Global trading is part of the reason behind interdependence of countries thus the move towards businesses becoming multinationals via FDIs. This move has encouraged and exploited a lot of businesses both foreign and domestic allowing organisational growth.
With foreign trade, comes the baggage of exposure risks and different investment schemes. Currently due to the recent economical crisis that is making most companies struggle through this recession period has proved that a times the whole aspect of an organisation both domestic and foreign can be adversely affected. Take for example, the article by James Rossiter (The Times, 2008) about Tesco and its joint ventures. As a result of the economic crisis a firm such as Tesco (who strategically expanded their business to cut costs i.e tax) must have suffered from all aspects of its business worldwide due to the effect of the economic climate. Such economic crisis brought about so many risks exposures which firms had to embrace whether it was transactional, translation or economic. In the case of Tesco, all three of these exposures were exercised as these were macro-economic factors that could not be avoided regardless of the provisions made. The economic external environment is one of the main causes of market volatility as it directly affects inflation, tax and exchange rates.
Still using Tesco as an example, i believe the organisation made a great strategic move to spread its business as a multinational via joint ventures. This has allowed the organisation to reach some form of economies of scale especially with regards to tax evasion. Businesses with sound focus on achieving profit or shareholder maximisation could adopt the strategies of Tesco enabling them to get the best in terms of foreign investment and global integration helping them to spread their products and services in a manner that is cost effective as a whole.
In general the issue of corporate risks for multinationals is not something that can be avoided but its something that can be dealt with in order to minimise the impact of risk exposures on an entity via better preparations and provisions. Drawing a curtain on the negative part of multinational risks and exposure, the movement of global trade has provided the opportunity for business growth and integration. So whether a company's vision is to maximise profit or provide the shareholders with the best returns, the best way is through FDI enabling cost efficiencies.
Sunday 27 February 2011
Sunday 20 February 2011
Economical Recovery
Financing is one of the most important factors for economical growth both nationally and internationally. Recently in the news there have been issues with regards to companies and economies trying to raise finance whether in the form of loans or equities and other sources such as government bonds. All the sources of raising finance have their advantages and disadvantages, choosing the right method depends on the project involved.
In the business news this week on the BBC, China had a reduction on the amount of US treasury holdings which apparently was running for the second consecutive month. The US for a while now since the financial crisis has been trying to build itself up/ recover its market back to the way it was, but the truth is, it is proving more difficult than it seems as its more or less relying on the government bonds and global equities to act as a stepping stone to its recovery. It also does not make it anymore easier especially with the fact that the US dollar has weakened significantly making the US assets less attractive especially for the investors. China being the world's second largest economy (just over taking Japan), remains to be the biggest holder of the US debt, but this should be of no surprise because of the rapid economical growth it has been experiencing as a result of a manufacturing boom.
The US economy though relying on the international growth, it also relies on China, but due to the three times increments on interest rates in China, inflation has had a drastic rise which in turn can cause heavy implications for the US corporations that have been reliant on its international growth to assist the US economy. There is still hope for the recovery of the US and amidst all their solutions to raising finance it seems they're sticking to the financing methods of equities and international loans. One hopes the future will be more lucrative for the US economy just like that of the Eurozone who have formed a permanent bail-out fund called the 'European Stability Mechanism' (ESM) worth 500bn euros replacing the previous 'European Financial Stability Facility' (EFSF) worth 440bn; this was to provide support to the eurozone countries as a back up to any financial mis-hap which is more than the backup the US economy has at the moment. With China suffering from higher inflation i can only imagine how this will affect the future debt holdings of the US economy.
In the business news this week on the BBC, China had a reduction on the amount of US treasury holdings which apparently was running for the second consecutive month. The US for a while now since the financial crisis has been trying to build itself up/ recover its market back to the way it was, but the truth is, it is proving more difficult than it seems as its more or less relying on the government bonds and global equities to act as a stepping stone to its recovery. It also does not make it anymore easier especially with the fact that the US dollar has weakened significantly making the US assets less attractive especially for the investors. China being the world's second largest economy (just over taking Japan), remains to be the biggest holder of the US debt, but this should be of no surprise because of the rapid economical growth it has been experiencing as a result of a manufacturing boom.
