Question

This case deals with the key considerations when planning an international expansion through direct investment in foreign markets. These considerations must be addressed by a finance company seeking to establish foreign subsidiaries to support the international sales of its parent firm, a U.S.-based multinational enterprise (MNE). The company already operates three foreign subsidiaries--in Canada, Mexico (both NAFTA members), and the United Kingdom--but wishes to increase this network further through entry into additional markets. Ten candidate countries are being considered to determine the five most suitable for entry. Hence the need for a rational decision of where to invest.

Victoria Pernarella is a recent university graduate in business administration and a new hire in Bertos Financial Services, Inc., a major finance company in Nashville, Tennessee. After a month long rotational training to gain insights into the company’s scope of activities, she was placed in the international department where she has been assigned to work on a project. Bill Pappas, her manager, had asked her to analyze a select number of foreign countries to determine the best prospects for the local establishment of subsidiary finance companies. He went on to clarify that the mode of entry into the foreign markets-- acquisition of an existing company or a greenfield investment (from the ground up, that is, from a green field)--was not a primary consideration at this stage. The candidate countries were A u s t r a l i a , Romania, Brazil, Bosnia, Indonesia, Poland, Philippines, Kenya, Uruguay, and El Salvador. With finance companies highly leveraged institutions, the firm was prepared to provide the initial amount of equity capital needed for the establishment of five such institutions. At this stage therefore, the study ought to limit its recommendation to a corresponding number of foreign countries.

With this information at hand, Victoria started reflecting on the approach to use for her analysis. Sensing the need to prove her capabilities by delivering a high quality study for her first company assignment, she thought appropriate to first familiarize herself with the pertinent literature on the international expansion of multinational enterprises (MNE) in general and banks in particular, and then review background information o n h e r employer, and the scope of activities of its financial subsidiary. Hence the sequence of the following sections which address the internationalization process (literature review on the development of MNEs), the modes of bank entry into foreign markets, background of parent company, financial subsidiary and scope of activities, and developing criteria for country recommendation.

Which countries would be unsuitable for a BFSI subsidiary at this time, and what are the basic shortcomings in each case?

Answer 1

The candidate countries were Australia, Romania, Brazil, Bosnia, Indonesia, Poland, Philippines, Kenya, Uruguay, and El Salvador. Out of these, Australia, Indonesia, Philippines seems to be an appropriate choice as there growth prospects are high and politically stable economies. The contract enforcement in comparison to other countries is strong and has a labor force that is flexible and skilled.Brazil suffers from stagnation and political ramifications, while Poland, Kenya, Uruguay and El Salvador do not have a favorable environment for production activities that require funding and hence a necessity for multinational finance organization's subsidiary.