Jan 29, 2019 in Finance

International Finance

The experience of advantage countries shows that the only purpose ensuring long-term and sustainable prosperity of a company is maximising the value of the company, which is a key factor of shareholders’ wealth. In other words, the development of management techniques convincingly proved that the entire purpose of any commercial enterprise is to maximise its value for its owners/shareholders. The rest of the success lies in the satisfaction of consumers’ needs, and following a particular philosophy, which is a creation of a corporate culture, including the achievement of a certain amount of net profit, which is only a basic goal. Consequently, the management of the business includes cost management of a company aimed at maximising this value in the long-term period, while the business management system is nothing like its cost. In order to build an effective system of cost management business, it is required to clearly understand what the value of the business is and how it can be determined or at least estimated with sufficient accuracy for effective business management. The system of managing business is based on defining and optimisation of key factors of the cost of various business elements. Optimisation is a key factor of the cost of achieving such values, which stands for the contribution to the value of the company, including interaction with other factors of the cost that should be maximised (Baker & Powell, 2005).

Warren Buffet’s company gains revenue not only from the management of the investment portfolio. The vast majority of foreseeing profitability of this multinational company has been ensured by the results of its subsidiaries, which are mainly related to the insurance area. However, this fact does not only limit the Buffet’s efforts as a profile investor, but considers his sense for accepting the deal when purchasing the ready business. Moreover, when accepting the share assessment for including to the ready business, the same criteria are considered (DePamphilis, 2003).

Capitalisation is the increase of the income through investment or its part in profitable production factors. In other words, capitalisation implies reasonable moves that allow the partial loss of the amount purchased. There are three forms of the capitalisation, based on the mechanism of increasing its own sources of funding, which are real capitalisation, marketing or subjective capitalisation, and market or fictitious capitalisation market.

The company that is very effective on the market has a positive financial result. That part of the profits, which is focused on investment by the management, increases the company’s equity capital. Thus, this leads to an increase in balance sheet liabilities and simultaneous increase in the asset balance. Current and non-current assets may be affected, as well as the possibility to obtain all of them. If the firm directs its investments to working capital and fixed assets, then there is a real company capitalisation, i.e. increase in the real value of the property. A real capitalisation leads to strengthening of the financial stability of the company and increase of its market value (Bakan, MacDonald, & Leys, 2002).

International Investment

Any investment linked to the investment activities of the company, which is a process of a study and implementation of the most effective forms of capital investments, is aimed at increasing the economic potential. For investment activities of the enterprise, an investment policy must be developed. This policy is a part of the company’s development strategy and general part of profit management. It consists of selecting and implementing the most effective forms of capital investment in order to expand the scope of operations and contribute to the formation of investment income. In its investment policy, a company can choose different kinds of it, such as conservative, moderate and aggressive investment policies (Cumming, 2010).

A conservative investment policy is an alternative of a policy of investment activity of an organisation, which has a priority objective of minimising the level of investment risk. In implementing this policy, the investor does not tend to maximise the level of the current profitability of the investment, or maximise the growth of capital. A moderate investment policy is a policy option of the investment of a company aimed at the selection of such investment objects, for which the levels of profitability and risk are to the greatest extent close to the market average. An aggressive investment policy is a policy option of the investment of a company aimed at the choice of investment objects, for which the levels of profitability and risk are much higher than the average (Moyer, McGuigan, & Kretlow, 2009).

PepsiCo Corporation

Having failed to get ahead of the Coca-Cola soft drink market, PepsiCo took a risky decision to diversify its business more than 10 years ago, having been engaged in the production of potato chips. The basis of this view’s direction was potato steel enterprises in China, Russia, Poland and other countries. The development of a new direction for PepsiCo was a key factor in ensuring the company’s profit growth of more than 10% per year.

