International Business and Finance Case Study

Part A - Analysis of International Business Operations and Financial Strategies

Background to the company and its international business activities

Based on the current information, it can be known that SK group is a South Korean company, which has 186 subsidiaries. The company changed its name from “Sunkyong Group” to SK Group in FY 1998 (eng.sk.com, 2022). It involved different industries just like chemical, petroleum and energy, but it has a large business in “wireless mobile phone services”. That's why it can be known as the SK telecom., which provides its services in marketing, construction, wireless broadband, high-speed internet etc. in recent days, it has become the 4th largest chipmaker globally. According to the available information, it can be known that this company was founded by Chey Jong-gun on 8th April, in FY 1953. It is a private conglomerate, which provides mainly telecommunication services. This company has moreover 120 branches, which operates across countries. However, the average revenue of this company is $ 100 billion (Witt, 2019). However, this company mainly focuses on some major areas, which are: telecommunications, Life sciences, energy and semiconductors. According to the “Forbes global 2000”, the top “publicly traded” companies are SK Hynix, SK Telecom and SK Innovation. The main goal of this company is in accelerating innovation to make the company progress.

The market cap of this company was $ 111.5 billion in FY 2019. Based on the available information, it can be known that this company has some major operating companies”, which are SK Hynix, SK innovation, SK telecom, SK pharmtech and SK Biopharmaceuticals. According to these companies, SK Hynix is the 3rd largest chipmaker on a global basis. On the other hand, SK innovation is the leader of providing “renewable energy solutions” along with providing “electric vehicle battery plants”. SK Telecom is the largest “mobile communication provider” in the world. SK Pharmtech is the “global contract manufacturer of active ingredients” for the pharmaceutical industry for developing the manufacturing sites in the US, South Korea, Ireland (Othmann et al. 2020). According to FY 2020, SK Hynix has planned for $9 billion acquisitions, while SK Innovation has invested $ 2.6 billion for building “2 EV battery plants”. According to the available information, this company has some major areas for operating business. The company has traces in South Korea for 70 years from its formation. Nowadays, it has become the “global leader” in energy, semiconductors, “information and communication technology”.

Impact of international trade on the value of MNC by using trade theories

It has been observed that financial markets and institutions have a great role and importance in making the company able for international business. On the other hand, the financial market plays a great role in making the operation smooth for capitalizing the economies. The market can be easier for the sellers as well as buyers for trading their “financial holdings”. It has been observed that the stock market is one kind of financial market, which relies on information transparency. It ensures the market for setting prices for becoming more appropriate as well as efficient.

According to the financial institute, it can be known that the “international monetary fund”, which is known as the IMF helps in promoting monetary corporations and financial stability effectively. Based on the current information, it can be observed that there is a positive impact of international trade on the value of MNC. Every company has a different career path which helps the company to become diversified. Based on the company requirements and interest, the management of the company can select Global marketing, "Global business Management", trade finance or "supply chain management" (Bahoo et al. 2020). According to the trade market of South Korea, a steady growth has been observed. Based on the latest "international merchandise trade report" of South Korea, it can be known that there are record numbers of total imports and exports in FY 2021. Total number of exports were $53.9 billion and imports were $57.7 billion. According to the positive impact of international trade on the value of MNC, it can be known that there are numerous benefits. Those are:

• High job opportunities: Based on the job opportunity, industry helps in generating more jobs due to international trade. It helps in increasing market share along with increasing the manufacturing capabilities as well as service capabilities.
• Increasing revenue: Due to increased job opportunities, the demand of the market can be increased. It has a significant impact on the business growth which is positively related to revenue development.
• Expanding the target market: In the case of creating more jobs, the target market can be expanded based on job requirements. Target market can allow companies to improve production without fear of "overproduction".
• Developing risk management: International trade mainly offers the opportunity, the company can be diversified. In the case of focusing on the domestic market, an economic downturn can be observed. Based on international trade, companies cannot depend on the singular market which helps in reducing the number of risks (Buckley and Casson, 2020).
• Good relation between countries: International trade instrument good relationship between different countries.
• Increasing company reputation: Trading reputation of the company in the international market, company can be successful easily.

Trade theory

According to trade theory, it can be said that "Heckscher Ohlin Theory (H-O Theory)" is important for the SK group. This is also known as the "modern theory" or "general equilibrium theory". This theory mainly focuses on the factors of prices along with factors of endowments. The factors are essential determinants of international trade. This theory is divided into 2 theorems, which are "the H-O theorem" and the "factor price equalization theorem" (Stavins, 2019). According to the H-O theorem, it predicts the "pattern of trade", in which "factor price equalization theorem" indicates the effect of "international trade" on factor prices.

