International Business

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Inthe balance of payment records, the following entries are entered asshown

1.U.S. resident purchases Mercedes-Benz C230 is a debit in thebalance of payment transaction because it represents a transfer ofgoods and the entry affected is the CA.

2.U.S. resident purchases Chevelle Impala, is a no entry in thebalance of payments transactions and, therefore, no account isaffected

3.Foreigner purchases GE dryer is a credit in the balance of paymenttransactions since this an export and the account affected is the KAaccount.

4.U.S. resident purchases UK stock is represented as a debit in thebalance of payment transactions. The debit entry is because thestocks purchased are from a different international country, and,therefore, the transaction is considered an overseas investment. Theaccount affected is the OSB account.

5.U.S. resident borrows funds from British broker to purchase stockis considered a capital investment and is recorded as a credit in thebalance of payment transactions. The account affected during thistransaction is the current account.

Thekind of exposure that the CFO of H&ampM is exposed to is operationalexposure and exchange rate exposure. This exposure is because H&ampMis based in Sweden and the financial statements are preparedaccording to IFRS (Daniels&amp Radebaugh, 2015). Operational strategies are effective inmanaging exposure by impacting the on the overall operations of anorganization. Firms’ operations range from production, sourcing tomarketing among many others.

Operationalstrategies that manage exposure take into account these operations ofan organization and take advantage in case of improved competitivepositions. The operational strategies will further minimize exposureby limiting the harm that can be caused by competitive environmentsto the organization. Operational strategies for managing exposure arequite different from financial hedging strategies. The difference isthat financial hedging normally provides organizations with cashflows that respond to the behavior of the exchange rate movements.However with financial hedging strategies, the firm has no realeconomic action and thus the hedging is not quite effective.Operating hedging strategies are both short term and long term, andthey hedge against the economic exposure of an organization.

Pricingpolicies are one of the operational hedging strategies that firmsadopt to protect their organizations from exposure(Daniels&amp Radebaugh, 2015). Pricing policies ensure that an organizationsets the kind of price for their organization that will maximize theprofits to the firm. The pricing policies are mainly dependent on theexisting exchange rate and the kind of product that the price isbeing set. The pricing policy will further be pegged on the length oftime with the exchange rate is expected to last and the economies ofscale that arise as a result of large production processes. Longerexchange rates result in greater price elasticities and thus agreater economy of scale and higher possibilities of attractingcompetition. Increased competition will force the home currency tolower their exchange rate price, and this will result in increaseddemand because of the depreciation of the home currency. Some of thefactors that organizations should consider during pricing policy arethe impact of the policy on cash flows currently and in the futureand the retention of the market share in the long run.

Promotionalstrategies are other operational hedging strategies that firms canadopt to manage the operating exposure in their organizations.Promotional strategies include essential marketing programs that makeup the promotional budget. These are advertising, selling andmerchandising. Organizations should make their promotional budgetswith consideration of the prevailing exchange rate. It is importantto note that when the dollar is doing well, larger returns will beexpected from advertising promotional strategies and vice versa.

Organizationsmay further adopt production strategies that form part of operationalhedging strategies in ensuring they manage the operational exposurein their firms. One way of dealing with the managing of exposurethrough production strategies is ensuring that operations arediversified. Diversification of operations means that organizationsdo not specialize in a certain type of operation but combine manyproduction operations that are profitable to the organization. Thisdiversification can be achieved by combining production of amanufactured good with importing operations.

Thisprocess of diversifying risk forms a natural operating hedgingstrategy and this helps to keep foreign cash flows steady in cases ofexchange rate movements. However, this strategy has some limitationsto an organization and some of them include the fact thatorganizations may engage in activities that offer no comparativeadvantage (Daniels&amp Radebaugh, 2015). This engagement will mean that resources ofthe organization will be poorly allocated, and this will be a veryexpensive operational hedging strategy to an organization.

Diversifyingthe source of inputs in an organization is another effectiveoperational hedging strategy used in managing exposure. The goal ofeffective production strategy is usually to reduce the operatingcosts, and this can only be achieved through the purchase of inputsfrom overseas when the home currency has appreciated. The increase inthe home currency usually leads to increased production costs, andthis is mitigated with getting inputs for the production process fromabroad. The only limitation with this operating hedging strategy isthat constantly switching suppliers may lead to more expenses in theorganization.


