a company can reduce its operating costs is how efficient it is in managing tacit and implicit knowledge about its manufacturing processes and how to streamline them (Hill, 2011). This is a primary factor in why many companies choose to centralize or concentrate their production into a single location or area, looking to gain economies of scale using knowledge and intelligence about manufacturing operations (Tian, Yin, Taylor, 2002). Additional factors that favor concentration of production include centralization of IT, human resources, supply chain management (SCM), procurement, and logistics (Hill, 2011). Another factor that favors concentration of production is the development of more effective measures of quality management and the ability to better management compliance to local, state and federal requirements (Hill, 2011). Often pharmaceutical manufacturers will choose to concentrate production in a specific area or region where there is expertise in chemistry, biological sciences, life sciences, and quality management. Concentration of production makes sense from this standpoint, as it brings together all necessary engineering, product development, production processes, and quality management processes to ensure a high level of product quality. Centralizing production can lead to a higher level of product quality, reducing risks and costs as a result.

References

Hill, C.W.L. (2011). International business: Competing in the global marketplace (8th ed.). New York, NY: McGraw-Hill/Irwin.

Hsu, C., & Li, H.. (2009). An integrated plant capacity and production planning model for high-tech manufacturing firms with economies of scale. International Journal of Production Economics, 118(2), 486.

Vincent Sabourin. (1999). Technological revolutions and the formation of strategic groups. Journal of Engineering and Technology Management, 16(3,4), 271-293.

Gui Yun Tian, Guofu Yin, & David Taylor. (2002). Internet-based manufacturing: A review and a new infrastructure for distributed intelligent manufacturing. Journal of Intelligent Manufacturing, 13(5), 323.

Why should a firm consider vertical integration as opposed to simply outsourcing the component parts that go into its final product? What are the advantages of making a product in-house?

Vertical integration can lead to cost advantages, the ability to retain and grow tacit and implicit knowledge of the production process, while increasing product quality and customer satisfaction as a result (Hill, 2011). In highly commoditized industries vertical integration can also lead to greater economies of scale in new products based on the previous generation of technologies that are being cost-reduced (Forman, Gron, 2011). It becomes more efficient to vertically integrate with known suppliers that understand the demands of production, logistics and service for an existing technology generation, versus outsourcing these functions throughout a value network (Owen, 2011). Another aspect vertical integration is the ability to drive greater differentiation into each successive product generation based on the collective intelligence and insight gained over time (Ciliberto, Panzar, 2011). While studies suggest the benefits of this type of insight or intelligence are only focused on costs (Hill, 2011) the real value is in the ability to create a competitive advantage based on the insights gained from the suppliers, partners and services organizations that would have otherwise been outsourced (Forman, Gron, 2011). If outsourcing as a strategy had been pursued in many commoditized industries, any differentiation based on services or products would have been completely lost, increasing the speed of market decline (Ciliberto, Panzar, 2011). Outsourcing is based on the need for gaining greater insight, intelligence and knowledge within an organization, not purely for generating cost reductions or the potential for pricing reductions over time (Forman, Gron, 2011).

References

Ciliberto, F., & Panzar, J.. (2011). Outsourcing and Vertical Integration in a Competitive Industry. Southern Economic Journal, 77(4), 885-900.

Forman, C., & Gron, A.. (2011). Vertical Integration and Information Technology Investment in the Insurance Industry. Journal of Law Economics & Organization, 27(1), 180.

Hill, C.W.L. (2011). International business: Competing in the global marketplace (8th ed.). New York, NY: McGraw-Hill/Irwin.

Owen, B.. (2011). Antitrust and Vertical Integration in "New Economy" Industries with Application to Broadband Access. Review of Industrial Organization, 38(4), 363-386.

Why do firms prefer to hold cash balances at a centralized depository?

While every foreign subsidiary has the option of holding their cash balances on a local bank or financial institution, often corporations opt to have these funds held in a centralized repository. First and most significant is the risk reduction of holding significant amounts of cash in a centralized repository over allowing it to be held in regional or national banks (Hill, 2011). Often CFOs will revert to the centralized depository to also earn higher rates of interest on the funds as well (Elliott, Bewley,1994). The combining of risk reduction and higher interest rates combine to create a highly effective incentive for those global financial services firms offering centralized repository services… READ MORE

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