Foreign direct investment proposal for a multinational enterprise

Successful FDI

Foreign direct investment (FDI) is the net inflows of investment to acquire management interest in an enterprise functioning in an economy other than that of the investor. Besides providing inflow of foreign capital and funds, foreign direct investment also enhance in the transfer of skills, technological innovations and job opportunities in an economy. Statistical data have suggested that foreign direct investment in the developing countries have also boost the local productivity growth.

A foreign direct investment can take-up the form of investment by an individual, a group of related individuals, public or private limited company, group of companies, trust, social institutions, government body or any combination of these. Foreign direct investment can be made in an economy through the method of completely owned subsidiary or company; acquisition of the listed company; merger of the related or unrelated enterprises and equity joint venture with another enterprise or business entity.

MNE or Multinational Enterprise is the large firms whose operations are expanded beyond boundaries. The business operations of MNE are conducted in different parts of the world with diversified products and services most likely to be customized according to the culture and market preference of that economy. The management structure of these MNEs is the multinational mix managers and owners (Pitelis & Roger, 2000).

summary

The common goal of MNE is to maximize shareholder's wealth. Supporting this goal, enterprises formulate business policies and strategies to contribute towards the accomplishment of maximized profit. The firm policies and strategies are adopted as per the requirement of the country in operation but their broader objective remains same. In the following text a hypothetical MNE with FDI operation is discussed.

Dot-Link Solution Inc. had decided to have foreign direct investment in Pakistan where it will work by merging with the telecommunication services provided by the local medium scaled industry and will target the customer base of urban cities and semi-rural areas where new enterprises are being developed and entering the business community. The business plan of the company has been discussed below. Benefits of the foreign direct invest and cost concerns are analyzed by looking at the case of Dot-Link solution Inc. Generally companies benefit from going international on the market share basis and profit maximization basis. Thorough economic and market research have been conducted before going international and feasibility study which covers cost benefit analysis have been analyzed.

MNE with business plan

Executive Summary

Dot-Link Solutions, Inc. is an Internet Service Provider (ISP) based its headquarters in United States. The company is offering wide range of services in the field of ISP to its customers. These include:

a) Dialup and high speed internet access (up to 64 Kbps)

b) High Bandwidth Internet access (128 Kbps) with ISDN-integrated services digital network, DSL-Digital Subscriber Line (DSL) and Wireless connectivity.

c) Network design, installation and administration services.

d) Website domain hosting.

Mission

Dot-Link Solution Inc. is focused on providing high quality of service to its customers with the complete internet solution of their future needs as well.

Market Summary

Customers include individual users targeted through their economical packages like student package, young professional package and home maker packages. The company's customer segment also includes small, medium and startup business professionals. The company has focused their services to the emerging sector of the market to provide them with quality of service in economical rates and to be a leader in the niche

The competitive threats are from other ISPs located in the region like Arizona.Net, Spider.net, Sun.Link etc. There are many similar services provided by these competitors but Dot-Link Solution Inc. has the competitive edge of providing services to the unreached segment of the market by providing web solution to small, medium and startup business enterprises.

Strategy and implementation summary

The strategy of the company is to provide high quality of service at affordable prices so it can penetrate in the target market more rapidly than its competitors. ISP industry is saturating in the industry therefore to excel in the market place the company has to provide increasing number of services to its clients so they have fewer alternatives to switch.

Strategic alliance

Dot-Link Solution Inc. currently maintains strategic alliance with telecommunication service providers like Fast Telecom, U.S. DSL Networks and Internet Arena. It now foresees to expand its business operations in the developing country like Pakistan. The investment strategy would be to merge with the local investors in the country with networking and telecommunication solutions minimize cost and maximize service utilization through extended innovative services and technology (Berry, 2010).

Financial Plan

This section covers the financial plan for new projects to be incorporated in the strategic alliance through foreign direct investment in Pakistan.

Expenses

Cost

Advertising

$60,000

Legal Fees

$20,000

Office

$50,000

Working Capital

$100,000

Miscellaneous

$30,000

Sub-Total

$260,000

Product Development

$300,000

Total

$560,000

CONDUCTING FDI

Dot-Link Solution Inc. had decided to have foreign direct investment in Pakistan where it will work by merging with the telecommunication services provided by the local medium scaled industry and will target the customer base of urban cities and semi-rural areas where new enterprises are being developed and entering the business community. For its marketing plan it will closely be working with the local technical training centers to educate its customers about the technology usage, importance and application. Trade shows, seminars, telemarketing campaigns, promotional giveaways, print media and industry organizations and associations like exhibitions conducted on the government level by Expo Centers operating locally. The sales and cost areas will be dialup internet access, high-bandwidth internet access, website and virtual domain hosting, network services and server collocation (Schermerhorn, 2009).

Advantages of FDI

The advantages for the company to operate in the international environment through foreign direct investment are:

a) Cost reduction and minimize on the cost of current offerings.

b) Sales expansion and market share increase.

c) Diversified sources of income, especially earning potentials due to currency differentials.

d) Tax benefits and tax laws of the country.

e) To capture the global market where opportunity existed.

Cost Benefit Analysis

To ensure that the investment plan is working feasibly, company will be conducting various financial techniques to forecast the financial viability. The analysis of the company includes:

a) Break Even Analysis- analyzing the quantity of sales at which the country will breakeven and the time period which will be required to meet the forecasted sales. Contribution margin will be calculated and margin of safety will be analyzed.

b) Pro-forma statement of financial position will be made with the projected profit and loss. The main item of projection is the Sales upon which expenses and revenue items are projected.