Global financial strategy and implementation

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.

Costs

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.

Risks

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).

Benefits/Advantages

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.

Limitations/Disadvantages

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.

Political risk

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.

Economic performance/projections

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.

Structural assessment

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 country manages its economic issues. These structural assessments should also focus on the determination of the legal and management programs to understand the various components in the achievement of goals and objectives of globalization. It is essential for the organization to understand the structures: economic, social, communications, transportation, and political in order to develop and implement appropriate mechanisms in the management of the issues. This indicates that the organization will have the opportunity to meet its targets by aligning its mechanisms with the relevant structures in the country.

Debt indicators

Another important risk factor is analysis of the debt indicators thus enabling the organization to focus on improvement of liquidity of its shares. This will enable the organization to accumulate capital globally through development and establishment of secondary shares' market. Debt indicators are also vital in the determination of the pricing mechanisms thus the opportunity for the organization to maximize its financial resources while minimizing the costs and relevant risks.

Credit Ratings

Credit ratings will determine the amount of profits or financial resources the organization will be able to accumulate from the global perspective. It is essential to focus on the credit rating in order to adopt and integrate adequate measures enabling the organization to maximize the opportunities in relation to shares' transactions. Credit ratings will also determine if the organization will venture into the territory or global boundary with the aim of establishing secondary markets for the shares.

Access to bank finance

Banking system is an important factor to any organization aiming to enhance its financial performance and accumulation of capital. In order to venture in global marketing or transaction, it is essential for the organization to adopt and integrate effective measures in the evaluation of accessibility of the banking facilities. Bank finance is essential in the growth and development of an organization. This is because of the critical role it plays in the realization of the goals and objectives of an organization though capital injection. Accessibility of banking finance will determine the ability or capacity of an organization in relation to performance (Chana & Yap 2011, p. 579).

Access to capital markets

The main aim of globalization is to enhance maximization of the capital markets and relevant opportunities in across the globe. It is, therefore, essential for an organization to focus on the examination of the global accessibility to capital market. This will facilitate projection and implementation of effective marketing strategies to improve the prices of the shares. Accessibility of the capital markets will also determine the level of participation of an organization in the global market. This is through establishment of the secondary market shares with the aim of improving the liquidity of the available and new shares in the accumulation of capital in the context of globalization.

Use the factors you identified in Part b) to undertake a country risk analysis of your allocated country

In the analysis of Chad republic, it is essential to consider factors such as political risk, economic performance/projections, structural assessment, credit ratings, access to bank finance, and access to capital markets.

Political Risks

In terms of political scenario, it is essential to note that there are elements of uncertainties. This indicates lack of stability in the political aspect of the country (Country Conditions 2013, p. 3). In such cases, it is risky for the organization to implement its investment mechanisms because of the political uncertainties and relevant negative impacts to realization of the goals and objectives of the firm (Chad 2013, p. 2).

Economic Performance/Projections

Political aspect is an essential context in the examination of the economic situation. Unstable economic situations indicate or illustrate uncertainties within the development of the economy. This makes it essential for the organization to relate the concept of political stability and economic performance. Chad republic faces economic uncertainties thus inappropriate for improvement of the financial benefits (Chad 2013, p. 2).

Structural Assessment

Chad republic has extensive structures such as taxation systems, legal contexts, and business regulations to determine quality interactions between consumers and business entities. These structures are also essential in the determination of the objectives of the organization thus the ability to enable the firm seeking to maximize aspects of globalization to develop quality mechanisms (CIA 2011, 134).

Credit Ratings

Credit ratings in this country are very low because of uncertainties relating to issues such as political and economic instabilities. The country does not have sufficient authority at the helm to offer adequate management mechanisms to minimize the aspects of instability. This makes it difficult for the shares to fetch sufficient or higher prices in the context of globalization.

Access to Bank Finance

There is relatively appropriate accessibility to bank finance thus the ability to enhance accumulation of capital by the organization. The country experiences quality financial infrastructures thus facilitating accumulation of capital and maximization of opportunities in the credit or shares market.

Access to Credit Market

There is also relatively appropriate accessibility to credit market despite the essence of uncertainties relating to political and economic spheres within the country. This offers the opportunity to improve the conditions experienced by the organizations in the form of economic uncertainties.

The senior management is not sure what cost of capital should be used to estimate Net Present Value. One of the directors attended a short course on finance recently and came across the term Capital Asset Pricing Model that can be used to estimate cost of equity. Obtain financial data for a company of your choice from 250 listed companies, using their published beta, estimate its cost of equity and weighted cost of capital as an example to explain to senior management how the cost of capital is determined.. Furthermore, provide a critical evaluation of the suitability of the net present value and the capital asset pricing model techniques for assessing potential target companies in the manner proposed by the Finance Director. Note that the total return for investors in UK equities was around 13% in 2012 and the risk free rate is 2%.