Week 6 Discussion 1 and 2

Why is foreign investment so different from domestic investment?

Foreign investment involves the transfer of funds from one nation to another and the ownership of shares or stakes in a company by foreigners (Hanemann et al., 2020). Individuals, businesses, and institutions can all participate in foreign investment, a stimulus for economic growth. Domestic investment, on the other hand, involves investing in one’s own country. This investment contributes to the nation’s economic growth by creating employment opportunities, increasing government revenue, boosting sales, etc. The Netherlands is a prime example of a nation with substantial foreign investment. Consequently, before the COVID-19 crisis, the economy recorded consecutive years of budget surplus, public debt well below 50% of GDP, and record-low unemployment of 3.5%. (U.S. Department of State, 2021). Domestic investment is advantageous for a nation’s economy because it attracts foreign capital to the economy. However, the effect of foreign investment remains more significant and robust than that of domestic infection.

What should C-Level executives consider in expanding internationally, as compared to domestically?

The first element is the contrasts in culture between the home and international markets. In terms of language difficulties, religious views, and cultural differences, C-level executives must ensure that the product in question is suitable for the foreign market. For a firm to achieve success, its strategy must be suited to its sociocultural setting (Agwu & Onwuegbuzie, 2018). The second consideration is currency exchange rates. If the currency is different, which is the case most of the time, the CFO will evaluate the exchange rates between the two foreign currencies. Thirdly, they should evaluate the legal and regulatory obstacles, determining whether the business is adaptable and prepared to comply with and operate within the local laws and regulations. The stability of the foreign government, which includes infrastructure, currency value, access to affordable finance, and other resources, is the fourth element. Lastly, there is an understanding of the international market. C-level executives should conduct a comprehensive analysis of the market they are attempting to penetrate. They can accomplish this by identifying their target demographic and the market in which their products/services will thrive.

What types of risk mitigation techniques could you suggest to the executives so that the firm can be successful in the proposed expansion?

Any business endeavor has some degree of risk, but growth into new markets carries the most. The first strategy is to evaluate the political and corporate environment. This entails analyzing whether there is a genuine demand for the product and calculating the overhead expenses associated with legal compliance, taxes, reporting, and personnel compensation. The second method for mitigating risk is to create a business strategy that fits the country’s demographics. All direct and indirect costs involved with foreign trade should be accounted for by the model. The alternative option is to always have contingency plans, incorporating downside mitigation into the model by evaluating potential losses in the event of bad results and establishing an exit strategy in the event of a business collapse.

References

Agwu, M. E., & Onwuegbuzie, H. N. (2018). Effects of international marketing environments on entrepreneurship development. Journal of Innovation and Entrepreneurship, 7(1). https://doi.org/10.1186/s13731-018-0093-4

Hanemann, T., Rosen, D. H., Gao, C., & Lysenko, A. (2020). Two-Way Street: 2020 Update US-China Investment Trends. Rhodium Group and National Committee on US-China Relations. New York, NY. URL: https://www. ncuscr. org.

U.S. Department of State. (2021). 2021 Investment Climate Statements: Netherlands. United States Department of State. https://www.state.gov/reports/2021-investment-climate-statements/netherlands/

Discussion 2

As a manager of a multinational corporation (MNC), my primary obligation is to obtain the maximum possible return for my treasury. To accomplish this with government bonds, however, requires a thorough understanding of treasury yield and interest rates. Australia is the nation in which I prefer to make one-year investments. Other than the coupon rate and bond yield comparison, Australia has a great relationship with the United States in terms of trade (Medeiros, 2019), so policies are more likely to be favorable towards U.S. multinational companies. Economists always advise prospective investors to evaluate the long-term yield of interest rates over the short-term yield. Australia, based on a comparison of its coupon and yield to those of other nations, gives superior returns on my investment.

For a 2-year bond, Australia offers a yield of 3.16%, which is greater than Japan’s (0.04%) (Bloomberg, 2022). Investing in Japan would be a bad choice because the yield for up to 10-year yield is less than 0.5%. Australia’s yield is better than that of Germany, with a 2-year yield of 2.05%. The UK comes close with 3.21%. In terms of the long-term assessment, Australia’s yield remains consistent with a gradual increase in the yield percentage while other countries record some inconsistencies. Australia’s coupon rate is also better than the other countries at 2.75 for 5 years, which indicates that it is less risky to increase interest rates compared to Japan, Germany, and the UK. Although high-yield bonds are riskier, I still believe it is the best choice because of the consistent economic growth, and the GDP is projected to be 6.7% larger by the end of 2022 than in pre-pandemic 2019 (Australian Trade and Investment Commission, 2021).

References

Australian Trade and Investment Commission. (2021). Why Australia – Benchmark Report – Resilient Economy. Www.austrade.gov.au. https://www.austrade.gov.au/benchmark-report/resilient-economy

Bloomberg. (2022). Australian Rates & Bonds. Bloomberg.com. https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia

Medeiros, E. S. (2019). The Changing Fundamentals of US-China Relations. The Washington Quarterly, 42(3), 93–119. https://doi.org/10.1080/0163660x.2019.1666355