You have been appointed as an advisor to a leading garment distributor (VCL) -( a hypothetical company) established in Australia. The company owns a well-reputed garment brands portfolio which has been protected by international patent rights law.

As an expert in international finance and banking, you are required to assist VCL to expand its current operation into several overseas markets.

The company currently engages in export and import activities using a well-linked international network of agents. The company distributes its product in Europe and few Asian countries using its own international retailing network operated by its subsidiaries in Paris, Shanghai and Tokyo. In addition, they also have a very good presence in the cyber market.

However, the recent global health crisis has had a significant effect on both the firm's operation and the cash flow positions. Especially, the high volatility of the local currency value in the foreign exchange market has undermined the firm's ability to manage its cash flow positions. On this background, the company has decided to revamp its international trade and finance strategy.

The company currently uses its trading partner's country currency to invoice its export. Its foreign suppliers usually invoice in United State dollars. However, the fluctuation of other currency values against the AUD has forced the company to re-think its export invoicing policy. Since its foreign suppliers are using USD to invoice, the marketing manager of the company suggests using USD as the company trading currency. But, the production manager stressed that the invoicing of both export and import in AUD would help the company to eliminate all probable foreign exchange exposures. The company management asks you to identify the strengths and weaknesses of all these alternatives including the current.

VCL is allowed four months to settle their suppliers' invoices. Its' foreign buyers have been given 60 days to settle their invoices.

VCL expects to expand its manufacturing operations into India and Bangladeshby forming two subsidiaries in these two countries. The company expect to use the proposed manufacturing entities to be used for supplying the growing demand in Europe. Alternatively, the marketing manager suggests to established two buying offices in these two countries and outsources the local small manufactures to produce garments for the company. He pointed out such a strategy will help the company to minimise its capital commitment on foreign investments.

Currently, the company sources garment materials from China and India. A feasibility study conducted last year revealed that locating a manufacturing plant in India would bring a huge cost advantage.

VCL's policy is to review the cash flow situation of all its subsidiaries every three months and remit any excess cash balances to the head office in Australia. Currently, excess cash is transferred any time whenever the foreign subsidiaries cash balances exceed the allowed limit. Consequently, the parent in Australia transferred cash to the subsidiaries when they are in short in cash.

In light of the above background information, you arerequired to develop a management advisory reportaddressing the following issues.

Introduction - 35 points

Read Chapter 1 in textbook and study session 1 notes and complete the following tasks

1. Identify the main objective of the VCL, the internationalisation objectives (the motive for internationalisation), the strategies used for internationalisation (mode of internationalisation), types of cash flows, types of foreign exchange risk exposures which the MNC is facing.
2. Apply internationalisation theories (comparative advantage, product life cycle, and imperfect market) to illustrate the possible motives for having its manufacturing operation in India and Bangaldesh.
3. Explain VCL's current international trading strategy and its pros and cons (subsidiaries in Paris (France), Shanghai (China), Tokyo (Japan) and India, export & import, and online presence).
4. Why do you think establishing a foreign subsidiary is more appropriate than the other available modes of internationalisation? Explain possible advantages VCL can enjoy through a foreign subsidiary.
5. Explain how the international presence of VCL is advantageous in managing risk and raising capital for the future developments of the company.

Multinational corporations {MNCsl are defined as firms that engage in some form of international business. Their managers conduct international financial management, which involves international investing and financing decisions that are intended to maximize the value of the MNC. The goal of these managers is to maximize their firm's value, which is the same goal pursued by managers employed by strictly domestic companies. Initially, firms may merely attempt to export products to a certain country or import supplies from a foreign manufacturer. Over time, however, many of these firms recognize additional foreign opportunities and eventually establish subsidiaries in foreign countries. Dow Chemical, IBM, Nike, and many other firms have more than half of their assets in foreign countries. Some businesses, such as ExxonMobil, Fortune Brands, and Colgate- Palmolive, commonly generate more than half of their sales in foreign countries. It is typical also for smaller US. firms to generate more than 20 percent of their sales in foreign markets; examples include Ferro (Ohio) and Medtronic (Minnesota). Seventyfive percent of U.S. firms that export have fewer than 100 employees. International financial management is important even to companies that have no international business. The reason is that these companies must recognize how their foreign competitors will be influenced by movements in exchange rates, foreign interest rates, labor costs, and inflation. Such economic characteristics can affect the foreign competitors' costs of production and pricing policies. This chapter provides background on the goals, motives, and valuation of a multinational corporation. 11 MANAGING THE MNC The commonly accepted goal of an MN C is to maximize shareholder wealth. Managers em- ployed by the MNC are expected to make decisions that will maximize the stock price and thereby serve the shareholders' interests. Some publicly traded MNCs based outside the United States may have additional goals, such as satisfying their respective governments, a Learning US. 2014. ProQuasl Ebook Central, htlpfiebookoantralproquestcomi'libNurdatail.action?doolD=4453338. 3 creditors, or employees. However, these MNCs now place greater emphasis on satisfying shareholders; that way, the firm can more easily obtain funds from them to support its opera- tions. Even in developing countries (e.g., Bulgaria and Vietnam) that have just recently encouraged the development of business enterprise, managers of firms must serve share- holder interests in order to secure their funding. There would be little demand for the stock of a firm that announced the proceeds would be used to overpay managers or invest in unprofitable projects. The focus of this text is on MNCs whose parents wholly own any foreign subsidiaries, which means that the U.S. parent is the sole owner of the subsidiaries. This is the most common form of ownership of U.S.-based MNCs, and it gives financial managers throughout the firm the single goal of maximizing the entire MNC's value (rather than the value of any particular subsidiary). The concepts in this text apply generally also to MNCs based in countries other than the United States. 1-1a How Business Disciplines Are Used to Manage the MNC Various business disciplines are integrated to manage the MNC in a manner that max- imizes shareholder wealth. Management is used to develop strategies that will motivate and guide employees who work in an MNC and to organize resources so that they can efficiently produce products or services. Marketing is used to increase consumer aware- ness about the products and to monitor changes in consumer preferences. Accounting and information systems are used to record financial information about revenue and expenses of the MNC, which can be used to report financial information to investors and to evaluate the outcomes of various strategies implemented by the MNC. Finance is used to make investment and financing decisions for the MNC. Common finance decisions include: whether to discontinue operations in a particular country, whether to pursue new business in a particular country, whether to expand business in a particular country, and how to finance expansion in a particular country. These finance decisions for each MNC are partially influenced by the other business discipline functions. The decision to pursue new business in a particular country is based on comparing the costs and potential benefits of expansion. The potential benefits of such new business depend on expected consumer interest in the products to be sold (marketing function) and expected cost of the resources needed to pursue the new busi- ness (management function). Financial managers rely on financial data provided by the accounting and information systems functions