Impact of Exchange Rate movements on the company

Exchange rate indicates the price of "foreign currency". It has been observed that businesses which consist of imports as well as exports need to pay attention to exchange rates. The main reason is the value of goods which is highly sensitive for the business. Business which has domestic trade needs to be more concerned about changes in the "exchange rate". It has also interes impact on the wider economy of the country effectively. In addition to this, it can be observed that exchange rate movement helps in selling overseas, and buying overseas. However, it has an indirect impact on the business significantly. Those impacts are Selling overseas, Buying overseas and Indirect impact.

In case of business sales products across the country, then the exchange rate has a direct impact on the business. On other hand, it has been observed that there is an impact of the exchange rate movement on the business. In this case, "exchange rate volatility" can affect the competition of the business. However, depreciation of the local currency makes importing goods too expensive. It can lead to a decrease in the import volume also. In the case of domestic companies, exchange rate movement has a positive result in increasing sales, jobs as well as profits (Shen et al. 2020). It has been observed that the world is interconnected by technology. In the case of globalization, the role of business owner can be changed dramatically. It helps the business owner to expand a marketplace by selling products across the country. It creates new challenges as well as opportunities also. However, if the company has a global customer base and it sells products in different markets, the company will be familiar with different markets as well as cultures. In this case, the managers and other members of the company can achieve opportunities for learning foreign languages.

It helps to communicate with cross-cultural people in the workplace of the organization which has a positive impact on the business expansion across the country easily. The level of "exchange rate between two currencies" can be determined by some factors just like economic activities, market interest rates, GDP and unemployment rate. Exchange rate can fluctuate constantly, which has a high impact on the business (Morkunas et al. 2019). It can change the cost of suppliers as well as the attractiveness of products for overseas customers. Based on the available information of the relationship between "exchange rates" and "South Korea trade flows", it can be known about the currency paradigm. However, the "dominant invoiced currency" the clients the imports of South Korea. In the case of selling overseas, there is a high risk in receiving less money rather than expecting money. The main reason behind receiving less money is the movement of the exchange rate effectively. Issue invoices of the local currency have a less impact, as overseas buyers change the local currency during payment. According to the available information, it can be observed that there is a potential risk of a lost market due to being uncompetitive. In the case of selling overseas, it can be known that in the business contracts with "suppliers from a foreign country", high fluctuations can be observed in the exchange rate (Lee and Chen, 2022). However, in some business cases, a business person can put "forward contract", which uses the fixed "exchange rate" for a period. It helps in reducing risk of the business effectively.

The role of international financial markets in managing company finances

In order to analyze the international financial market, it can be known about the role of this market in the economic system. It allows Global commerce with health in transecting smoothly as well as continuously. Based on the current information, it can be known about the roles of "international financial market", which consist of the capital market, stock market, money market, forex market, bond market, commodity market and derivatives market. According to the overview of the financial market, it can be known that there is a high benefit of the "functioning financial market ecosystem" (Hasan et al. 2020). Financial market has an effective impact on daily lives, by which the people can engage with the markets as investors and traders. Financial market has a great role in pensions. In the case of investing in stocks and bonds, growth in the capital market has been observed. The paid interest is mainly linked to the interest rate of the central bank, which has great relation with the "bond market prices". In case of house purchases, the lender can secure the "mortgage" from the "capital markets". It is also important for the personal loan, in which the lender can access the "capital and money market" for boarding at "one rate and lends". Based on the available information, it can be known that some financial markets have specific roles. Can be observed that there are 3 effective principles of financial markets, which indicate the capital market, forex market and money market. In the money market, it provides some short-term loans including inter-bank lending (Goodell, 2020). However, commercial banks can provide the liquidity to the households and business.

