Question 1 (30 marks) Sunshine Telecoms (STC), a large telecommunications company in South Africa is looking to grow its business by introducing some fintech products. It has identified a fast-growing mobile money player in Nigeria that it would like to acquire it in order to kick-start this strategy. You are a business consultant assisting STC with their go-to-market strategy in this regard. a. Highlight the pros and cons of STC exploiting the international markets by way acquiring an existing operation in Nigeria? (6 Marks) b. You explain to the management team and board of STC that the agency costs of the firms will increase if this strategy is implemented. Define agency costs and explain why these are normally larger for MNCs than for purely domestic firms? (10 Marks) c. If the strategy is implemented many transactions between the Nigeria and South African operations can be expected. The Chairman of STC's board is concerned that the large fluctuations in Nigeria's exchange rate may negatively affect the business. (i). Explain to the board the difference between economic exposure and transaction exposure that STC can be exposed to (4 Marks) (ii). The CFO expects net inflows from the Nigerian subsidiary on an annual basis. How would you advise them to manage the economic exposure and transaction exposure given these expectations? (10 Marks) Question 1 (30 marks) Sunshine Telecoms (STC), a large telecommunications company in South Africa is looking to grow its business by introducing some fintech products. It has identified a fast-growing mobile money player in Nigeria that it would like to acquire it in order to kick-start this strategy. You are a business consultant assisting STC with their go-to-market strategy in this regard. a. Highlight the pros and cons of STC exploiting the international markets by way acquiring an existing operation in Nigeria? (6 Marks) b. You explain to the management team and board of STC that the agency costs of the firms will increase if this strategy is implemented. Define agency costs and explain why these are normally larger for MNCs than for purely domestic firms? (10 Marks) c. If the strategy is implemented many transactions between the Nigeria and South African operations can be expected. The Chairman of STC's board is concerned that the large fluctuations in Nigeria's exchange rate may negatively affect the business. (i). Explain to the board the difference between economic exposure and transaction exposure that STC can be exposed to (4 Marks) (ii). The CFO expects net inflows from the Nigerian subsidiary on an annual basis. How would you advise them to manage the economic exposure and transaction exposure given these expectations? (10 Marks)
