Global Financial Strategy Case Study
- Length: 10 pages
- Sources: 15
- Subject: Business - Management
- Type: Case Study
- Paper: #83072330
Excerpt from Case Study :
Global Financial Strategy
Critical assessment of the proposal to raise capital locally rather than in the UK
In the analysis of the proposal of raising capital locally rather than in the UK, it is essential to consider four critical aspects: costs, risks, benefits/advantages, and limitations/disadvantages. In the presentation of this critical assessment, the focus will be on the four factors or aspect in order to offer reliable analysis of the situation.
In the process of raising capital locally rather than in the UK, the organization must incur several costs. One of the essential costs is the professional cost. This refers to the amount of money or financial resources paid to the legal advisors, auditors, and reporting accountants in order to execute the process of raising the capital effectively and appropriately. Another important aspect of cost is the trading cost. These are direct costs including the brokerage commissions and financial resources paid by investors or the company in the process of transacting the organization's stock. There is also the need to cater for the regulatory and corporate governance or management costs and benefits (Burnham 2010, p. 28).
This indicates that the organization must adopt and integrate relevant mechanisms to enhance its ability to raise capital locally rather than in the United Kingdom. It is essential for the organization to cater for the compliance cost in the accumulation of equity or capital within the local context. This is also effective and appropriate because adherence to the relevant governance and management standards contributes to the realization of benefits to the organization and its components. The other cost is the aspect of establishment of the shares' market for the accumulation of sufficient resources for the acquisition process. This indicates that the organization must incur the cost of establishing these markets locally rather than maximization of the global marketing strategies.
In the accumulation of the risks in the local scenario rather than global perspective, the firm will have to manage several risks. One of the essential risks in the management of the local capital accumulation is political risks. Political stability enhances the ability of the organization to meet the goals and objectives within the shares' market. Its effective and efficient management by the organization will facilitate the achievement of the goals and objectives. Another risk is inability to improve the aspect of liquidity of the shares. The organization must manage the liquidity process in order to maximize the accumulation of the capital in the local environment. Another essential risk is the establishment of secondary shares' market for the execution of the process. This is because of the inability of the organization to develop these markets in the local accumulation of capital. It is also essential for the organization to plan for an effective pricing system to enhance the performance of the shares in the local market. These identification and management concepts will enable the organization to minimize the risks thus the opportunity to maximize its financial opportunities while minimizing the costs (Wong 2011, p. 11).
In the local accumulation, the organization has the ability and opportunity to minimize its cost of operations while maximizing the output. This is through adherence to the management regulations in the development of the share markets for the acquisition of foreign firms. The organization will also incur minimal cost because of the essence of the minimum risks in the development and execution of such method in accumulating capital. The organization will also have the opportunity to maximize the aspect of the familiar territory. This is because the firm has clear knowledge of the factors affecting production and business interactions within the country or locality (Dore 2008, p. 1098). The firm will implement such knowledge to improve its participation in the accumulation of capital thus the opportunity to minimize the marginal cost of the production or accumulation of equity within the local environment rather than in the UK.
The organization will also be able to overcome infrastructural differences in relation to implementation of local aspect in the accumulation of wealth. It is also essential for the organization to maximize the laws of the land. This is because the firm has the ability and capacity to understand and implement the laws of the land than in the global perspective. This will enhance the volume of financial resources thus the opportunity for the organization to meet the needs and demands of the acquisition process. The organization will also incur minimum risks in the execution of its ideas and concepts in the accumulation of wealth. This is an essential concept in the maximization of the available opportunities with the aim of minimizing the risks.
Local accumulation of capital leads to realization of various limitations or disadvantages thus limiting the growth and development of the organization unlike in the case of global accumulation of equity. One of the essential limitations in relation to accumulation of capital locally by the organization is inability to improve liquidity of the existing shares and substantial support for the new shares in the foreign or global market. Accumulation of capital in the global market would enable the organization to improve its liquidity of the existing shares. In similar approach, the organization will also offer substantial support to the new shares in the global market (Carvalhal & Camara 2013, p. 18).
This indicates that the organization will face obstacles and challenges in relation to improvement of liquidity of the shares in local accumulation of capital. Another essential limitation in the context of local accumulation of capital is inability of the organization to increase the price of its shares. This indicates that the organization will not be able to overcome the aspect of mispricing in relation to the segmentations and illiquid capital market in the local situation. It is essential for the organization to adopt and implement global financial strategy in the accumulation of capital thus the opportunity to address issues such as increase in the price of the shares. This will also enable the organization to maximize its revenues while minimizing the cost of accumulation of capital in the global scenario (McNally 2009, p. 36).
Local accumulation of capital will also limit the firm's visibility and political acceptance with reference to the relevant consumers, creditors, foreign authorities, and suppliers. This indicates that the organization will have limited opportunities in enhancing the visibility in the context of the factors such as political acceptance by the shareholders and stakeholders. Local accumulation of capital will also hinder attempts by the organization to establish an appropriate secondary market for the transaction of shares in the acquisition of other firms in the foreign market. Global financial strategy has the ability to enable the organization to establish an effective and efficient secondary market for the shares in the acquisition of other firms within the foreign market. Local accumulation of capital will also hinder the ability of the organization to develop secondary market to facilitate compensation for the local management and stakeholders in the global affiliates. This indicates that it is appropriate for the organization to adopt and integrate foreign financial strategies in the accumulation of capital.
A review of the literature to identify factors, which academics consider fundamental to an analysis of country risk
In the execution of extensive and effective analysis of the previous research exercises in relation to global financial strategies, it was evident that some factors are vital in assessment or analysis of the country risk. These risk factors include political risk, economic performance/projections, structural assessment, credit ratings, access to bank finance, and access to capital markets.
In the analysis of the country risk, it is essential for the organization to focus on the assessment of the political environment. This indicates evaluation of the aspects such as political unrest, stability, role of government in business, and political influence in the development and implementation of policies. This is because political components such as stability, unrest, and influences have great impacts on the realization of the goals and objectives of the global organizations. Inability to exercise this risk factor effectively and efficiently will limit the capacity of the organization to achieve its targets within the global market.
Performance or projections within the economy are also essential components in the analysis of the risks factors in the context of globalization. This assessment will enable the organization to plan and project its operations appropriately in accordance with the economic situation within the economy. It is there essential to execute analysis of economic performance because organizations will only perform extremely in the context of bursting economies. In case of recession in the global economy, it is essential for the organization to avoid implementing its strategies and investments because of the likelihood of losses because of poor performance by the economy.
It is also essential to focus on the implementation of critical analysis of the structural development of the country. This is through extensive evaluation of the economic development, infrastructures, and social interactions thus the opportunity to understand how the…