The US economy though relying on the international growth, it also relies on China, but due to the three times increments on interest rates in China, inflation has had a drastic rise which in turn can cause heavy implications for the US corporations that have been reliant on its international growth to assist the US economy. There is still hope for the recovery of the US and amidst all their solutions to raising finance it seems they're sticking to the financing methods of equities and international loans. One hopes the future will be more lucrative for the US economy just like that of the Eurozone who have formed a permanent bail-out fund called the 'European Stability Mechanism' (ESM) worth 500bn euros replacing the previous 'European Financial Stability Facility' (EFSF) worth 440bn; this was to provide support to the eurozone countries as a back up to any financial mis-hap which is more than the backup the US economy has at the moment. With China suffering from higher inflation i can only imagine how this will affect the future debt holdings of the US economy.
Friday 11 February 2011
The Great Exchange: LSE- TMX merger
The merger of 'equals' gave birth to the largest exchange listing for the mining company. The new merger that took place between London Stock Exchange (LSE) and Toronto Stock Exchange (TMX Group) now has total combined listings of 6,700 with an aggregate market capitalisation of approximately $3.7 trillion.
This merger of equals was one recommended by the boards of LSE and TMX, with LSE shareholders owning 55% and TMX owning 45% of the capital. Not long after the announcement of LSE-TMX merger the share prices for LSE shot up by approximately 8% (a rise by 72.5p) after which began to have a slight drop hours after the merger. Due to the fluctuations on the rise and fall of share prices, this goes to show how inefficient the stock market can be, it seems that there is no particular trend to justify or even predict movements in shares as it all depends on the time the announcements are made in relation to change/ news regarding a firm. The prices of shares are not necessarily predermined by a particular factor as proved by studies in the early 1960s and 70s. All known information (historic) are reflected in the share price, and how quickly the news gets out, of how bad or how good a firm is performing is something that will surely determine the returns to be made to shareholders.
To be honest shareholders are one of the biggest risk takers as they are investing into uncertainty in the world of financial returns. The truth i believe is that the main price-setters in terms of shares can be selfish depending on their mood and situation. As for the shareholders, things might not necessarily work out according to the promises of the firms they have invested in, so their highest protector is the news; now depending on how quick they follow the news on their firms this will determine whether or not they are making a profit/ loss and hence determine whether to buy/sell as there are no such things as 'perfect timing' it is more a matter of 'luck' considering abnormal returns does not exist unless there is a 'leak' to warn particular investors before the news is out publically.
Going back to the merger of LSE-TMX group, this merger looks promising and will benefit companies and centres like Toronto, Milan and London as well as its shareholders. This is because products will be crossed linked allowing considerable growth opportunities and a 'deep pool' allowing more investors and also European issuers having a 'gateway' into the North American financial markets. This is enough to keep the share prices up for awhile, giving the shareholders and other investors a thing or two to smile about but with talks around the corner regarding a possible merger between another two 'giants' in the exchange markets the NYSE Euronext and Deutsche Boerse (although both firms refused to comment) just before discussions about the dealings were announced (according to the BBC) the share in LSE suddenly climbed by 3.1%, again proving just how much new information can quickly and rationally affect share prices. So really when it comes to share prices and wanting abnormal returns, even i will advise that its not worth wasting time and studying past events of firms and their performances, it is more a matter of 'luck' and striking it rich by 'chance' unless one has access to information that has not yet been published.
This merger of equals was one recommended by the boards of LSE and TMX, with LSE shareholders owning 55% and TMX owning 45% of the capital. Not long after the announcement of LSE-TMX merger the share prices for LSE shot up by approximately 8% (a rise by 72.5p) after which began to have a slight drop hours after the merger. Due to the fluctuations on the rise and fall of share prices, this goes to show how inefficient the stock market can be, it seems that there is no particular trend to justify or even predict movements in shares as it all depends on the time the announcements are made in relation to change/ news regarding a firm. The prices of shares are not necessarily predermined by a particular factor as proved by studies in the early 1960s and 70s. All known information (historic) are reflected in the share price, and how quickly the news gets out, of how bad or how good a firm is performing is something that will surely determine the returns to be made to shareholders.
To be honest shareholders are one of the biggest risk takers as they are investing into uncertainty in the world of financial returns. The truth i believe is that the main price-setters in terms of shares can be selfish depending on their mood and situation. As for the shareholders, things might not necessarily work out according to the promises of the firms they have invested in, so their highest protector is the news; now depending on how quick they follow the news on their firms this will determine whether or not they are making a profit/ loss and hence determine whether to buy/sell as there are no such things as 'perfect timing' it is more a matter of 'luck' considering abnormal returns does not exist unless there is a 'leak' to warn particular investors before the news is out publically.