PepsiCo produces more than 300 kinds of drinks, including natural juices, soft drinks and beverages of a new generation such as ice-tea. The PepsiCo Corporation, conducting a restructuring of its North American business, has planned to eliminate several hundred job positions and revise remuneration scheme for managers. As a part of PepsiCo’s restructuring process, associated with the production of beverages, the strategy was divided into three categories specialising respectively on juices, Pepsi-Cola and Gatorade brands. Earlier, this business was consolidated after the acquisition of Quaker Oats in 2001, which produced Gatorade drinks. The majority of enterprises of juice direction, not associated with production and distribution, were moved to Chicago. This unit was responsible among other things for Tropicana and Dole brands, and could not achieve satisfactory results for several years to pass (Froot, 2008).

The availability of a diversified portfolio, allows PepsiCo to be engaged in financial transactions with different degrees of risk and return. A portfolio strategy is an integral part of the strategy of corporate finance. It includes activities such as the allocation of capital and resources, the use of synergies, sale or acquisition of companies or business organisations. A portfolio strategy has the property of an external factor with respect to the functioning of businesses. It creates conditions for the growth of savings from external sources. The portfolio may be synergistic when the production capacity, research, storage network, copyright, and other factors are being wisely used by the co-owners of enterprises.

The objective of domestic financing, including PepsiCo internal financial strategy is to ensure the allocation of resources and coordination to achieve these goals. The task of portfolio strategy is to create an effective structure of foreign investments. A functional strategy is important for internal financing that takes into account the activities of departments and services of the corporation.

PepsiCo’s portfolio strategy is subject to internal funding strategy. It leads to cross-shareholding entities. This phenomenon is commonly used in many foreign corporations, interconnected partnerships and cross shareholdings. A unified control over the management of the development strategy of investment decisions comes to the forefront in cross-shareholdings. Such shareholdings support their stable market rate, cooperated business and a coordinated policy. Corporations buying shares from other corporations act by mutual agreement for the promotion of equity accumulation. It creates a kind of self-sustaining oligopolistic structure, in which it is not necessary to have a controlling block of shares for their influence and interaction.

One of the most effective forms of investments is mutual funds. An investment unit is a security certifying the investor’s right for presentation of the request for redemption of the investment fund assets at the date of redemption by the management of a company. Each investment share gives the holder the same rights. Emission process is an activity applied by the organisation in regard to treatment and withdrawal from circulation of securities. The participants of emission process are issuers, investors, investment institutions and banks. Investment institutions and banks are intermediaries, which are financial brokers. They perform intermediary functions in the sale of securities for the account and on behalf of a client on the basis of the contract of commission. The development and expansion of PepsiCo requires an increase of the size of the equity. One way to achieve this increase is by implementing an issuing activity, which results in the expansion of the shareholders’ rights (Wahlen, Bradshaw, & Baginski, 2010).

International Trade

Marketing Strategy

A marketing strategy is a strategy element of the company aimed at developing, manufacturing and bringing to the buyers of goods and services most relevant to their needs. A business strategy is developed on the basis of the research and forecasting related to the commodities of markets, examination of buyers, goods, competitors and other elements of the market economy (Vasudeva, 2006).

A marketing strategy is determined by the position of the company on the market, whether it is a leader, challenger, follower, or company that takes a certain niche in the market. A leader of a market holds the largest market share of a particular product. In order to strengthen a dominant position, the leader should seek to expand the over market, attracting new customers, finding new ways of consumption and application of production. To protect its market share, the leader uses a positional strategy of a flanking and mobile defence, pre-emptive strikes and reflection of the attack, as well as forced reduction. Most market leaders tend to deprive competitors of the possibility of transition to the attack. Finally, the leader may try to expand its market segment. This strategy is justified if it leads to an increased profitability and associated with small risk. A challenger aggressively attacks the leader and other competitors in the front or flanks, surrounding the enemy, making detours and leading guerrilla actions, seeking to expand its market share. Under special strategies, the challenger may lead to a bigger price war, reduction of production costs, expansion of its range of products, development of new products, improvement of distribution channels or the level of services, as well as expansion of an extensive advertising campaign. A follower is a company that strives to maintain its market share and avoid all the rocks. However, even the followers must adhere to policies aimed at maintaining and increasing the market share. A number of marketers believe that the strategy of imitation of a product is not less effective that the strategy of innovation of a product. Such companies incur huge costs of developing a new product, its distribution and market awareness. Usually the reward for this work and risk is achievement of the leading position within the market. However, nothing prevents other companies from copying or improving a new product (Pride & Ferrell, 2013).

