International financial management Project

8/16/2019 International financial management Project

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Daewoo

International Islamic

University Islamabad

Analysis of Daewoo Subsidiary in

Afghanistan

Subject:

International nancial management

Submitted To:

Ch. Mazhar ussian

Submitted By:

Muhammad !adar "d Du#a $%&'()*MS)M!A)*1'+

Muhammad ,aseem $%&

)*MS)M!A)*1'+


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,aseem Aslam $%&

)*MS)M!A)*1'+


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ContentsCAP-/ 0 1..................................................................................2

I0-/D"C-I0.................................................................................2

Com3any Prole.............................................................................%

4ision.............................................................................................5

Mission...........................................................................................5

b#ecti6e f -he Study.................................................................5

0eed for Study...............................................................................5

CAP-/ 0 &..................................................................................7Moti6es of D*I................................................................................ 7

!enets of D*I................................................................................8

Subse9uent Decisions of Direct *oreign In6estment....................1(

Cha3ter 0o '...................................................................................11

/: * S- ;4/0M0-......................................................11

Cha3ter 0o 2...................................................................................1'

-echnical Analysis........................................................................1'

*inancial Analysis.........................................................................1%

Calculations.................................................................................17

Calculations of Cash


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Executive Summary

This report covers different aspects of International Diversification. It reflects

our humble efforts to capture the core process of International Diversification.

The Structure consists of 4 different chapters which includes the introduction

about the project, theoretical framework, Analysis of the project and at the end

the onclusion summari!es the whole project.

In the first Section of Introduction we discuss that why the international

diversification is necessary and then we look about the feasibility of our

project with the scenarios that is prevailin" in Af"hanistan. The policies and

the intentions of the Daewoo in the #akistan is discussed that encoura"es the

company to diversify in Af"hanistan.

In the Second section we see about the theoretical framework. That what the

Theories, Articles say about the $ultinational ompany to diversify in

different re"ions and in what basis to diversify. It also helps to secure the

e%chan"e rate fluctuations. &ow a company take subse'uent decisions while

makin" a forei"n direct investment.

In the Third section we analyses the International Diversification of the

Daewoo ompany. (e see about the mana"ement, future activities, problems

of down play, calculated risk, cost of the investment and the e%pected profit

and loss.we use tool s ) techni'ues of multinational capital bud"etin" ) then

apply these techni'ues partially and evaluate the project on the basis of these

techni'ues.

In the *ourth section we conclude the whole project that what we have done in

the analysis, what is the theories and the introduction. (e link all the sections

and come to the final acknowled"ment that whether the project is feasible or

not, profitable or not with conte%t to the Daewoo subsidiary in Af"hanistan.


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CHAPTER N !

INTR"UCTINInternational diversification is basically to reduce the risk of an or"ani!ation

by e%pandin" in other nations. +y diversifyin" we mean that to invest in that

country which is inversely related to each other by means that if an

or"ani!ation is not performin" well due to any reason like political, cultural

issues in one nation, the other nation that is not affected by these situations, an

or"ani!ation can earn a reasonable revenue from that nation to overcomes the

ne"ative impact of the conflict nation losses. So in this way companies can

reduce the losses and minimi!e the risk on a lon" term basis.

(e are openin" a Subsidiary in Af"hanistan, for this purpose we have to see

the feasibility of the project. (e have concerned with many thin"s which have

a direct impact on our investment. After the attack on world trade centre on

September -, the Aliened forces comes in Af"hanistan to fi"ht a"ainst

Taliban and Al/0aida which have ultimate no end. Today after 1 years the

situation is still not satisfactory but we hope and we foresee that the situationis now pro"ressin" better which forces us to invest in Af"hanistan.

(e foresee that the project is feasible because now the 2AT3 and the Allied

*orces is tryin" to e%it from the war, so if we invest today we have to incurred

a cheaper cost, the cheap labour is also available, as the currency will "row up

in near future so the return will boost.

The project is also feasible because there is a relationship between people of

#akistan and Af"hanistan. So there is hu"e number of people who want to

travel in between two countries, as there is no other comfortable transport

service provider so it "ives us an ed"e or a plus point. (hen we start workin"

in the Af"hanistan people would love to travel in a more comfortable way.


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In our project we have decided that the company that we select would operate

in a different phases. In the first phase company would operate its operations

from abul ity to 0uetta ity.

