Exchange Risks Essay Example for Free

Exchange Risks Essay The challenging issues in international business within the 20th and 21st century are currency and exchange rate risks. In the late 20th century, for instances, it has been clear that exchange rate risks considerations are critical for business survival. The economics crisis in the U. S. and most of European countries has displayed how the value of currencies in international business settings could alter the faith of millions of people, brought some to welfare and others to poverty. Concerning the business strategy into Brazilian market, the plan to strengthen market in the country is greatly influenced by economical factors such as the inflation figure of Brazil and the global economics crisis. The inflation figure is important since it influence the purchasing power of Brazilian. The global economic crisis also influences the country’s exchange rate of Brazilian currency that further influence the pricing of Bimbo bread products. In the light of this involvement, companies need to perform foreign currency risks assessments regarding the business activities. Most companies generally apply some of the financial tools that would protect them from foreign currency risk exposure, like futures, forward contract, etc. Recommendation The first analysis that Bimbo may take in expanding into foreign market is the country risk analysis. This is important factor for Bimbo since retail industry is low concentrated industry in which many local bread providers. In addition, country risk analysis also helps Bimbo in assessing whether a country has a set of policy that benefits business or vice versa. The figure 1 suggests that the more attractive a country is in terms of FDI index, the more likely that Bimbo must immediately presents in the country. Based on the FDI Index, we assess that Bimbo has performed suitable investment in Brazil. Since a country risk is only one factor in deciding a foreign direct investment, Bimbo must perform the next step that is to define marketing objectives to guide the company in assessing their productivity in foreign market. Figure 1 Top 25 Countries in term of FDI Confidence Index Source: A. T. Kearney Challenges of Grupo Bimbo in the U. S Choose the Suitable Entry Strategy In terms of market entry, there are many ways of entering a foreign market; each has its own economic and legal implications. Some entry strategies that multinational companies usually take are joint venture and foreign direct investment. Joint venture is a type of foreign market penetration strategy has a considerably large investment risk but this method consists of an opportunity to learn and create a greater presence in the targeted markets. Companies prefer to perform this type of market entry strategy when dealing with countries whose government put considerable restrictions on foreign ownership (Quick MBA, 2007). In case of Bimbo, the company may conduct joint marketing, for example, with local retailer named Lojas Americanas, a Brazil leading department store chain. This method provides Bimbo with the capability to learn the Brazilian retail market since at that time Customers’ Preferences Other risks in conducting international expansion are cultural issues. This factor then accumulates into becoming customers’ preferences. According to various studies in the field, culture is often an underestimated factor in managing corporate businesses. These studies also revealed that those companies that failed to place culture as an important business consideration often find themselves in a disappointing circumstance. Business investments that cost millions of US dollars could go down the drain due to such failure (Kwintessential, 2007). For instances, the Brazilian and U. S. customers consider the quality of product as the most important factor when deciding to buy merchandises. The other factors are price, value added and packaging. Today, however, realizing the global environment we are living in, companies are becoming increasingly cultural sensitive. There are various examples of corporations that hired people from various backgrounds and discover a synergy within their cooperation. In terms of Bimbo, in order to cope with cultural issues, the company also makes some cultural adjustment such as the use of advertisement media. If in the U. S. , the company spends many television advertising, in the Brazil, Bimbo takes many radio advertisings since many Brazilian housewives listen to the radio more often then watching television. Reference: Ball, Donald A. et al. (2002). International Business the Challenge of Global Competition. McGraw Hill Holt, David H and Wigginton, Karen W. (2002). International Management. Thomson Kotler, Philip. (2000). Marketing Management. New Jersey: Prentice Hall Inc Kwintessential. (2007). Cultural Sensitivity in Business. Retrieved October 10, 2008 from http://www. kwintessential. co. uk/cultural-services/articles/cultural-sensitivity. html Quick MBA. (2007). Foreign Market Entry Modes. Retrieved October 10, 2008 from http://www. quickmba. com/strategy/global/marketentry/.