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Another way to classify the strategies is from the perspective of the dynamics of the relationships with the market. From this perspective, the most marketing strategies are market penetration, market development, product development and diversification. A strategy of market penetration is being used by new companies for the adoption at the chosen market or already operating companies to penetrate into previously unused niche of the market. The market development strategy is linked primarily to the attraction of new consumers. This goal can be achieved by expanding the geographic area of distribution of goods known as the strategy of geographic expansion or attracting new groups of consumers within an already obtained geographic area (the strategy of creating new markets). Another approach of this strategy is a search of new ways to use the product. In many cases, the priority of the discovery of new ways to use the product belongs to consumers. The strategy of product development is a perspective but risky strategy. Before developing a new product/service, a company needs to make sure there is a real demand for this product/service or the ability to create such a demand, assess the competitiveness of similar goods among the competitors, compare the costs and expended profits, and assess the risks and reserves. When implementing this strategy, it is required to overcome the conservatism of consumers and their distrust to a new offer. However, if the goods are really fundamentally new and there is a real need for it, revenues can be enormous. The strategy of diversification is associated with the expansion of the business (Kleindl, 2007).

In relation to possible risks taken, marketing strategies can be targeted for a maximum effect regardless of the risk, minimum of risk without waiting of much effect, as well as different combinations of these two approaches.

Johnson & Johnson Strategy

As an example of the company’s implementation of the strategy of market development, it is possible to discuss Johnson & Johnson by evaluating the steps the management of the multinational corporation had to implement to achieve the success of the operation. Johnson & Johnson has managed to achieve a significant success in creation a new class of consumers of a baby shampoo. The data of statistics and demographic projection stated the reality of the threat of reducing the volume of sales due to low birth rates. The company’s marketing department noticed that baby shampoo was often used by other family members, and offered an advertising campaign aimed at adult consumers. After a certain period of time, baby shampoo produced by Johnson & Johnson has become the leading brand in the shampoo market. Another example has become the production of anti-wrinkle cream Oil of Ulay oriented on adult women, which is currently being advertised in stores for teens (Hill & Jones, 2009).

In the 1920s, the company expanded its product diversification program by bringing one of the most commonly and widely used products Band-Aid Brand Adhesive Bandages to the market, which became widely known as bacterial adhesive bandages. Earle Dickson, the Johnson & Johnson employee, became the inventor of this product. In 1921, he created a prototype of a bactericidal patch of his wife so that she could tape over the wounds from cuts and burns. The history stated that Earl put a narrow surgical tape with a sticky side up on the kitchen, stuck a peace of gauze in the middle of the table, so that glue did not dry, then closed a tape with a thin cloth in case of a need to quickly remove it and attached the ready bandage to the injured area. The patch, like any innovation, did not immediately become popular. Nevertheless, its usefulness and practicality were soon appreciated by many consumers.

The company’s strategy has been based on the principle of growth through innovation from its very beginning. Johnson & Johnson has worked hard to create corporate atmosphere, which would be conductive to innovations. New products, with which the company carries out its mission by improving the consumers’ life, have a tremendous impact on Johnson & Johnson’s growth and wealth.

Johnson & Johnson strategy includes aggressive plans of growth in several key areas, which are the so-called growth platforms. Each platform is a separate health sector, to which a certain group of products, technologies, pathologies and/or customers belong. The indicated platforms define the need for growth of the global market, as well as help to identify future opportunities that may be used in one or more branches of the corporation. The platforms help companies to achieve the synergy of decentralised businesses as a basis, on which it accumulates knowledge, skills, marketing and international experience (Czinkota & Ronkainen, 2013).

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