On the other hand, the capital market provides security just like bonds and shares to the business. In the case of "foreign exchange market", currencies can be exchanged as well as traded for allowing the smooth transactions in "international commerce". It has been observed that these markets are interlinked and it helps the "Global economic ecosystem" for becoming more efficient. It examines that financial markets mainly create liquidity which allows businesses to raise money for their "ventures". Financial market can become smooth if the investors can become more confident about the economy. Their confidence supports in stabilizing the economy of the country effectively. In the case of the capital market, there are "primary market issues" to investors. It has been observed that governments as well as companies are the principal entities which access the "capital market" effectively. It has been observed that there are different challenges of the financial market. Those are growth, digital adoption, process and profitability, system and security. These burdens are heavily regulated by the financial industry of the world. In case of growth, it is a common challenge of The financial institute, which has negative impact on the market share and "merger and acquisitions" (Taghizadeh-Hesary and Yoshino, 2020). On the other hand, digital adoption is a great problem in the marketplace. However, it has been observed that there is a challenge of process as well as profitability. due to digital adoption most of the financial institute phase the problems of security. In this case the management of the company needs to follow a proper budget plan for avoiding financial problems. Proper financial plan helps in improving the income of the company effectively. In this case, companies can also use the proper "budgeting software" or "online budgeting tool" for solving the financial problems significantly.

Part B - Key Components of PESTLE Analysis

PESTLE analysis

Table 1: PESTLE analysis

• Political factors: Based on the available information, it can be known that South Korea is a functioning democracy. It has a good presidential system, which indicates that the President is the “head of state”. Political parties have the freedom, but they need to be democratic. Hence, it can be said that it is a politically stable country. It maintains good relationships with different countries just like Russia and China. On other hand, it can be observed that it has a bad relationship with North Korea (Zhou and Yang, 2020). The main challenges of this country is corruption, which has a negative impact on the business operations. SK Group needs to analyze the political factors before entering into the certain market as well as before investing in the certain market. Political parties follow pricing regulations as well as wage legislations for providing mandatory “employee benefits”.
• Economic factors: According to the current information of South Korea, it can be observed that the economic environment of the country is highly progressing. Based on the “World Bank group, 2022”, the bank fund of this country supports other countries. However, the GDP rate of this country is 2.7% in FY 2022 and Tax rate is 20% in FY 2022. The economy of this country depends on exports of cars, refined petroleum, vehicle parts and others. Imports have also been observed from China, Japan, Germany, Saudi Arabia and other countries. This country has an FTA, by which it can enter into “larger markets”. It has no limits, which indicates no barriers of the country. This country faced a financial crisis in FY 2008-09, but it has recovered quickly. Due to pandemic outbreak in FY 2020, a global economic recession has been observed. It has a negative impact on the economy of South Korea (Nazari et al. 2018). According to the company, SK group, the financial market of this industry will be more efficient.
• Social factors: It is a highly developed country along with it is mostly affluent. The current population of this country is approximately 51 million. The largest city of the country is Seoul based on population. In addition to this, big cities are Incheon, Busan and Daegu. It has been known that Korean is the key language of this country (Bismark et al. 2018). However, there are some effective practiced religions, which are Christianity and Buddhism. The society of this country has been influenced by some factors, which are age, seniority and ancestors. In addition to this, there are some factors just like marital status and economic status, which have a great role to create a significant impact on the telecom industry. Entrepreneurial spirit and attitudes of people have played a great role in this industry for its development.
• Technological factors: Based on the available information, it can be known that this country has advanced technology in the world. However, the country has the largest airport in the world which is Incheon airport. According to advanced digitization, this country wants to bring "walk-through tunnel security". Without these, South Korea wants to bring facial recognition tools as well as "artificial intelligence robots" in 2023 (Nazari et al. 2018). It has been observed that some utilization of robots has been started in this country, which are working as "teachers" in kindergartens and preschools. In addition to this, good progress has been observed in the aerospace engineering of South Korea. Most people use artificial intelligence for solving critical problems. progress has also been observed in biotechnology as well as robotics. Approximately 85% of people use social media in this country. Most of the institutes and corporate sectors in South Korea are concerned about the service security for avoiding cyber-attacks.
• Legal factors: The legal system of this country is modeled based on the European system. In addition to these, the legal system of this country has been influenced by the Japanese legal system along with the Anglo-American legal system. The judiciary of South Korea is independent, but some argument has been observed about political influences. It has been observed that there are some countries which do not follow the "intellectual property rights" for protecting an organization (Venthur and Zhou, 2018). The firm needs to be more careful before entering the market if there are no proper rights in the country. In this case, SK group needs to follow some level factors like discrimination law, antitrust law and others for becoming global.
• Environmental factors: Tourism is a great business in South Korea due to the good environment. Based on the beautiful season, heritage sites, delicious foods, furnished architecture, mountains and theme parks, tourism is a significant business of this country. Koreans are mostly concerned about disposing of things in the street. However, there are different environmental challenges in the country due to air pollution. It is an effective environmental issue of this country. There are other issues which are waste management, water pollution, over packaging, and global warming.

References

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