In the twenty-first century, depositors are able to invest in countries across the world without necessarily worrying about the business because of the availability of firsthand information collected online on setting the business. The world has become a ‘small village’ due to civilization and technology. Therefore, investors can now access all data on business opportunity by pressing a button on devices from homes or offices in their home countries. This research will discuss the issues global ventures have to handle when moving to a new country such as in case of exporting Adidas products to Japan. Before choosing the country, it is necessary to conduct research and analyze the results concerning economic condition, cultural conditions, political stability, and feasibility of the chosen location. The trading bloc of the country will determine the success of the business in other states in the bloc in case of a need to expand. Therefore, the region needs to be stable, and the trading partners with the country should be friendly.
A Financial Overview for a Global Venture in Exporting Adidas Products to Japan and the Foreign Exchange Risks Facing it
After locking on the country of choice, an investor should prepare a business plan detailing all the necessary information, including short and long-term goals for the business, timeline for breakeven, and the exit plan. The main market in Japan will be individuals who keep their bodies fit, football clubs, schools, and martial training institutions. Analyzing business prospects is important for any investor setting a business locally or internationally. Preparation of financial overview includes effective budgeting of the limited resources. It will help the company realize expectations at the end of the timeline. Budgeting helps a business understand the financial workings of the business equity.
Before commencing the business, the company drafted a three-year financial plan on what to achieve from the business (Punnett, 2015). The financial plan stated the expected sales, expenses, and the returns to achieve at its end. When preparing a financial overview, one should consider the duration of the business running before the first profit evaluation, short-term achievements and expected monthly targets, the method of achieving the final target (for example, in the use of daily plans such as the filling of paper spreadsheets), the use of computing software such as Excel that enable quick access of figure and tracking of changes, and constant review of the result to remain in the right track (Tracy, 2014). A financial overview for a global venture should consist of expected sales and revenue for each period; costs and expenses for achieving the sales and revenues; profit and loss account from sales; accumulated profit and losses towards the achievement of the target. The table below demonstrates the expected revenue and expenditure from the export of Adidas products to Japan.
Expected revenue and expenditure from the export of Adidas products to Japan
|Wages and salaries
In preparing the three-year financial overview, the company factored in the financial shocks such inflation risks and money markets price stability. In order to increase the chances of achieving the financial overview, the company will use financial computing software to detect any fraudulent that will hinder the company from achieving its target overview.
In order to get the net income prospected at the end of the project period, subtract the total expenditure/expenses ($4,080,000) from the total revenue collected ($1,920,000). The chart below represents the financial overview for the business venture.
From the chart above, the global venture expects to sale $6M dollars by the end of the third year of the financial overview. This represents 60 percent of the chart. The expected expenses that will make the sales include transportation at $1.8M dollars (18 percent), wages and salaries at $1.32M dollars (13 percent), and overhead at 0.96M dollars (10 percent). From the observation, it is evidently that the global venture faces transportation as the biggest expense at 18 percent. This is happening because of the costs the venture incurs in the process of shipping the products to Japan.
Firms that operate in different parts of the globe face risks of foreign exchange rate. Exchange rates affect fluctuation of the currency between the two countries as well as their influence on cash flows in the foreign firm and the assets and liabilities for the business venture. In order to mitigate exchange rate risks, the firm invoices the Japanese customers in their local currency, the Yen. The company pays those it owes in Japan by netting off the amount with those who owe the company. Netting can be bilateral and multilateral. In bilateral netting, two companies agree to solve their credits by one paying the amount owed by a foreign company, which also owes the local company that is paying the other. The other ways the company settles the issue of exchange rate are matching through operating foreign currency account, making contracts with firms to sell and buy in a certain exchange rate, and leading and lagging (O`Brien, 2014).
Identifying Domestic and International Financing Sources the Global Venture
All businesses need a system of financing to survive and breakeven. Before choosing the source of business financing, one should consider the size of the business, location, market of operation, and the operation period of the business. Businesses operating in different regions across the globe have a variety of options to choose who will finance them. For example, the business exporting Adidas products to Japan can seek finance from the mother country or from the foreign countries on which it is expanding. The investors can also choose to finance their business on their own without seeking help from banks and other financial institutions.