The si"nificance of our project is that when the company enters in Af"hanistan

which results in the improvement of the life style of the residences and also

the road transport improves. The local entrepreneurs should show interest in it

which results in increase in the tradin" or +usiness. #eople would travel from

one place to another place in a short time. They value the time and their

money. Different e%pansion in industries and there is more comfortabletransport facilities with lu%ury.

(e see that the project is very much suitable as you that there is no other

standardi!ed Service provider and there is another concerned that links a direct

connection with our project success that is the policies of their present

"overnment. (hether the present "overnment of Af"hanistan protects the

investor or not. +ut we see that the "overnment is very much co/operative

with the direct forei"n investment because it brin"s prosperity to their country

and removes the uncertainty from the country.

The major "oal of the Af"han "overnment is to brin" sustainability with

productive infrastructure that helps in private sector e%pansion. As we know

that the risk is hi"h the return will also hi"h. The main risk that we face is the

client , the ministry and the public that is unwillin" to accept the private sector

entity, and the terrorism. The ri"ht policy is very much important for the

financial "rowth of the country. The plus point is that the "overnment and the

donors are willin" to promote private sector that reduces the uncertainty in the

country.


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Com#any Pro$le

Daewoo #akistan 5imited Is one of the best $otorway Service provider in

#akistan. Its motive is to provide best Transport alon" with lu%urious

memories that create certain value in the mind of its customers. (e focus on

the best Service that results in becomin" the best. (e value for your money

and pay back to you accordin" to your e%pectations.

Daewoo #akistan 5imited was established on Sep , 667 after si"nin" a

si"nificant a"reement with the 2ational &i"hway Authority on a oncession

+asis. Daewoo itself established its $otorway Service areas on the motorway

to provide or facilitate its commuters while travellin" up to the mark, on built

operate and transfer basis8+3T+9 while travellin" to 5ahore/Islamabad. The

purpose of establishin" +3T+ is to provide best possible service to the

ustomers at a one place. Different #ublic Spots includes parkin" lots,

$os'ues for prayin", -4 hours :ehicle break down facilities.8 (orkshops;

Tyre Shops9. lean and Attractive (ashrooms and also the services of 2<

and *uel Stations.

The different business facilities include continentals and fast food

internationals chains, small tuck shops and lar"e shoppin" marts flowers and

horticultures alon" with some more. As we mentioned that we believe in the

satisfaction of the consumer so we put stress or focus in provin" full

satisfaction to the valued customers which will help us in achievin"

completive advanta"e over its competitors and also important to remain the

market.

(e believe customer is our best asset. (e are basically a $2 8orean

company9 with aim to achieve hi"h or"ani!ational "oals. (e make no

ompromise on the customer satisfaction and 'uality of our products and

services. (e are very much concerned with the 'uality and we are very stick

to the policy that what we are provin" today still remains with the passa"e of

time but even more improvement in our 'uality. +y this means we are


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operatin" with superior 'uality e%cellence, and to make improvements in the

e%istin" operations which also helps up in makin" "ood relations with the

local entrepreneurs who are very much interested in dealin" throu"h

motorway, so for that we are very much updated to establish lon" term

relations

%ision

3ur vision is to become the super leadin" institution in #akistan and achieve

hi"h market share by valued commuters by 'uality service alon" with the

'uality product offerin"s in the modern era of motorway service areas.

&ission

3ur mission is to achieve

An or"ani!ational environment that foster towards professionalism, motivation

and 'uality by inhalin" core values and services. An introducin" &i"h 'uality

brand with best performance at all $otorway service areas

bjective ' T(e Study #urpose of Subsidiary 8D.*.I9 2ature of =isk and >ncertainty

apital +ud"etin" about ompany

:alue of currency with comparison Dollar ?Af"hanistan.

Need 'or Study

(e want to Study of $ana"ement #lan

(e want to Study of future activities

(e want to study the e%pected #rofit; 5oss .

(e want to study about alculative =isk (e want to study the ost of the investment

(e want to study the A"ency problem 8Down #lay9 anti sentiments.


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CHAPTER N )

&otives o' "*IThe first objective of $ultinational ompany is to have international

diversification, by addin" more and more projects in their portfolio. (ith it

risk is lessen as majority of the $2 have their subsidiaries with ne"ative co/

relations with each other. As if there is worst situation in one @ra ompany

can compensate it from the other era.

