The topic introduces the concept of multinational business finance, i.e., expanding business internationally in the global markets. The business organisation named has been chosen as the case study, which is looking to expand globally and provide products and services to the foreign market segments to gain more customers and increase sales for the company too. The topic will discuss about how the company will be able to enter the overseas market what approaches will be undertaken to manage the capital markets, foreign exchange rates and investments properly (Manova, Wei & Zhang, 2015). There are certain currency restrictions in China, which are needed to be considered by the footwear company, because it wants to expand its business operations and generate more business revenue by entering the overseas markets in China.
Dansko is a small sized footwear company that consists of 150 employees and annual revenue of nearly $120 million in United States. The product line of the company basically includes boots, sandals and sneakers. The company manages the employee stock ownership plan and conducts consistent monitoring processes to keep the employees skilled, knowledgeable and active enough to deliver the best quality products and services to the customers. The manufacturing and production processes are managed with high precision through maintenance of the labor standards and even on creating lesser impact on the environment (dansko.com, 2018). As it is a small growing company, the company wants to expand business globally and it has targeted the Chinese overseas markets where the products and services of the company will delivered for accomplishing the goal of obtaining more customers and generating better revenue in business.
While conducting a face-to-face interview with an employee of the organisation, I obtained relevant information about how the company managed to establish global business successfully and even created a huge difference between the present and previous years’ generated profit. It is quite normal for a small sized organization to consider the resources available at first, and then think of the exporting activities to manage global outreach and at the same time gain long-term business success. Before entering the Chinese markets, Dansko has established contacts with the local footwear companies and even with the higher officials of the Chinese footwear industry (Buettner et al., 2012). By representing in China with the support provided by a Chinese agent, distributor or business partner, it would be easy for the company to manage the intellectual rights. This allowed the company to protect its IT under the Chinese laws prior to the entering into the overseas markets. Being a US based company; there were multiple options for forming a corporate sector in China including the Foreign Owned enterprise, investment vehicles and Joint ventures too. Dansko’s CEO and manager who have enough knowledge expertise to conduct researches on the Chinese markets consulted with the IP rights holders and business lawyers in China. Mandy Cabot (CEO) and the manager Peter Kjellerup also included lawyers from both United States and China to research the market thoroughly for making the small sized company succeed in the Chinese market (Shroff, Verdi & Yu, 2013).
The Department of Commerce, US and United States Foreign Commercial services provided support to the company to offer customized solutions and succeed in the overseas markets. According to the responses of the employees, USFCS helped the company to prepare market entry as well as global expansion plans furthermore make the company learn about the export and customer related matters. This has helped in gaining export financing as well as the potential partners and business agents have been identified easily, who could be considered as major individuals affecting the global business expansion. Dansko purchased the Gold Key Service and got engaged with USFCS to leverage the high-level bilateral policy and financing matters discussions (Butler, 2016). When asked to the company executive about how it was involved with the company’s success in China, he stated that these tools provided the company scopes to position in the right market segments in China and took advantage of these markets to sustaining the business.
The foreign exchange rate reduced to more than 6 percent, because of the rise in US dollar due to the increase in rates of interest by Federal Reserve. Capital started flowing from China to United States downward pressure was put on the dollar exchange rates. The company consulted with the PBOC bank to make sure that the exchange rate differences could be eliminated by increasing the rates of interest and devaluing the Yuan to ensure better control over the capital markets. Various capital controls were imposed for managing restrictions on Chinese investment in foreign companies (Alfaro & Johnson, 2012). Due to the new capital controls, the business investments were done at lesser rates. Due to this, the local businesses also suffered and so to cope up with the tight capital controls, Dansko was welcomed to keep up with the capital control requirements and deliver the products and services accordingly. By managing the foreign exchange rates and capital, the organisation was successful in developing new stores all over China and even purchased the products locally through paying local currencies that were considered cheaper. This also helped in gaining enough profit and allowed the small company to reinvest money in the overseas markets of China (Buckley & Casson, 2016).
The management of the company could play a vital role in spreading necessary knowledge and allow the small and medium sized organizations to break into the lucrative overseas markets in China. There could have been difficulties for the US business to operate in China and trade with the Chinese footwear companies, but Dansko could gain proper control of the domestic monetary policies by managing free flow of capital and managing the foreign exchange rates properly. To manage the Yuan’s USD exchange rates, Dansko could also generate funds or take loans from People’s Bank of China or PBOC and combine the capital and exchange rate controls on a consistent manner of the foreign exchange rates of CNY versus the currencies. The management must understand the foreign currency impact and then evaluate the Chinese currency and its impact on global business expansion (Titman, Keown & Martin, 2017). The management must find out the cheapest ways of promoting the export activities for the footwear company and make sure to generate enough revenue in business. The management level of the company could also assess the time when the local RMB should be valued quite low, because of which the Chinese importers would buy the products of the foreign company, i.e., Dansko at a much higher price. Choosing the right market segments in China would be essential for entering the overseas markets as well as attract the foreign suppliers. This would not only make the small sized companies to lower the costs of operations, but would also influence the consumer spending behavior, which would ensure growth and development consistency all throughout (Brealey et al., 2012).
To create a sustainable place in the overseas markets, the company must understand the Government policies, rules and regulations to gain success in the Chinese market. According to the Chinese foreign investment catalogue, the foreign investments and exporting trade activities should be encouraged, which could create enough opportunities for the company to deliver products by aligning with the foreign market rules and regulations too. Exporting activities could be beneficial by capitalizing on the scale economy and gain better control over the processes of distribution of products and services (Hennart, 2012). Licensing should be effective as well, according to the company’s management, because it would allow the licensor to make limited rights and resources available to the licensee in the host country. The trademarks, copyrights and intellectual properties would be protected, furthermore create better scopes to enter the overseas markets and expand quickly without much risks and large amount of capital investments (Foley & Manova, 2015).
