Describing The Major Theories Of International Business ✓ Solved

Situationin Describing The Major Theories Of International Business A

In describing the major theories of international business and relating them to doing business in a foreign country, select one local company in Oman. (I choose Oman Oil Company (OQ)). Imagine that you are the manager of the company who is on a mission to invest in China. Your task as a manager is to work with a consulting company in designing an investment strategy to identify which method is suitable to reduce the risk involved in terms of exchange rate, modes of international market entry, and international staffing. Guidance: In your investment strategy consider the following areas:

  • An Introduction about the background of the Omani company
  • Currencies you should use for trade
  • Exchange rate value of that currency today
  • To insure against risks and losses from changes in exchange rates, which strategy is more suitable (indicate between spot, forward, and currency swap)
  • Which mode of market entry is more suitable for your company?
  • Explain which of the three types of staffing policies is more suitable for managing international staff
  • Propose an international investment strategy

You should base your assignment on:

  • Your DRL materials
  • News
  • Academic literature
  • Media and other sources

Sample Paper For Above instruction

Introduction and Background of Oman Oil Company (OQ)

Oman Oil Company (OQ) is a prominent state-owned enterprise in Oman, established in 1980 with the primary goal of managing and developing the nation’s oil and gas resources. It operates across various sectors including exploration, production, refining, and marketing of petroleum products. OQ is instrumental in driving the Sultanate’s economic diversification efforts and has a strategic vision to expand its international footprint through investments, joint ventures, and strategic alliances. This global expansion aligns with Oman’s broader economic goals, positioning OQ as a key player in regional and international energy markets (OQ, 2023).

Currencies for Trade and Current Exchange Rate

For the investment in China, the primary currency for trade would be the Chinese Yuan Renminbi (CNY). As of October 2023, the exchange rate is approximately 1 USD = 7.3 CNY. This rate fluctuates based on global market conditions, trade policies, and economic indicators (XE.com, 2023). The Omani Riyal (OMR), pegged to the USD, remains stable at approximately 1 OMR = 2.60 USD. The certainty of the OMR’s peg provides a relatively stable currency environment for Oman-based companies engaging in international trade.

Strategies for Hedging Exchange Rate Risks

To mitigate risks associated with fluctuations in exchange rates, the choice of hedging strategy is crucial. The three primary methods are spot contracts, forward contracts, and currency swaps. For a long-term investment in China, forward contracts are typically more suitable because they allow OQ to lock in exchange rates for future transactions, reducing exposure to currency volatility (Shapiro, 2020). Currency swaps could also be considered if OQ needs to manage longer-term currency exposures, especially when financing is involved in multiple currencies, but forward contracts are generally more straightforward for transactional hedging.

Mode of Market Entry

Given the scale and strategic importance of the investment, the joint venture mode could be the most appropriate for OQ’s entry into China. This approach allows OQ to leverage local expertise, navigate regulatory environments more effectively, and share risks with a trusted local partner (Dunning, 2017). Alternatively, establishing a wholly owned subsidiary ensures full control over operations but involves higher risk and resource commitments.

International Staffing Policy

For staffing policies, a polycentric approach seems most suitable. It promotes hiring local managers and staff tofacilitate understanding of the local market, culture, and regulatory environment, thereby enhancing the company's adaptability and operational efficiency (Perlmutter, 1969). However, a strategy combining expatriates in key managerial roles with local staff can balance corporate standards with local expertise.

Proposed International Investment Strategy

OQ’s international investment strategy should combine a risk-averse approach with proactive market engagement. Initiating a joint venture with a reputable Chinese energy company will facilitate market entry while sharing risks. Utilizing forward contracts to hedge against currency fluctuations ensures financial stability. Employing a polycentric staffing approach helps integrate into local markets smoothly. Additionally, OQ should conduct comprehensive market analysis and involve local stakeholders to align its strategic objectives with Chinese regulatory and economic environments. The company should also adopt phased investment steps, starting with smaller capital commitments and expanding as confidence and understanding increase. This flexible strategy minimizes upfront risks while positioning OQ for sustainable growth in China (Cavusgil et al., 2014). 

References

  • Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International Business. Pearson.
  • Dunning, J. H. (2017). The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions. Journal of International Business Studies.
  • Oman Oil Company (OQ). (2023). Company Profile. Official Website. https://www.oq.com.om
  • Perlmutter, H. V. (1969). The Tortuous Evolution of Multinational Corporations. Columbia Journal of World Business.
  • Shapiro, A. C. (2020). Multinational Financial Management. Wiley.
  • XE.com. (2023). Currency Exchange Rates. https://www.xe.com

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