The basic purpose of Diversification is to improve profitability in term of

increase in =evenue or decrease in cost. 3ne of the basic compulsion of $2

is to ma%imi!e the shareholders wealth due to which it has to move towards

those countries where they may find cheap labour, land, capital and buildin"

I.e., cheap factor of production.

The major motive of forei"n direct investment is.

• attract new sources of demand

• enter/market where superior profits are possible

• @%ploit monopolistic advanta"es

• =eaction to trade restrictions, and

• Diversify internationally.

The international project reduces the firms cost and overall risk of the

company .the major aspect of international diversification is selectin" forei"n

projects whose performance levels are not hi"hly co/related with the help of it

various international projects do not e%perience poor performance all in one

time. The major motive of cost related direct forei"n investment is.

• *ully benefit from economies of scale

• >sin" forei"n factor of productions

• >sin" forei"n raw materials

• @%chan"e rate movement


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Bene$ts o' "*I

International diversification "ives the benefit to the company of securin"

e%chan"e rate fluctuation. They choose such type of countries where they may

find cheap cost of investment and less risk of loss. ompanies take such type

of decisions after analysin" and thinkin" a lot about, whether the company

should e%pand their operations, should company moves towards that specific

country should all the earnin"s should be remitted to the parent company or

subsidiary should use it by itself.

&ere the company also looks towards the rules of the host "overnment related

to the direct forei"n investment related to their sector in which they are "oin"

to invest.

orporation often reaches to a sta"e where the companys "rowth reaches at

its ma%imum limit in its home country due to multiple factors such as intense

competition or its market share reached at its potential peak. So company tries

to move out of the ountry where they see potential demand in which the list

of less developin" countries comes first of all in front of their eyes. Such asAf"hanistan. Althou"h in the be"innin" $2 may faces multiple barriers in

term of its pro"ress in that country. +ut with a passa"e of time by "ivin" best

'uality services or products company easily makes its place in the market of

that specific country.

3ne of the bi""est problems that multinational faces are control of their cost.

*or this purpose they tried to obtain economies of scale. The potential benefit

from D*I very with the countries such as re"ion of Asia v;s re"ion of @urope

as problem in one re"ion may affect their earnin"s, on the other hand the

earnin" of the other re"ion will support that company and risk will be

minimi!ed.


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Subse+uent "ecisions o' "irect *orei,n Investment

3nce D*I takes place few decisions are necessary to determine about the

further e%pansion in the "iven location. (hen the project earns the $2 must

decide whether funds should be remitted to the parent company or should

remain to the subsidiary. If subsidiary is in need of money the funds should be

more beneficial for subsidiary and it should be used by it, not to the parent.

3f/ourse certain percenta"e of the funds will be needed to maintain

operations but the remainin" funds should be send to the parent or sent to any

other subsidiary or re/invest for e%pansion purposes. The appropriate decision

depends on the economic conditions in the subsidiaries country and the

parents country and restrictions imposed by the host "overnment.


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C(a#ter No -

R.E * HST /%ERN&ENT


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. Eclectic Theory

It deals with the followin" factors country specific, companies specific

relatin" to trade and forei"n direct investment.• ountry specific deals with "eo"raphical environment,


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C(a#ter No 0

Tec(nical AnalysisIn this we basically analyse the feasibility of our project weather the

diversification of the Daewoo service is feasible or not soB at first we want to

know that how the mana"ement team that would works for a Daewoo

or"ani!ation in Af"hanistan. $ana"ers hold an ample importance while

mana"in" and takin" decisions. The mana"ement plan of the transport

pro"ram is desi"ned in such a way that can reduce the traffic on roads 8private

owned vehicles9. $ana"ers have certain responsibilities and duties as a tool

for mana"ement plan coordinator.

The certain responsibilities of the mana"ement team that we have observed are

the followin".

. To ensure the participation in the transport mana"ement plan for the

pro"ress of an or"ani!ation.-. To ensure that to provide the proper addresses and the contact

information of the coordinators, business relations that is essential for the company to achieve lon" term objectives.

1. @nsurin" the soundness of the information re"ardin" coordination that

is re"ulated from the town to the related or desired terminal sites.4. To conduct different surveys within or outside the or"ani!ation to

measure the employee performanceC. +asically to analyse the situation and prepare annual report that is

necessary to achieve an or"ani!ational "oals.. Daewoo re"ularly arran"in" different workshops for the soundness of

the operations.7. They are very much concerned with the risk that is prevailin" in

Af"hanistan.