Daniels,&nbspJ.&nbspD.,&amp Radebaugh,&nbspL.&nbspH. (2015). Internationalbusiness: Environments and operations.Reading, MA: Addison-Wesley.

International Business

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Most companies willing to start businesses overseas should conduct arisk assessment, which usually involves environmental analysis. Thepaper explores the external environment of United Kingdom (UK) whereI am required to open a cosmetics business. The political andcultural environments are very crucial in determining how a newlyestablished business will perform in this country. Therefore, thepaper describes the macroeconomic factors as well as thesocio-cultural factors, which may influence the cosmetics business.With the assessment of the political climate and culture of thepeople of the UK, I will mitigate the risks, which are usuallyforgone by most investors who end up failing in business.

Macroeconomic Factors


UK is a member state of the European Union (EU), and hence publicadministration is handled at the EU level and the nationalgovernment. UK’s nations including Scotland, Wales, England andNorthern Ireland form the old Great Britain (EU,2016). The UK’s parliament consists of the House of Lords,House of Commons and the Crown. With the two-party system, the UK isheaded by a Prime Minister (PM), and the current PM is David Cameron.

In 2014, retail and wholesale trade, public administration, transportamong others were named as the most important sectors of thecountry’s economy (EU, 2016). The memberstates of the EU engage in free trade, which has been a key aspect inachieving liberalization of markets across Europe. The single marketin the EU attracts investors and in particular, places such as Londonare hubs for trade and technological innovations, which makes itfinancially viable for investments. It is notable that there are nolaws and regulations that restrict foreign investors in the UK. Thefree trade agreements among the EU states allow the free movement ofgoods, people and money. The UK’s economic can be said to becapitalistic in nature and hence foreign investors are not subjectedto high tariffs and taxes (EU, 2016).

In order to liberalize the EU market, most legal, bureaucratic andtechnical barriers to free movement of goods, services and peopleacross the EU’s member states were abolished. Thus most tariffs,quotas and embargoes have been removed in the UK to allow competitionamong businesses for the companies with good strategies and businessmodels to expand. However, there are strict laws that governindustrial pollution, employment, waste disposal among others. Mostimportantly, companies are required to pay VAT, which is tax chargedwhen making sales or purchases. VAT charges are imposed on companiesoperating in most countries around the world, and hence, this is nota significant barrier to trade in the UK for foreign investors (Jonesand Norton, 2014).

Political Issues

The UK is an attractive business environment because there is greatertransparency and fairness in public procurement as well as the fastjudicial process. The country has enjoyed a prosperous and stablemarket in Western Europe for the past few years. This is mainlybecause the electoral process in each four states enhances democracyand representation of people’s rights in the government. Inaddition to the involvement of non-governmental organizations inpublic affairs, the political climate in the UK creates the ease ofdoing business thus attracting foreign investors in real estate,banking, medicine and others (Suder, 2011).

Corruption usually undermines the rule of law, democracy and trust ingovernment institutions. The EU anti-corruption report in 2014 showedthat the fight against corruption is uneven across the EU memberstates. In particular, anti-corruption work has yielded good resultsin the UK due to the abolishment of most bureaucratic and technicalbarriers to trade. The UK parliament is also involved in formulatingthe EU policies as well as implementing the world-basedanti-corruption laws and policies such as the UN Convention againstCorruption (Jones and Norton, 2014).

The military role in the UK has positively impacted most companiesoperating within the borders. The political stability and improvedsecurity in the UK has encouraged the growth of businesses andattracted many foreign investors. However, investors should assessthe economic and political factors that in the emerging andestablished markets before committing their resources to start abusiness (Jones and Norton, 2014).

Being part of the EU’s single market, the UK’s markets hasstabilized for the past few years but, there is a need to improve inpublic administration and promote good governance to enhance theliberalization of markets.

Human Rights

The EU Charter of Fundamental Rights clearly states the human rights,and this applies to the national governments bound by the EU lawincluding the UK. When human rights are violated, individuals shouldseek legal redress in the UK courts, and they can take theircases/conflicts to the European Court of Justice (ECJ) if they arenot satisfied with the court rulings at the national level. The EUpolicy, which is effective in all member states works towardspromoting the rights of children women and minority groups. The UK’sconsumer rights are also included in the EU policy to ensure thehealth and safety of consumers (Hoffman &amp Rowe, 2006).

