political risks in capital budgeting and Starbucks
Political risk is a significant risk in capital budgeting, especially in cases of international capital budgeting. The global political structure and hence the regulatory mechanism are ever changing and dynamic in nature. This can change the underlying economic conditions that a company and its investments are exposed to and hence this changes the risks that its capital budgeting proposals and investments are exposed to.
Starbucks is a multinational corporation and outlets of Starbucks are present in several different countries like USA, Brazil, UK, India, Thailand, China, Malaysia, South Africa etc. The political regime and the regulatory regime in all these countries are not a fixed factor and will change after a pre-determined period. Such changes will change the factors affecting investment decisions of Starbucks. Economic variables like interest rates, inflation rates, forex rates, rate of GDP growth, employment growth and economic growth are affected by situations of political instability; regularly changing policies etc. will affect investment and expansion decisions of Starbucks. For example suppose that China is a prominent market for Starbucks and the company is looking to expand aggressively in the country. Suppose and assume that China is experiencing political instability and this will lead to shortening of policymakers’ horizons and hence sub-optimal short term macroeconomic policies will be made. This will make capital budgeting investments by Starbucks in China less attractive in the short term to medium term basis.
The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis. However, it is important to recognize the unique risks that multinational firms face when they perform capital budgeting analysis in a foreign market. For instance, a U.S.-based multinational firm might conduct business in Brazil, but any profits made must be repatriated, or returned, to the parent company and converted to U.S. dollars. There are significant risks inherent in these rather simple operations. In the...
Discuss two complexities and risks associated with the international aspects of budgeting.
What mitigation techniques for political, social, and economic risks should be taken by an MNC considering operation in Brazil take?
5.1 Explain the process of capital budgeting. (3) 5.2 Why is the process of capital budgeting necessary? (2)
3. In international business, what political barriers/risks are particularly relevant to (1) foreign direct investment, and (2) foreign trade (especially exporting)? Can there also be political benefits for international business?
In what way multinational capital budgeting is different from the domestic capital budgeting? Explain the differences.
How do we traditionally define capital budgeting in finance? What is the purpose of capital budgeting in a business firm, and how is it used?
How does capital budgeting differ from operational budgeting?
Perfect Blend-Starbucks Enters India Q.2 For Starbucks to succeed in India, what are some of the key elements that it must incorporate into its marketing strategy? Do you expect that they will need to adapt parts of their business model to the Indian market? Q.3 Starbucks have entered India alone, or was a partner necessary? What type of partnership should the company have considered? Give Pros and Cons of various partnership models- such as joint ventures, franchises, and strategic alliances....
5. Risk analysis in capital budgeting Projects differ in risk, and risk analysis is a critical component of the capital budgeting process. Consider the case of United Recycling Inc.: United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company's CFO has performed a detailed analysis of the proposed expansion. The company's CFO hired a third-party consulting firm to estimate...