Abstract
The mandate of this paper is to offer advisory opinion on international investments to Content Cow Dairy Inc. given by Alexander and Kravis (A&K). The core mandate is to explain what is meant by investments and portfolio diversification. The key objective is to establish reasons why it is advisable to have foreign investments, particularly, in Egypt where the firm seeks to invest. In addition, it will explain the risks associated with international investments. Direct foreign investments
Direct foreign investment is defined as the process by which a firm in some particular country seeks to increase its production capacity in other regions. It implies increasing production in other regions after succeeding in its parent country. It offers solace to any firm that seeks to have portfolio diversification with an aim of reducing risks that may arise.
It involves the inflow of investments by the firm seeking to boost its market share in other regions. The investment is a sum of short- and long-term capital, normally manifested in the balance of payment.
In this regard, Content Cow Dairy Inc. can use several avenues presented by foreign investments to increase its market share. It is advisable that companies like Content Cow Dairy Inc. take advantage of their massive technological know-how and influence the market. Once a company has excelled in offering quality products and services within its locality, it should consider moving
Offshore and replicate the same. This is a very sane way of reducing the risks associated with having all the investments within the same locality. Similarly, Content Cow Dairy Inc. has excelled in offering quality products in the local market, it can replicate them in Egypt .This is because the country has not fully benefited from technological advancement in as far as milk and its products are concerned.
The above discussion justifies the reason why foreign direct investment is a proper way to have portfolio diversification.
Foreign investments
As explained below, it is advisable to have foreign investments. A company that enjoys comparative advantage should consider making use of it. This can be done by investing in other countries that are under utilized. (Strachman et al, 2010)
Similarly, the returns can be sustainable owing to the fact that few international companies have ventured into the country. Content Cow Dairy Inc. just like any other company must make use of their capacity by investing in underutilized markets. By so doing, they will be increasing their revenue. On the same note, they will be reducing their risks. This is the essence of portfolio diversification for any company. The technological advancement of Content Cow Dairy, Inc. means that it can competitively fight for its place in that market.
A company can diversify its portfolio if the prevailing market condition is unfavourable. By investing in other markets, it will be in a position to either maintain its income or increase its income. It should move to other countries that have not been fully utilized.
The USA currently has a volatile market. This is attributed to numerous companies that have continuously offered stiff competition to Content Cow Dairy Inc. Therefore, it is imperative that the firm diversifies to avoid any future risks attributed to having all the investments in one country. (Hagin, 2004)
Portfolio diversification enables a firm to invest in other markets once it has fully exploited its current market. This will increase the revenue of the firm.
Content Cow Dairy Inc. needs to invest in other countries because it has fully exploited the USA market. On this note, it is advisable for the firm to invest abroad to continue enjoying its enormous returns. Such an undertaking can increase the revenues beyond the current gains. (Krugman, Obstfeld & Melitz 2007)
Risks of foreign investments
These are basically divided into two; economic and political. Political aspects are concerned with political well-being of the country. Many countries including Egypt have had their share of challenges. These problems can pose threats to firms that have invested in these countries.
For example, recently, Egypt had political challenges that saw the impeachment of the former President. The calamity impacted negatively on the foreign firms in the country. Political instability can influence the productivity of foreign investments. They lead to uncertainties that are not very good for the firms. (Strachman et al, 2010)
Foreign investments can be affected by poor tax regimes in the foreign world. Lack of deep knowledge of these markets, can affect the returns of the investors. Poor human resource in the regions can also offer a blow to the firms.
Unfavourable Economic condition is one of the risks associated with investing internationally. It makes the business environment volatile. The result is less revenue from the business. Content Cow Dairy Inc is likely to face challenges in Egypt because of pre- and post-Arab world crisis in the country.
These factors could lead to the firm failing in its quest to invest internationally. A country must look at the Gross Domestic Product of the potential market. Additionally, the foreign market must have sound financial and good institutions. A disadvantage of having foreign investments is because the other country may have weak institutions that can bring loses. (Hagin, 2004) Methods for investing in an international market
Content Cow Dairy, Inc. faces different parameters that can be used to foster its international investments. To start, the firm can venture in the market through intermediaries. Alternatively, it can have a direct entry. Unless the firm has enough knowledge about the country, the best strategy is to use direct entry.
Content Cow Dairy, Inc. has to know the best sourcing method in such a case. The company is faced with different alternatives; it can opt to buy or make the goods. It, therefore, means that the firm can either import raw materials or buy locally produced raw materials.
Another important thing is how to invest in the country. The firm can have acquisition or joint venture. On the same note, the firm can decide to have a global partner. The best alternative is to have an acquisition. It can acquire the firms that are not performing very well in the country and the region. Similarly, firms can adapt and conform to the right footing as a strategy. A firm can also decide to lower its price or modify the products existing in the market. Another strategy is to make use of technical innovation (Hagin, 2004).
A firm can penetrate into the market, by adopting good strategies. The firm can offer quality but affordable products. This is possible because of the technical know-how that the firm possess and the economies of scale. Egypt has good infrastructure that makes the production of milk possible. The tax regime is also favourable. It is advisable to be aware of the market before investing.
Conclusion
Portfolio diversification is crucial for the economic growth and development of the entire globe. Furthermore, it can foster peaceful coexistence between different countries.
References
Hagin, R. (2004). Investment management portfolio diversification, risk, and timing—fact and fiction. Hoboken, N.J: Wiley.
Krugman, P., Obstfeld, M. & Melitz, M. (2007). International Economics: Theory and Policy. New Jersey: Prentice Hall PTR.
Strachman, D.A., & Bookbinder, R. (2010). Fund of funds investing a roadmap to portfolio diversification. Hoboken, NJ: John Wiley & Sons.