Going back to the merger of LSE-TMX group, this merger looks promising and will benefit companies and centres like Toronto, Milan and London as well as its shareholders. This is because products will be crossed linked allowing considerable growth opportunities and a 'deep pool' allowing more investors and also European issuers having a 'gateway' into the North American financial markets. This is enough to keep the share prices up for awhile, giving the shareholders and other investors a thing or two to smile about but with talks around the corner regarding a possible merger between another two 'giants' in the exchange markets the NYSE Euronext and Deutsche Boerse (although both firms refused to comment) just before discussions about the dealings were announced (according to the BBC) the share in LSE suddenly climbed by 3.1%, again proving just how much new information can quickly and rationally affect share prices. So really when it comes to share prices and wanting abnormal returns, even i will advise that its not worth wasting time and studying past events of firms and their performances, it is more a matter of 'luck' and striking it rich by 'chance' unless one has access to information that has not yet been published.
Sunday 6 February 2011
Are the managers in firms giving shareholders what they want?
Most firms now adays state that their focus is not only on expanding their organisation but also in giving back returns (dividends) to their shareholders. How true that is, i believe depends on the firm's financial performance considering as the economic market has become versatile so has the dividends being paid back to shareholders. But if the shareholder's are being paid dividends, why do they still have concerns?
According to Friedrich Hayek and Milton Friedman, they believe that if shareholder's interests are being made paramount, both the firm and the society at large are likely to benefit so long as the firm obey the laws and ethics of society. But the truth is everyone wants to benefit in other words stakeholders want to benefit as well as satisfying the shareholders. With the way businesses are ran nowadays according to Fame and Jenson (1983) they decided to introduce the agency-cost theory where managements behaviour will be monitored more frequently with regards to shareholders wealth. This is apparently suppose to minimise managment's self interest and focus on the firm's performance as a whole which will in turn give rise to higher dividends for the shraeholders and more benefits (i.e bonuses) for the staffs and managment team when targets are acheived..
But sometimes there are external factors which are likely to affect a firms performance due to slight ignorance for lack of adherence from management to professional advice from both internal and external informants. An example of this is the current situation occuring with BP and their £bns losses due to the fuel spill known as the 'Deepwater Horizon oil spill' that took place on April 20th 2010. This dramatically affected the company's performance hence affecting their dividend payouts. Infact until recently the shareholders were not paid any dividends for a couple of months, and even now the dividend payouts they receive is a lot less than before as its been cut by a half. The questions is how effective were the managment decisions in their objectives towards shareholders? Its very easy to blame external factors for this mess but also it could have been avoided via thorough consideration and err on the side of caution but instead professional warnings about the pipes were neglected.
BP's share have dramatically dropped since this incident. What does the future hold for investors now? will they hold or will they sell? These are questions that will be on every shareholder's mind especially with the recent news of $900m Russian setback. There are threats from their Russian partner in TNK-BP who are not in support of BP's promise of further payouts considering the organisation's current situation.
According to Friedrich Hayek and Milton Friedman, they believe that if shareholder's interests are being made paramount, both the firm and the society at large are likely to benefit so long as the firm obey the laws and ethics of society. But the truth is everyone wants to benefit in other words stakeholders want to benefit as well as satisfying the shareholders. With the way businesses are ran nowadays according to Fame and Jenson (1983) they decided to introduce the agency-cost theory where managements behaviour will be monitored more frequently with regards to shareholders wealth. This is apparently suppose to minimise managment's self interest and focus on the firm's performance as a whole which will in turn give rise to higher dividends for the shraeholders and more benefits (i.e bonuses) for the staffs and managment team when targets are acheived..
But sometimes there are external factors which are likely to affect a firms performance due to slight ignorance for lack of adherence from management to professional advice from both internal and external informants. An example of this is the current situation occuring with BP and their £bns losses due to the fuel spill known as the 'Deepwater Horizon oil spill' that took place on April 20th 2010. This dramatically affected the company's performance hence affecting their dividend payouts. Infact until recently the shareholders were not paid any dividends for a couple of months, and even now the dividend payouts they receive is a lot less than before as its been cut by a half. The questions is how effective were the managment decisions in their objectives towards shareholders? Its very easy to blame external factors for this mess but also it could have been avoided via thorough consideration and err on the side of caution but instead professional warnings about the pipes were neglected.
BP's share have dramatically dropped since this incident. What does the future hold for investors now? will they hold or will they sell? These are questions that will be on every shareholder's mind especially with the recent news of $900m Russian setback. There are threats from their Russian partner in TNK-BP who are not in support of BP's promise of further payouts considering the organisation's current situation.
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