Due to the credit rating of the business, the company can obtain financing from domestic and international institutions. Domestic financing sources include the United States Export-Import Bank that specializes in firms expanding to international platform. The Bank finances different businesses that are exporting and importing products and services from one sovereign country to another. The most notable finances from the Bank are mining projects financing. The kinds of financing the Bank offers include export credit insurance, loans to businesses, and pre-export financing (Iwatani, Orr, & Salsberg, 2011). The business can also get loans from small and medium financing institutions such as Small Business Administration that issues funding such as EWCP (Export Working Capital Program) to organizations, individuals, and firms in the export sector. The program offers many services to the customers, including credit enhancement loans, standby letters of credit, low fees as compared to banks, and special permits to exporters such as substantial sale terms extension.
Small firms that fail to secure loans with banks can always receive support from EWCP. Investing will be split which means that the investments will not be on a 100 percent cash basis. Most financers offer financing only to a certain amount of what the business is worth. The international banks from which the businesses can receive support include the Bank of Japan which controls the economy hand in Japan. The Bank has mandate over other banks such as the commercial ones. It controls interest rates offered by other banks in Japan as well as currency transfers with countries that trade with the state and checks the foreign exchange rate. The Adidas products exporting business can get loans on fixed assets and working capital for the export from the International Trade Loan Program. Another institution in international business financing includes Investment Project Financing. It supports big businesses that require vast resources such as minerals extraction machines, high technology systems, power, complicated communication systems, and airports (TACSO, 2014).
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The Best Exiting Strategies for the Global Venture
Exiting from a global venture requires planning and involvement of parties that help in running the business. The business should conduct a research and set a correct timing for the exit because wrong timing may lead to regrets. Before exiting the global venture, the global venture should select an independent team to study the exit strategies, and upgrading the financial reports of the venture is necessary. These steps will help make conclusive decisions before the business starts the exiting process; investigation of the internal growth rate; and reconsideration of the strategies (Srivastava, 2010).
Some of the exit strategies include IPO offering, management buyout, divestiture of assets, liquidation and close, merger and acquisition, and selling the business to a friend. Divestiture of assets. Divestiture or divestment is a process of selling company’s properties/assets to manage the company portfolio. With its help, the company can exit the export of Adidas products to Japan. The company can sell assets such as equipment and property according to its exit plan. Divestiture can be performed in other forms such as asset liquidation and asset exchange for clearing debts and financial gains.
Selling to friendly interested partner. The business can exit Japan by selling its assets and everything it owns to friendly interested individuals or organization. Threfore, an investor exits a business in a certain country by selling the whole entity to a person. From the profit made, the seller can clear the creditors and keep the profit for him/herself.
Shutting down the operation. It is observed when the business decides that it is time now to close and quit from all its activities. It is the commonly used as well as the simplest exit strategy by global ventures.
Merger and acquisition. It is a process of two businesses coming together to form a company under one name. In case of merger, the Adidas product export business can merger with other companies supplying sportswear such as Nike. Nike will acquire the business and will be supplying the products to Japan.
Contingencies for other global ventures. Instead of a total sell down of the business, the investor can decide to hire trustee experts to manage the whole entity and use it as a source of income. It will be a good exit formula because the investor can choose other global ventures and invest the profits from the entrusted business. The business will act as a contingency for other businesses and for the investor (Zwilling, 2011).
Recommendation and Feasibility of the Global Venture in Japan
Venturing into Japan might seem risky and unfeasible for risk adverse investors because Japan is not very active in sports or any other international competition activities that require sportswear business to thrive in the country. One can easily conclude that exporting Adidas products to Japan is unfeasible business due to lack of participating in active international sports competitions as most of the countries in Europe, Africa, and the US do.
On the other hand, venturing into this business is worth as an investor. Japan is a stable country for businesses to thrive. It is among the top tech countries in the world, the access of technology will enable the business to study the nature of products that do well in the country and the region. Japan enjoys traditional sports activities such as Ninja martial arts which require customized attires. Therefore, it will be an opportunity for the global venture to take advantage on. The business can collect the sports specifications and requirement and request Adidas Inc. to make the sportswear. The country has made big steps in most sports activities such as soccer in the region and around the world. This progress shows that there is a need to invest due to potential for market growth. Setting of the business venture in Japan will make the business gain access to the neighboring countries under the protection of trade partners in the region. Therefore, I recommend Adidas to continue the global venture because Japan is a growing platform for sportswear due to its increasing activeness in sports in the recent years. The political stability, constant economic growth, and development in technology make it the best country to do business.
To conclude, before stepping into a new unfamiliar market, global ventures should prepare a conclusive business plan that covers the entire period the venture will be on operation. It is important to study the region surrounding the country and know its political stability, trade regulations, economic influences on the country of your choice and many so on. The global venture should also conduct a thorough research on the country that it is opening business.