With the current level of globalization, business organizations have chosen to establish their networks all over the world so as to expand their markets. This has been facilitated by the existence of a technology that makes this possible. In addition to this, presences of financial capital from multinational financial institution have made these strategic decisions feasible. That’s why I have made a choice to explore the world market to establish where to introduce a centre. My choice would be in Kenya to act as a centre to provide services to the developing countries in the East Africa.
The choice to move to this country is not free from challenges. This country has around 42 banks, the largest percentage being MNC. This therefore acts as a challenge from the expected competition. Additionally the country has around 42 tribes, and as for the East Africa, there are more than 100 tribes. These tribes have several cultures that may not be very conducive for our bank. The major one is the fear for the new service providers based on the fear of the unknown. This is intensified by low level of education in this country, where few cultures are still against education of girls, despite providing just less than necessary for the boy child. The level of ethnicity in this country has acted as barrier to integration hence preventing conducive operation of business in various regions. The country is at developing status and deliberate efforts to develop the country are clear. The political environment, however, is to some extent unpredictable due to the political instability that the country has experienced in the past. The neighboring country, Somalia with presence of the al-Shabaad militia and the pirates, have increased risks in the Indian Ocean hence posing risks to the international trade.
Private sector controls the majority of the economic activities in the country. This is not without the government support, the corporate tax in the country is 30% and the support for the multinational companies is much more. The development of infrastructure has taken a big proportion of the national budget for the last three years. The provision of security has also been seen as a way of making conducive environment for the private sector. Monetary policies are revised every now and then as per the prevailing economic conditions. The central bank is keen to maintain inflation at the lowest level possible while monitoring the financial institution. This will affect the licensing of my bank, number of branches that can be opened and interest rates at which to provide loans to the locally operating multinational companies among others.
The county runs a capitalist economic system with the private sector forming the largest part of the economy. The country involvement in international trade is spearheaded by both the government and the private sector. The country is mainly agrarian and exports mainly agricultural products such as coffee to the U.S. and horticulture mainly to Europe. It’s, however, a major destination for tourists who form a basis of earning the foreign exchange. The government plays an active role in the international trade by introducing tariffs, providing tax relief and export subsidies. To protect the industries that are not well established such as textile industry, the government charges tariff on the textile products imported. However, the country is also encouraging foreign investors and multinational business to establish business in this country to help solve the unemployment problem that the country is experiencing. To do this the government is providing tariff relieves to encourage investors and has seen the country attract numerous MNC in various industries such as energy, communication, production and manufacturing. There is also the expansion of the facilities such the ports to ensure efficient shipping of products. The country also forms part of the East Africa Community (EAC). This form one of the strongest economic integration block in the world after it was revived in the year 1998. It consists of the countries forming the East Africa in addition to Rwanda and Burundi. EAC attracted many MNC due to its new structure. It has already formed a common market and there are plans to make a federal government. This means by establishing a bank in Kenya, I will soon be able to serve the border of these five countries without any restrictions or currency barriers and hence a place to be.
Like any other place, opening office in Kenya introduces some financial risks. The company is likely to experience challenges as a result of inflation. Other financial risks are likely to rise from the fluctuating interest rates. However, with proper risk management and proper use of derivatives, it’s worthwhile establishing the office here. The business will be relevant to the MNC that have already established themselves, the government will also make revenue while the citizens will have a wider range of financial service provider in addition to the corporate responsibility activities.
Since 2007, Latin America has experienced economic expansion that was not witnessed in the preceding years. This has attracted several MNC and therefore a chance to finance any of them would act to extend the networks that would be necessary to create business in future. However, it is relevant to analyze the situation to avoid making losses arising from the developing countries with respect to the international trade.
The major risk that the MNC financing in Latin America is likely to experience relates to exchange rate risks. This is because; the rate at which the currencies are exchanged depends on the demand and supply of currencies given that the government does not intervene through pegging the rates. Exchange rate is either nominal or real when inflation is factored in. It may also be analyzed from basis of being bilateral or multilateral. The value of money within a country is affected by inflation while across the border; it’s affected by exchange rate. Majority of the countries in Latin America operates a free regime and the market forces determine the exchange rate.
To avoid the loss of value of money due to the use of different currency would be to make use of derivative instruments such as futures or forwards. This involves getting into an agreement that hedges against loss due to revaluation or appreciation of the domestic currency against international currency such as dollars. This would avoid such problems that were experienced in the Middle East resulting from changes in exchange rate.
The ability of the company to repay the loan will depend on profitability and cash flow. This means, it’s prudent to first understand the government policy in the country where the company is operating and other regulation that may inconvenience provision of the loan or loan repayment. Interest rates also depend on the government policies and they have the effect of raising the cost of business operation and hence reduced profit. My advice to the company would be first to understand the above fundamentals and looking for the possibility of hedging.