*irstly the top mana"ers are involved in the mana"ement. Top mana"ers are

likely to be from orea or from #akistan as well and with the passa"e of time

they hire the educated employees from the Af"hanistan residences and trained


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them accordin" to the needs of an or"ani!ation which helps in ensurin" "ood

response from that country. (e also observed that they are very keen to make

different strate"ies that are essentially necessary for the or"ani!ation that if the

certain plan fails then in that situation how the company will react and respond

to the alternative plan. Direct forei"n investment basically means the same

because the ultimate objective is to earn profit and to minimi!e the uncertain

risk. $ana"ers are well aware of the motive of an or"ani!ation and they are

makin" policies accordin" to their desired motives. They are thinkin" the

different routes to operate in Af"hanistan on a step e%pansion basis. They also

focus to "ive authority to the branch level mana"ers to handle their issues but

under the monitorin" of a centrali!ed mana"ement.

2ow we are analysin" the future activities of a Daewoo company. Daewoo

must have to focus the improved and forthcomin" technolo"y that is essential

for the satisfaction of the customers or to fulfil the needs of a customer. They

are very keen to improve its products and services with the chan"in"

re'uirements. They have to improve its operations in near future accordin" to

the forecastin". They have to desi"ned different policies that are essential for

the success in Af"hanistan. To open a subsidiary in Af"hanistan is "enerally a

future activity for the Daewoo. As it is an new era they have to be very much

updated to build an "ood will in Af"hanistan by makin" a standard service and

to deliver them as well.

To attract the new era they are decided that first the operation should be on a

testin" basis that the bus would "o in Af"hanistan on a day time from #akistanand then comes back in a day as well and take rest here due to their political

conditions. As soon the company #ro"resses they then decide to open a bi"

terminal in Af"hanistan with the passa"e of time.

As the pro"ress continues Daewoo would e%pand in overall Af"hanistan to

occupy the whole market as there is no other alternative transport service

provider so it is an opportunity for an or"ani!ation. Daewoo is takin" hi"h risk


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to earn hi"h from that sector so it is tryin" to achieve monopolistic advanta"e

there with the cooperation of the 5ocal


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truth and disbelievin" the evil rumours that if someone tried to create is/

conception re"ardin" the company.

*inancial Analysis

#rofit and loss is the main element the Daewoo is concerned with. As the

market is new and it is a "reat opportunity for the firm to "et a monopolistic

advanta"e there. #rofit and loss statement is basically an income statement that

shows the profitability of an or"ani!ation. It shows that what an e%pected

profit is for a "iven period. The period may be monthly, 'uarterly or yearly as

well. The profit and loss would be splinted in two sections the revenue and the

e%penses. As it is an e%pected profit and is totally based on assumptions so we

foresee that the people of the Af"hanistan are consistently searchin" for a

comfortable transport service provider which is a plus si"n that the customers

are always there and by providin" those services they can "et hi"h revenues

because the buses were loaded fully accordin" to their ma%imum capacity. The

investors are always concerned with the return when the return is hi"h they

can show intent to invest more in the Daewoo. As the e%penses were estimated

to be low because of cheap labour, land, capital the cost they bear as an

e%chan"e rate is also low which helps ultimately reducin" the e%penses of an

or"ani!ation and increases the revenues.

It is very difficult to compare #akistan a"ainst the Af"hanistan because both

the countries have the utmost same culture values and beliefs. Ees it is true

that "eo"raphic boundaries make a hu"e difference. In #akistan the project is

started likely to be same in Af"hanistan. As the operation started the Daewoo

service earns a profit on a re"ular basis due to its standard operations and

services and now Daewoo holds a "ood


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dealt with various risks in a daily routine manner it is not easy to handle or to

calculate or to identify the corporate level risks. :arious calculated risks can

be done throu"h risk mana"ement control plan. The purpose of calculated risk

is to ma%imi!e the firms value under the chan"in" "lobal environment. It is

due to that the vehicle enterin" in Af"hanistan should easily be escape from

the Threat of >ncertain environment.

