FDI Strategic Plan for Baxtern & Doll Construction Company Report

Introduction

Baxtern & Doll Construction Company is a registered firm operating in the UK building and construction industry. It has been a leading market player in the building and construction industry since its incorporation five years ago.

It has an asset base valued at 1.3 billion pounds. Following the expansion requisition for the firm, it wishes to invest in a foreign country, whilst meeting its strategic goals at the lowest operational costs and maximizing on the returns. This report highlights the country’s background, the firm’s financial products and services, demand of the products and services, economic feasibility of the investment plan, and the effects of currency exchange rate on the business.

Egypt’s Political, Economic and Cultural Background

Egypt is an Afro-Arabian country located in the North-Eastern Africa with the majority of its populace being Muslims commonly called Sunni. It borders the Mediterranean Sea in the horn of Africa as well as acting as the bridge between the African continent and the Arabian states.

Egypt has been a politically stable country with the most volatile moment being during the Mubarak era in which political clashes affected the country. Political stability of the state gives the firm humble investment time. With the current political stability state in the country, the investment is likely to out- perform investments in other potential countries.

Egypt has a mid-sized economy mainly funded by the Agriculture, mining and industrial sectors. Its population is slightly over 68million people majority being under the age of 50 and a population density is 62 persons per square kilometre. Majority of its populace is also unemployed and a literacy level of 53.7%, as well as a 26.1 million-labour force.

In addition, the economy has a GNP of about $80billion (51.6bn pounds), a GDP growth of 5.2% pa and an inflation rate of 12% pa. The economy has an opportunity cost of conflict valued at 106.5 billion pounds further rendering the growth rate low at only 5-6% per annum.

The exchange rates for the main currencies are fair with the main currencies; the dollar and the British pound valued at 0.166 and 0.1065 respectively. The economy also has 57 banking institutions with 28 of them being state owned commercial banks, 26 investment banks, 15 branches of foreign banks as well as 3 specialized commercial banks.

Moreover, the economy also has a stock exchange controller, the Egyptian Stock market handling 663 listed companies. The main listed companies in the stock exchange include those from the construction industry, agricultural industry as well as cement and steel industries with Orascom Construction Company being the market leader.

Egypt being an Arab speaking state has majority, 94% of its populace being Muslims and 4% Christians and other religions. Islamic culture is thereby predominant, in the state, shaping majority of personal and societal opinions. For instance, the use of Islamic banking principles is predominant in the majority of banking institutions in the country.

The quality, designing, as well as the size of residential areas being constructed based on Islamic monuments and religious buildings. The main merit that Baxtern & Doll Construction Company can accrue from executing the project, in Egypt, is being a market leader in pioneering other more stylish and ultra-modern building and construction designs.

Optionally, the firm will also get first hand information and designs from the local designers for implementation in other regions with similar culture. The key demerit to this uni-cultured state is the limitation for accessing funds and other credit facilities from their local banks. In view of Islam, funds from non-Muslims is unclean hence should be avoided.

Majority of local banks being Muslim oriented, implementation of the Islamic banking practices such as the adoption of the quad Hassan policy in which interest free loans are issued. The way forward, in alleviating these challenges, is having adequate information on the needs of the local residents.

Products and services

The firm should consider offering the following products and services, Islamic religious buildings construction services, green/solar powered housing facilities, real estate development services, construction consultancy services and sales of construction materials such as steel bars, roofing materials and glassware for construction companies.

Following the quest for expansion, the firm wishes to invest at least 40% of the net worth in the designated country. In this regard, a feasibility study on the best country/countries to invest in has been done with Egypt being considered as the most suitable country for the investment.

Why offer the products and services in Egypt?

To begin with, Egypt is a viable FDI destination for the investment project in real estate development because, as a growing third world economy, it has a high potential for growth. This aspect is fuelled by the fact that it has just recovered from the Mubarak-clashes, which rendered most places ruined and desolate.

Secondly, it also ranks better than most other potential investment destinations globally as well as having high demand for ultra modern housing for both the middle and upper class residents. The fact that Egypt is an unimpeachable source for enriched culture on Islamic buildings and design industry, it will enhance transferability of construction technology.

The Investment Plan

The investment plan is designed to offer affordable housing to both the middle and high-income earners in Egypt through

(i) Mortgage facility ceded by a local financial institution

(ii) Development of owner’s property at a fee

(iii) Designing and development of real estate facilities for commercial use such as malls,

(iv) Importing ultra-modern construction materials for local use by local contractors

(v) Provision of construction consultancy and related services

Economic viability of the plan

Egypt is a suitable destination investment country because the procedures of setting up the firm are few compared to other potential destinations, as it allows for subsidized machinery importation, as well as having low corporate tax rates.

Moreover, the project is viable since investing in the destination country will generate extra income to the company after maximizing on the economies of scale in Egypt where labour is cheap and readily available, ultra-modern construction designs are inexistent yet could fetch good returns as well as having low tax implications to the firm’s operations.

It will also help the company in construction technology transfer to the destination country, while gaining more skill on Islamic housing, hence a double benefit to the company’s investment of extra funds.

Effect of currency exchange rates on the business

An assumption of minimal fluctuations in the exchange rates is made from the onset of the project to the time the venture has fully picked up. Weakening of the Local Pound against the Egyptian Pound will lead to a reduction, in the purchasing power parity between the two currencies; hence, the business shall hold more funds in local currency other than in the Egyptian pounds.

In return, more Egyptian investors will be more willing to invest in the British pound dominated investments; hence, the company should size such a scenario to bid more investment cash from Egyptian investors increasing supplies to Egypt.

On the other hand, strengthening of the British pound against the pound will increase the purchasing power parity for the two currencies hence the firm should hold more funds in Egyptian pounds. In return, local British investors will be more willing to invest in Egyptian pound dominated ventures; hence, the firm should borrow from local lenders to invest in Egypt.

Trade & Licensing rules and procedures

In setting up the construction, company branch in Egypt, the procedure and rules include:

Factors to help Baxtern & Doll Construction Company in executing the project

Baxtern and Doll Construction Company have a stable financial background as well as having superior construction and housing technology. It has deployed local managers and employees to help solicit local housing information. The implementation of this project in Egypt will have various impacts on the economy.

First, it will improve of the national housing infrastructure through the development of ultra modern housing facilities. Employment opportunities will further be created. The country will also raise income tax from the project. There will also be resource utilization and mobilization by using local resources. Housing technology improvement – use of expatriated technology will better the local housing technology such as green/solar powered housing facilities. Conclusion

In conclusion, considering Egypt, as the destination FDI country, the project will be more beneficial to both the firm and the destination country. The products and services have demand in the country because of their use of cheap and modern technology. Even though this venture will not be a virgin market for the company, it presents a potential market given the pricing of the products and services.

Running costs have always been high in many third world countries and by introducing technology into the market, Baxtern & Doll offers a way of cutting down on running costs. The products will be sold in various markets, as there is demand for modern technology in the building and construction industry.

Moreover, the firm’s plan is economically feasible considering the marketing mix elements of price, place, distribution, and promotion. This will further see the firm raise more funds to fund more local projects. Lastly, the firm can capitalize on the economics of scale, in Egypt, to better its financial value.