Legal issues

Bribery is illegal in the UK and, any company conducting business inthe UK Member States is liable for the conduct of an employee who isnot a resident in the UK (IBP, USA, 2008). The UK governmentrestricts improper misconduct, fraud and bribery, and the offendersare punished under the law (Campbell &amp Campbell, 2009).Currently, the government has managed to curb improper conduct andbribery especially in business according to the EU Anti-CorruptionReport released in 2014.

The UK laws protect the intellectual property rights of individualsto restrict the production of counterfeit goods. In the UK today, thecustoms authorities are alert in protecting the IP rights by givingan opportunity to the affected individuals or businesses to apply foraction (Campbell &amp Campbell, 2009).

The UK legislation also protects the patent rights, trademarks, andcopyrights as per the rules stipulated by the World IntellectualProperty Organization (WIPO). Companies can also apply for theEuropean patent or the national patent, which protects theirinnovations by ensuring that they are rewarded for them (Suder,2011).

At the EU and national levels, there are established professionalbodies that recognize individuals with certain professionalqualifications. The UK labor laws provide for unemployment benefits,pension rights, rights of the disabled people and maternity leave.There is no minimum wage/salary set by the UK government, and hence,companies remunerate workers based on the quantity of work or thetime spent at the workplace. The labor laws also stipulate theguidelines that are to be followed by all companies in ensuringoccupational health and safety of workers at the workplace (Campbell&amp Campbell, 2009).

Cultural Environment

The four countries that make up the UK have clear identities, andthus, the UK is a nation of ethnic and cultural diversity. The UnitedStates is also composed of people with different cultural practices,religions and ethnic backgrounds. The multicultural society of the UKis blended with its rich cultural heritage as well as the modernoutlook (Meyer, 2014). Appreciation of the cultural and businessvalues is necessary for conducting business. The cross-cultural risklikely to occur revolves around the cultural conflict between theworkers from outside the UK with those that have UK identities. Themost significant challenge to the cosmetics business will mainlyinvolve marketing the products to the market with diverse culturalbeliefs and practices.

The official languages in the UK include Welsh and English, and theseare key determinants of the people’s culture in the UK. The Britishpeople use a communication style that incorporates both verbal andnon-verbal communication. Therefore, business people should focus onthe voice and the facial expression while engaging in conversationswith the UK people. The English people are known for their courtesy,politeness and senses of humor (Meyer, 2014). When meeting someone,it is customary to greet them with hands, and hugging is not a commonpractice as in the US. The official language in the US is English,and their communication styles are almost similar to those of the UKpeople because they are also attentive to verbal and non-verbalcommunication.

During business related conversations, the British people will avoidtopics that invade their personal lives. Instead, they constantlyprotect their privacy especially during parties, businesses meetingsand other public gatherings. The business customs of the Britishpeople are almost similar to those of the American people and usuallyinvolve honoring others with gifts, presents and prizes as a way ofappreciating the good conduct (Meyer, 2014). The roles of women,children and men are clearly defined at a family level where the manis the head of the family the wife is usually involved in domesticworks while children assist the parents. However, at the place ofwork, women can be given tasks similar to the ones assigned to men.When there are cases of conflicts in business, these people alwaysgive the issue of concern considerable time for resolution, and theyrarely engage in fights during conflicts.


Campbell, D., &amp Campbell, C. T. (2009).&nbspLegal aspects ofdoing business in Europe. Salzburg, Austria: Yorkhill LawPublishing.

European Union (EU). UnitedKingdom. Obtained from: March 3, 2016.

Hoffman, D., &amp Rowe, J. (2006).&nbspHuman rights in the UK:An introduction to the human rights Act 1998. London: PearsonLongman.

Publications, USA. (2008).&nbspUnitedKingdom Company Laws and Regulations Handbook. Intl BusinessPubns USA.

Jones, B. and Norton, P. (2014). Politics UK. London:Routledge.

Meyer, E. (2014).&nbspThe Culture Map: Breaking Through theInvisible Boundaries of Global Business. New York: PublicAffairs.

Suder, G. G. S. (2011).&nbspDoing business in Europe. London:SAGE.

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