Some alculated =isks involved the followin"

. *irstly we are openin" in that city which is safe and the apital of

Af"hanistan.-. Different Scanners were used while enterin" into the bus.1. Terminal would be established in near to the cant areas.4. Some protection from the


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provides different incentives to us accordin" to their policy that they would

provide ta% free land and the there are no electricity char"es for the new

administrations. It will ultimately reduce the ost of investment.

Calculations

1 Afghani = 0.056 US Dollars

1 US Dollar = 56.1 AFG

"escri#tion Estimated Cost

1&illion2

Cost US"

1&illion2

Operational Land 05 0.0505

Operational Building 12 0.1212

Work Shops 50 0.505

Equipment 05 0.0505

Working Capital 15 0.1515

Mis. Cost 0! 0.0!0!

Total AFG90 $ 1.818

Equit" # 0.$0 %e&t # 0.!0

"escri#tion "ebt E+uity

'mount 0.5(5( 1.2$2)

Weight 0.! 0.$

Cost 0.12 0.15

Total Investent = 0.5!5! " 1.##6 = 1.818 %&'


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W'CC # We*e+Wd*d

W'CC # ,0.$0-0.15 + ,0.!0-0.12

W'CC # 0.1(0

(A)) = 1!.1*

Calculations o' Cas( 3o4s5 NP%/nitial /nestment is 1.1 ,M or '34 0 ,M.

6ear )7!8 )7!9 )7! )7!; )7!<

+even,e !200000 (000000 5000000 )200000 $200000

%-ariale )ost' 1)00000 2000000 2500000 !100000 !)00000


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%/ther -ariale )ost' 25)000 !20000 (00000 ()000 5$)000

%Fie )ost' !00000 !00000 !00000 !00000 !00000

%De2re3iation' 4 10 * 550000 550000 550000 550000 550000

IT ((000 !0000 1250000 1$5(000 21$(000

%Interest' 4 1# * )5(( )5(( )5(( )5(( )5((

T (2552 $)(552 11(552 1)552 210552

%Ta' 4 75 * 1(!.2 2)$5!.2 (1(5!.2 50!.2 $!$!.2

arning After Ta 2$55. ()5. $)5. 10$55 1!$055.

De2re3iation 550000 550000 550000 550000 550000

et )ash Flo 255. 10()5 1!15 1)($55 12055.

%(ithholing Ta' 4 70

*2(5)$.) !1(0$.) !5$.) ((2)$.) 5$)1)$.)(

Salvage -al,e 1)!)200

)F Transfer to :arent 5$1.2 $!2$1.2 2!$1.2 115!21 2051.2

:- 50!1.! 5)2!2.5 )22015. )0(50.! 15(125!.

),,lative :- 61!0)2 6$()$( 612($!! 555$1$ 20)$0.

3hange +ate 4 98.90 20$!0(1

Descri3tion Current A33reciation De3reciation

E7hange 8ate .0 105.5! 2.05

Change in 8emittane 20$!0(1 2212))2$ 1!02)1)

't 9irst :e onsider the urrent e7hange rate and alulate remittane

to parent ompan" then :e ompare the e99et o9 hange in e7hange


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rate. 8esults sho:s appreiation in e7hange rate leads to inrease in

remittane to parent ompan". On the other hand depreiation in home

ountr" urren" dereases the remittanes to parent.

CHAPTER N 0

Conclusion

In a nut shell, we have decided to open a subsidiary in Af"hanistan just due to

the reasons that we have found Af"hanistan as a profitable place for us in

order to "enerate profit, for the parent company. As it is crystal clear that there


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is no other service provider like us who is workin" there at the moment. (e

will be considered as the pioneer there in this field and we will take the full

benefit of the first mover strate"y.


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people would definitely like to show interest which helps us to pro"ress

affectively and also increase the revenues , profit of the or"ani!ation. As they

are very professional peoples they do not take risk blindly but take risk by

calculatin" different factors and then take which best suits the or"ani!ation

with ma%imum return.

They always up to date with the factors and take multiple decisions for the

benefit of an or"ani!ation. As in the present situation the e%chan"e rate is

comparatively low and is e%pected to be increased with the passa"e of time so

the cost of investment is low and also because of the cheap labour available.

3ne of the major problem that the company would face is the factor of

downplay and the anti/sentiments that would prevail in Af"hanistan due to the

(ar on terror. +ut company have made different policies to overcome such a

situation as well. It is dealin" in other nations as well so if the project fails the

company would minimi!e risk from the other profitable nations.

Documents

International financial management Project