Questions for Discussion
1. the financing of international business operations is usually a ‘bit more complicated’ than financing domestic operations. Re-read the section on Financing Business Operations and give a good brief explanation of ‘back-to-back’ loans (e.g. if you prefer, you may choose other international business financial tools for operations—such as American Depository Receipts).
Back-to-back loans are a way for new international subsidiaries to gain access to loans that they may not have established the credit for yet. In this situation, the parent company uses a bank that has locations in both the home country and the country of the new subsidiary. The parent company places money with the bank in the home country. Subsequently the foreign branch of the bank then loans money to the international subsidiary, using the money on deposit with the home branch as collateral.
2. Should Toyota (our introductory case for Chapter 15) or other major manufacturing operation that is considering locating in the U.S. be concern about the labor/management policies/procedures that have developed in our economy? Our Chapter 16 may help with this question; but, assuming that you have not read that chapter yet, please share your opinion to this question based on your reading of Chapter 15 or prior chapters.
Any company investigating the option of foreign direct investment should be concerned about the various policies and procedures developing in other markets. In the case of Toyota, the should be closely monitoring the effect that legislation such as Sarbanes–Oxley has had on US corporations, as well as, current economic movements such as the discussion of raising the minimum wage. The US is large enough and regionally varied enough that Toyota can offset some of these concerns simply by choosing an appropriately low-risk facility location. For example, the Midwest and Southern US is generally less expensive to operate in than either of the coasts. That being said, certain parts of those regions are highly unionized. By avoiding unionized areas and choosing low-cost facility locations, Toyota can avoid many associated risks.
3. After listening/reading our media story for Lesson/chapter 15, you will know something about German’s reduction of its retirement age from 65 to 63. What are the consequences of such a decision? Would this change in policy make Germany more or less attractive as a location for international operations?
Clearly, the change Germany’s retirement age makes the country less attractive for foreign direct investment. Considering many of the country’s existing labor policies already make it unattractive for FDI, this latest change just more fuel to the fire. The general consensus is that lowering the retirement age will end up costing companies money in the form of taxes and shrink the size of an already shrinking workforce. To make matters worse, the plan seems to fly in the face of common sense. As medical technology improves, individuals are living longer, healthier lives. The need to retire at an earlier age seems unnecessary.
Wild, J. & Wild, K. (2013). International Business: The Challenges of Globalization. (7th ed.). Upper Saddle River, NJ: Pearson.