Chinese Resources Enterprise discuss with Tesco about joint venture Tesco's supermarkets in China.

Foreign Direct Investment (FDI) is became one of the most common and popular tool for business to invest in host country. FDI enable companies to obtain overseas resources, increase access to return markets, increase local capital markets and drive economic growth. FDI have 4 types of method:

1. incorporating a completely owned subsidiaries or company anywhere 
2. acquiring shares in an associated enterprise
3. through a merger or acquisition of an unrelated enterprise
4. participating in an equity  joint venture with another investor or enterprise

 The example I give  below is related to joint venture. 

China Resources Enterprise (CRE) talks with the UK retailer Tesco to merge the Tesco's hypermarkets and supermarkets in China. This joint venture is created so that both parties would be the leading multi-format retailer in China. CRE would control 80% of the new chain while Tesco only got 20%. 

CRE said the venture would benefits "deep understanding of local customers, establishing nationwide infrastructure and proven track records as a partner with Tesco's global retail expertise, international sourcing scale and supply chain capabilities". 

An analyst said that the joint venture will allow Tesco to reduce the amount of committed capital  to its China business.

Tesco started to operate in China in 2004 but over the years Tesco has been struggling in China and lose money. This is similar to Carrefour because they had issues in their home market that they had to resolve. 

"This may look win-win, but in reality , Tesco is saying ' I can't figure out China'," said one of Hong Kong based banker to Reuters news agency. 

My opinion  regarding this joint venture between Tesco UK markets and China Markets that  Tesco should do joint venture with CRE because this can increase business profit and improve market performance in China which Tesco have problem in the past years. Moreover , Tesco can be the leading multinational retailer company in China because with the help of Chinese Retailer Enterprise they can know better of the local customers, the infrastructure of China and many others that can improve the Tesco's products in China and the distribution methods.

 Also, this opportunity can help Tesco to reduce their debts, minimize amount of capital, increase stock prices and improve their weak business performance in China since it is forecast the Chinese markets will grow 50% in the next three years. Even though there are many tough competitors such as Sun Art supermarket , this joint venture can bring benefits and advantages for Tesco, UK retailer. Also this joint venture might help Tesco not to closed down their overseas markets like In Japan and US. 

Increase of price app in Japan and the issue of transfer pricing for multinational companies.

Economic exposure happens when business doing abroad. Common risks for economic exposure are fluctuation of exchange rates, unstable governments and shaky economies. These factors have an effect on company's cash flow and earnings. But from long term view the potential for doing business abroad makes the risks acceptable to most businesses. 

On October 16, 2013 Apple gives notification to the developers that Japanese iOS app store will increase. This is due to likely the economic hardship and continued restoration against the dollar. Though Apple have not yet given detail how fair it plans to adjust the price but it could be similar to a 2011 price jump that effected UK. At times, the price apps bounce from 0.59 pound to 0.69 pound. The new Pricing Matrix for Japan can be viewed on iTunes Connect and the updates of Paid Applications contracts will available after the price adjustment goes live. The new prices should be mount soon. The iOS and Mac App Stores in Japan have not yet receive Apple's new prices. 

The weak yen and the restoration against US dollar make Apple decide to increase the price of Apps. Apple. Apple decide to do this because if they don't their profit in Japan will gain losses and because  Japan gaining restoration with US Dollar the company decide to grab these opportunities to increase the prices and gain more earnings and cash flow.  So the pricing matrix and paid applications contracts will be changed and it will be available and viewed after the company decide the fixed price adjustment since the unstable of Japan currency rate cannot make the company decide directly the fixed price. It will be risky for Apple to do this because this can make the Japanese consumer buy Apple's apps less. 

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Transfer pricing are charges for goos and services between controlled legal entities within an enterprise or companies. In the principle of transfer pricing, the transfer price should be according either what the seller would charge in an independent, arm's length customer or what the buyer would pay in an independent, arm's length supplier. Today transfer pricing is misused by multinational companies such as  transfer pricing is used to lower profits in a division of an enterprise that is located in a country with high level of taxes or raise profits in a country with no or law taxes as a tax haven. Transfer pricing is also a major tool for corporate to do tax avoidance. 

Companies such as Google, Starbuck and Amazon used transfer pricing to avoid paying high taxes. It is because those multinational companies have complex tax structure and will pay more taxes amount (billions) compare to small or medium companies. In addition those companies are undoubtedly under competitive pressures from local and foreign competitors. 

Starbucks had sales of £400m in the UK last year but does not pay corporation tax at all. It transferred some money to their sister company in Dutch in royalty payments, bought coffee beans from Switzerland and pay high interest rates to borrow from other parts of business. 

Amazon which sales in the UK is £3.35bn in 2011 but only reported pay tax expense in £1.8m. Moreover, Google's UK unit just paid £6m to the Treasury on UK turnover  of £395m

In my opinion, these companies does not do anything illegal because avoiding tax is legal for them since they are large companies with multiple locations. Also, multinationals companies have more opportunity to make locational decisions and each locations or countries they decide to operate have different tax regulation. In addition, those three companies also face with competitive pressure and these cause their expenses to be expensive. For me they avoid tax or pay lower tax because of legitimate business reasons. 

Facebook raise capital by equity finance. The company sells $55.05 for 70 million shares each.

Equity finance is another way for business to receive capital other than loans or debt.  Company sells their stocks to investors to raise capital and in return the shareholders receive ownership interest. Small or startup business used debt finance to start their business since they do not have sufficient revenues, cash flow or hard assets to act as collateral. Equity finance can attract capital and make early stage investors to willingly take risk with the business because investors are interested in acquiring ownership interests. For investors, equity financing is an important method of acquiring ownership interests in companies. Investors are always wary that subsequent rounds of equity financing usually require them to dilute some portion of their ownership as well.

Multinational company like Facebook Inc and Chief Executive Mark Zuckerberg sells stocks at $55.05 each for 70 million shares. Sound like a good share deal for investors. This make the largest stock offering for U.S public company since a sale of $7.6 billion in American International Group Inc shares in Decemver 2012. With that Facebook make a comback to S&P 500 cements after its stock plunged in the wake of its IPO but this will make the company trigger demand from index funds and other institutions to own a company’s stock.

The offer price give a 0.1% discounts to Facebook closing share price at Friday. The market participants expected the deal to price just below where the stock finsihed the week. Facebook's shares have increased to 107% in 2013. The deal include rally of consumer and mobile-oriented internet business.

The company explained it will use the profits from the sale for working capital and other corporate purposes. But currently the company does not have specific purpose of the net proceeds planned. Zuckerberg's will take $2.3 billion to pay his incurred taxes as a result from exercising an option to buy 60 million Facebook shares of Class B common stock. Facebook sells 27 million shares while company baord member Mark Andreessen sells 1.6 million shares. Mr. Zuckerberg will give 18 million shares to Silicon Valley Community Foundation and this able to reduce his taxable income by $990 million. So this make Zuckerberg owe taxes about $1.2 billion and the remaining $1.1 billion he can keep.

 This might be a good decision to increase company's performances and financial health because if Facebook used debt finance then the company will faces a lot of interest loans and this  decision can give higher return rate for shareholders and investors since they are the source of funds for the company. Also using banks can make the amount of debts higher than its assets which is not a good sign for multionational and big company like Facebook. So overall, Facebook using equity finance to find sources of finances and increase its financial performance is a good choice in my opinion.

In addition, Facebook can create opportunity to improve their social business such as invest in new products and acquire other companies to increase competition. Facebook also can used to bost popularity of its own mobile messenger app.