To make the best decision of financing the company, one of the most suitable methods could be the utilization of Foreign Investment vehicle. It is an useful method for financing international trade because it possesses high level of managerial control and can employ people without much restrictions, which can pro0vide better flexibility and convert the RMB profits into the US dollars. It also provides better protection of intellectual properties and creates better scopes and opportunities to use the existing customer base and sales network. The Joint ventures could be helpful as well for Dansko to invest together though the profit would be distributed between the two parties (Chor & Manova, 2012). This would also allow the company to gain accessibility to the existing resources of the business partner and improve the production facility. The costs of managing the business operations would be lowered, furthermore make better financing decisions in business. The market research conducted helped in developing knowledge through obtaining of more information and even interviews were conducted with the footwear industry experts in China. The qualitative methods were used to conduct interviews with the managers of the footwear companies while the quantitative method allowed the company to gain the responses of the respondents regarding their needs and requirements and what prices could influence their buying decisions (Becker, Chen & Greenberg, 2012).
Other methods for financing international trade could be cash in advance, open accounts and letters of credit. The exporter could prevent credit related risks by recovering the payment before transferring the ownership of goods to another person. With the advancement in technologies, the cash in advance option would be effective for the small export transactions and make sure that the small sized business do not remain behind the competitors within the footwear industry in China. Consignment is another method that can enable open account where the payments are sent to the exporter as soon as the foreign distributors, i.e., Dansko, sell the goods and services to the customers (Teng, Min & Pan, 2012). The market researches could also help in evaluating the nature and size of the market and overcome the barriers that might be faced while entering the foreign markets. A well-executed market research conducted could also be able to prevent poor decision-making and develop clear strategies for mapping success in the future (dansko.com, 2018).
Yes, I would definitely recommend Dansko to take the international leap not only to expand its business but also to generate more revenue in business. Managing global distribution of products and services could also allow the company to spread its business worldwide and increase the customer base, furthermore influence more and more customers to buy the footwear products of the company. The company manages sustainable approaches to create lesser impact on the environment and at the same time deliver products and services to meet the customers’ needs and requirements. The international leap could be success for the organisation, because the company would no longer be called as small sized company, because of its global operations and there would be better products and services’ flexibility too (Lenzen et al., 2012). The competition level would be reduced, which could allow the company to learn new methods and establish good relationships with the global competitors. Thus, the international business expansion should bring long-term success for the company and even gain competitive advantage in the foreign markets in China (Yarbrough & Yarbrough, 2014).
Conclusion
Dansko, being a small sized company wanted to expand its business by entering the foreign markets in China, where there were certain trade related restrictions and foreign exchange rate issues. The company must consider the capital markets, exchange rates for the foreign country and currency restrictions to break into the foreign market segments. The management though recommended the small companies to use exporting and licensing activities to manage international business successfully whereas the qualitative and quantitative methods allowed to conduct market researches. Lastly, it had been recommended to take the international leap for Dansko, so that the profit level could increase and the sales should increase.
References
Alfaro, L., & Johnson, M. S. (2012). Foreign direct investment and growth. In The evidence and impact of financial globalization (pp. 299-309).
Becker, B., Chen, J., & Greenberg, D. (2012). Financial development, fixed costs, and international trade. The Review of Corporate Finance Studies, 2(1), 1-28.
Brealey, R. A., Myers, S. C., Allen, F., & Mohanty, P. (2012). Principles of corporate finance. Tata McGraw-Hill Education.
Buckley, P. J., & Casson, M. (2016). The future of the multinational enterprise. Springer.
Buettner, T., Overesch, M., Schreiber, U., & Wamser, G. (2012). The impact of thin-capitalization rules on the capital structure of multinational firms. Journal of Public Economics, 96(11-12), 930-938.
Butler, K. C. (2016). Multinational Finance: Evaluating the Opportunities, Costs, and Risks of Multinational Operations. John Wiley & Sons.
Chor, D., & Manova, K. (2012). Off the cliff and back? Credit conditions and international trade during the global financial crisis. Journal of international economics, 87(1), 117-133.
dansko.com. (2018). Dansko Footwear. Retrieved 19 February 2018, from https://www.dansko.com
Foley, C. F., & Manova, K. (2015). International trade, multinational activity, and corporate finance. economics, 7(1), 119-146.
Hennart, J. F. (2012). Emerging market multinationals and the theory of the multinational enterprise. Global Strategy Journal, 2(3), 168-187.
Lenzen, M., Moran, D., Kanemoto, K., Foran, B., Lobefaro, L., & Geschke, A. (2012). International trade drives biodiversity threats in developing nations. Nature, 486(7401), 109.
Manova, K., Wei, S. J., & Zhang, Z. (2015). Firm exports and multinational activity under credit constraints. Review of Economics and Statistics, 97(3), 574-588.
Shroff, N., Verdi, R. S., & Yu, G. (2013). Information environment and the investment decisions of multinational corporations. The Accounting Review, 89(2), 759-790.
Teng, J. T., Min, J., & Pan, Q. (2012). Economic order quantity model with trade credit financing for non-decreasing demand. Omega, 40(3), 328-335.
Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and applications. Pearson.
Yarbrough, B. V., & Yarbrough, R. M. (2014). Cooperation and governance in international trade: The strategic organizational approach. Princeton University Press.
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