Fundamentals of Financial Management essay
In the era of globalization, most companies start expansion to foreign markets either as investors or as regular business players. Globalized market offers multiple opportunities for investment and expansion, but also presents a number of challenges for the companies. The purpose of this paper is to consider the case of going global for Nike, Inc. and review the investment opportunities such as purchase of shares of other companies or opening up new branches. The importance of understanding the main challenges in the global market for the financial managers of Nike, Inc. is also discussed in the paper and possible criteria for selection of investment will be analyzed.
There are several types of factors which might significantly affect the company’s overseas operations. First of all, these are cultural differences and language differences. Secondly, political and legal factors are highly important. For example, the regulations on the purchase of shares by foreign investors and general conditions for foreign investments in the country are important for making investments in the shares of other companies. For opening new branches, the regulations dealing with foreign business and foreign employers are also highly important, as well as local labor laws, export and import laws and tariffs, and taxation for foreign investors. The state of the economy in a selected country and key economic variables – inflation, employment, exchange rates, etc. – are of utmost importance for investment decision-making (Brigham & Houston, 2009). Therefore, cultural awareness and understanding of the main challenges of the global market is a must for Nike Inc. financial managers, because without this knowledge operating in foreign countries would hardly be effective.
The choice of the criteria for the investment opportunities overseas for Nike, Inc. will depend on the purpose of the investment. According to Brigham and Houston (2009), there are six primary reasons for going global for the companies: broadening the markets, seeking raw materials, seeking new technologies, seeking production efficiency, avoiding political and regulatory issues, and diversifying. For Nike, Inc. the most likely purposes are expanded production efficiency and diversification.
For the purpose of increasing production efficiency, the criterion should be based on the appropriateness of regulations, availability of locations and other geopolitical factors, as well as the investment climate in the selected region. Financial factors such as inflation, exchange rates and dynamics of wages in the industry are also important for evaluating investment opportunities (Brigham & Houston, 2009). With regard to diversification, important criteria for selecting investment opportunities are the overall state of the economy (GDP dynamics), exchange rates, inflation and import regulations. Country-specific demand for Nike products, competitive environment and market saturation should necessarily be considered for such investment.
For less substantial investment projects (projects with more precisely determined scope and goal, and with limited budget and time period), one more criterion should be added – NPV of the project estimated using the country-specific market premium should be above zero (or should excel certain predetermined minimal limit). Overall, for every investment opportunity there is a large set of factors shaping selection criteria, which are determined by the scope and specifics of this opportunity.
If the choice of the investment opportunities should be done between purchasing shares of other companies and opening up new branches, Nike Inc. should first of all evaluate risk premium associated with each of these opportunities. The following factors should be taken into account: political risks, currency denominations, economic and legal structures existing in the chosen country, and the impact of government (Brigham & Houston, 2009). For the purchase of shares of other companies or for going public overseas, such factors as prerequisites for financial statements, accounting standards and overall stock dynamics at the selected stock exchange (Gould, McAllister & Orsini, 1997). In any case, Nike Inc. should perform the analysis of political, social, technological, economic and financial factors before making investment decisions.
