International Joint Venture Anheuser Busch The Producer Of B

17 International Joint Venture Anheuser Busch The Producer Of Budwe

Explain how the joint venture enabled Anheuser- Busch to achieve its objective of maximizing share-holder wealth.

Explain how the joint venture limited the risk of the international business.

Many international joint ventures are intended to circumvent barriers that normally prevent foreign competition. What barrier in Japan did Anheuser- Busch circumvent as a result of the joint venture? What barrier in the United States did Kirin circumvent as a result of the joint venture?

Explain how Anheuser- Busch could have lost some of its market share in countries outside Japan as a result of this particular joint venture.

Consider the valuation of Wal-Mart’s international business. How can you determine the present value of Wal-Mart’s non-U.S. business, assuming you have all the data?

Discuss how establishing an international subsidiary, like Nantucket Travel Agency’s Greek operation, impacts cash flows and risk.

Explain why Nantucket’s international opportunity in Greece may be advantageous.

Identify agency problems related to Nantucket’s Greek subsidiary and how they can be mitigated.

Discuss why Greece’s low labor and rent costs are relevant for Nantucket’s decision.

Explain how currency exchange rate movements influence Nantucket’s cash flow and risk exposure.

Evaluate the effects of euro appreciation on Nantucket’s operations.

Analyze whether financing in euros or dollars reduces Nantucket’s exchange rate risk.

Discuss how Nantucket’s Greek business might be exposed to country risk.

Evaluate how currency fluctuations, specifically of the euro and peso, impact Arlington Co.'s expected revenues over 10 years.

Paper For Above instruction

International joint ventures are strategic alliances where firms from different countries collaborate to achieve mutual objectives, often to expand market share, reduce risk, or circumvent trade barriers. The case of Anheuser-Busch’s joint venture with Kirin Brewery in Japan exemplifies how such alliances can enhance shareholder wealth by leveraging combined resources and market access. This partnership enabled Anheuser-Busch to increase its presence in Japan without the substantial costs and risks associated with establishing wholly owned subsidiaries in foreign markets, thus directly contributing to shareholder value enhancement.

By engaging in a joint venture with Kirin, Anheuser-Busch effectively limited several risks inherent in international expansion. For instance, the partnership reduced exposure to political and regulatory risks in Japan by sharing control and navigating local legal frameworks jointly. Operational risks were also mitigated through shared production facilities and distribution channels, ensuring a smoother market entry and ongoing presence. Furthermore, sharing market insights helped manage uncertainties related to consumer preferences and local competition.

The joint venture also served to circumvent specific trade barriers. In Japan, foreign firms often face high tariffs, import quotas, and strict regulations that hinder market access. Anheuser-Busch avoided these obstacles by partnering with Kirin, an established local entity, which allowed it to distribute and produce beer locally. Conversely, in the United States, Kirin might have faced barriers, such as restrictions on foreign ownership or limitations on market penetration. By participating in the joint venture, Kirin could bypass some of these restrictions, gaining access to the American beer market and consumer base more directly.

However, such joint ventures carry risks of market share erosion outside the targeted regions. If competitors perceive that Anheuser-Busch’s strategic alliance with Kirin limits its global agility or creates dependence on a partner, they may accelerate their own international strategies, potentially capturing parts of the market. Additionally, local consumers in other markets might prefer domestic brands if they view the joint venture as reducing the authenticity or unique qualities of the products, leading to a possible decline in Anheuser-Busch’s market share globally.

Moving beyond joint ventures, the valuation of multinational corporations’ international divisions, such as Wal-Mart’s, involves assessing the present value of cash flows generated outside the home country. To determine the value of Wal-Mart’s non-U.S. segment, one would analyze all cash flows attributable to foreign operations—revenues minus expenses—then discount these cash flows to their Present Value (PV) using appropriate risk-adjusted discount rates. This process involves projecting future cash flows based on sales growth, operational efficiency, and market conditions, and then applying a discount rate that accounts for currency risk, political risk, and economic volatility in the foreign markets.

The establishment of international subsidiaries impacts cash flows and exposes firms like Nantucket Travel Agency to various risks. By opening a Greek subsidiary, Nantucket can capitalize on international opportunities such as offering tour packages in the Greek islands, thereby expanding its revenue streams. The subsidiary’s cash flows, denominated in euros, are influenced by operational costs, revenue inflows, and exchange rate movements, which can introduce exchange rate risk, especially if revenue collection and expense payments are in different currencies.

Nantucket’s international venture can face agency problems, such as misaligned objectives between the parent and subsidiary managers. Parent owners might prioritize short-term financial gains or cost-cutting at the expense of long-term strategic growth. To minimize these problems, Nantucket can implement performance-based incentives, greater oversight, and transparent reporting mechanisms. Moreover, the decision to locate the subsidiary in Greece depends on the low labor and rent costs, which can reduce operational expenses and increase competitive advantage for the company, though it also introduces country-specific risks.

Currency exchange rate movements significantly influence Nantucket’s cash flows. If the euro appreciates against the dollar, the euro-denominated revenues will be worth more in dollars, benefiting Nantucket’s bottom line. Conversely, if the euro depreciates, revenues translate into fewer dollars, reducing profitability. When financing the Greek subsidiary, borrowing in euros can hedge against currency fluctuations; however, financing in dollars and converting later might expose Nantucket to exchange rate risk if the euro moves unfavorably. Hedging strategies, such as forward contracts or options, can mitigate these risks effectively.

Additionally, Nantucket’s Greek tour business faces country risk, including political instability, regulatory changes, or economic downturns in Greece. These risks can disrupt operations, affect profitability, or lead to expropriation. As Greece’s economy is susceptible to broader Eurozone economic conditions, Nantucket needs to consider the potential impact of sovereign debt crises or policy shifts when operating in Greece.

Looking at Arlington Co., the expected depreciation of the euro and peso currencies over ten years suggests that their foreign currency earnings—10 million euros annually and pesos—may decline in value relative to the dollar. Specifically, with the euro depreciating at 2% annually from an initial rate of $1.38, the future value of their euros becomes less in dollars, leading to potentially lower revenues when converted. Similarly, the peso depreciating from $.13 at 2% annually impacts Arlington's peso-based cash flows, likely diminishing their dollar equivalent over time. Consequently, currency depreciation can be unfavorable, reducing the actual value of future cash flows unless properly hedged.

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