Expanding in International Markets

Expanding in International Markets

Introduction

Proctor and Gamble (P&G) are an American company. It has gone multinational and caters to consumer goods at large basis. It operates in grooming, health care, fabric care and home care segments. The manufacturing operations are based in U.S., Canada, Philippines, Europe, China, Africa and Australia. The paper aims to review the expansion of the company in Middle East markets. It tries to clearly understand the financial and economic aspects of Middle East region that can affect its operations in the selected markets.

Discussion

Dimensions of International Finance

Company are largely affected the three major dimensions of international finance that separate it from domestic finance. These are

Foreign exchange risks and political risks

Market imperfections of the host company

Expanded opportunity set possible for MNC

The MENA region includes many countries that lay in Arab territory and in North African region. These are Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, the Syrian Arab Republic, Tunisia, the United Arab Emirates, and Yemen. The Islamic State of Afghanistan, the Islamic Republic of Iran, Pakistan, and the West Bank and Gaza are also considered a part of this region (Abed, 2003).

P&G should consider the effects on its operations when entering MENA region as the uncertain exchange rates can cause potential threat to the exposure of MNC when entering the new market. In cross border transactions, the foreign exchange risk plays a crucial role in company transactions. It can also face the political risk. The risk can be due to unexpected changes in tax rules. These tax rules can significantly hurt the assets held by foreigners. The region also faces political fragmentation, recurring conflicts, and authoritarian rule despite key geographical location. In MNEA region, there is no clearer definition of public and private sectors. This leads to encouragement of conflicts of interest. The MNC can also face rent seeking and lobbying by policymakers. This money is used for purely private gains and is a form of corruption. The transparency in government operations is not well regulated, and accountability of this sector is also very low (Eken et.al, 2003). The governance of the system is detected by perception-based measures. This poor governance can be linked the differences that arise due to per capita income disparity. Thus, it is clear from recent evidences that the governance, accountability, regulatory quality and corruption control are not well addressed in the region. P&G can face the issues when entering MENA market.

The company should closely analyze the market imperfections. These imperfections can arise due to legal restrictions on the foreign corporation. They can also arise due to the transaction and transportation costs. The discrimination by taxation system is also caused due to information asymmetry. Trade openness is a good indicator of the degree of how much foreigners and nationals are able to carry out goods and services trading without any costs imposed by government. These costs if not imposed become a key factor in higher productivity and per capita income growth ...