Assignment
University of Wales
&
Management Development Institute of Singapore (MDIS)

Subject : International Finance
Topic : Assignment Question
Lecturer : Mr. Alisher
Course : BSc in Banking & Finance

Assignment Cover Sheet

Number | Name of Student | ID Number | 1 | Xxx xxx | xxxxxx |

Submitted on Due Date?
Words Limit Observed?

Table of content
Executive Summary
Introduction
Business overview of Colgate Company

Question 1 Describing international business method (s) the company used to tab into the international market. Discuss why the chosen international business method (s) is an appropriate and/ or inappropriate one

Question 2 What are the major risks faced by the company in its international operations? How does the company manage these risks?

Question 3 Discuss how the company makes use of the international credit market to its benefit?

Conclusion
References
Appendices Tables Graphs

Question 1 Describing international business method (s) the company used to tab into the international market. Discuss why the chosen international business method (s) is an appropriate and/ or inappropriate one

For my individual report I have chosen Colgate Company which has international operation over 200 countries and 3 billion consumers over the world with net sales $18 billion in 2012. Today the company is worth $52,419,447,369 and has 4,226,677 shares at price $115 each. Here is Summary of market price of the company in appendix Table 1. Company’s key people for its rapid growth are Chief Executive Officer- Ian Cook, Senior Vice President-Joseph Jimenez and Executive Vice President-Stephen I. Sadove. (Annual report. Colgate 2012)

History of Colgate acquisition and mergers into international markets.
In all annual reports the CEO Mr. Cook says that Colgate group is having conducted successful acquisition and joint venture that are brining huge profit for the parent company. Especially, few methods of entry strategy, which are exporting, acquisition, and merger joint venture.
In next paragraphs I will explain successful acquisition and method of market entry.
In 1985 Colgate company penetrated to market of the East Asia with a joint venture with Hong Kong-based Hawley & Hazel for $89 million, growing care company, which was expected add value of company and profit. Ownership of this joint-venture was established as follows 50% of the Colgate and 50% Hawley & Hazel. Success of this strategy was in what company could choose right time and right style of production and right method of entry. Meanwhile, Asian market had not hygienic products as much as today, after the immediate funding Joint-venture in Hong Kong, Colgate company could increase overall net sale to $12, 2 million as expected by analysts. (Eben Shapiro, 1992)

In 1995 international operation of Colgate in Russia, expanding into fast-growing markets was developed by opening its first own manufacturing subsidiary costing $130 million and with net sale $34 million after developing extra segment in production. That was one of the successful operation in the history of the company says Mr. Keytley. (Annual Report, 2000)
XXI century is labeled as battle age for acquisition and takeovers of businesses undervalued and but expected to earn profit. Kolynos Oral Care business in Latin America was bought for $570 mln and after 2 years new production platform was added to enlarge number of product in market and profit realized from this project was $19 mln. (Annual report. Colgate 2001)

Another acquisition of Colgate-Palmolive® to enter into European market was Sanex oral care business of Unilever, for $940 million in cash.
Success can be seen from the figures that annual report says sales of $260 million 2008, especially in Western Europe form business which was concentrated in deodorants and body cleansing products.
At the same time company expert team would not anticipate that shares of Colgate would fell 14 cents, to close at $78. (Chris v. Nicholson, 2007)

Increase in Goodwill by 11% and increase in total assets by 6% are caused by $100-million acquisition of 84% outstanding shares of Toms of Maine Inc. in alone 2006. (Jack Neff, 2006)

However, company did not stop its strategy of expanding into new markets and Colgate Santiago Co., Ltd. was established by joint venture with Colgate Palmolive® and Jiangsu Sanxiao Group on July 1, 2000. For Aug 6, 2003, then the company cash payment was 3.9 billion Euros.
(Annual report, Colgate china, 2002)
The explanation of the entry modes company chosen gives overview that every step in tapping to new market company chooses any business that can only bring profit and gain market capacity in Operation Country. As we seen above number of acquisition had already paid firs payment of investment by realizing huge net sales overall.

Question 2 What are the major risks faced by the company in its international operations? How does the company manage these risks?

The diagram taken from Annual report of Colgate (in appendix graph2) shows that The Colgate-Palmolive® Corporation runs its business 75% of markets outside the U.S.
Theoretically, geographic diversity in operating business generates many opportunity for example cheap labor cost, availability of raw materials but on the other hand, it cannot ignore the range of risks linked to significant international operations. Following paragraphs illustrated some situations where the Colgate Company was adversely affected by these risks.
As Colgate Company is producer of hygienic products, its operation is under control of Law authorities of the U.S including Food and Drug Administration (FDA), the Federal Trade Commission, the Consumer Product Safety Commission and the Environmental Protection Agency (EPA.
Any MNC consider that and one risk relating to revenue of the company is foreign exchange rate and Colgate use forex rate between USD and other currencies.
As annual report says, in 2011 Sales in Latin America declined by 1,7% but in 2012 it went up by 5,3 and this was driven by a 9%-negative impact of the foreign exchange rate. ‘
Experts of Colgate Group calculated that maximum yearly loss in revenue was $1,7 billion due to foreign exchange rate, interest rate, inflation rate in 2007 and 2008 lonely. (Equity Research Report, 2012)

One huge threatening risk factor for Colgate Company is political regulations. Especially in foreign markets the Company can struggle many political resolution which bands its large business. One of them happened in 2010 and the Colgate company was charger after-tax charge of $271 million resulted from required accounting related to the transition to hyperinflationary accounting in Venezuela.
Moreover, each year company is being subjected to number of charges and fines, the following situation was type of that. In 2010 and 2009 regulatory authorities of Swiss and Spanish and Italy forced company to pay from $10 to $50 million. (Equity Research Report, 2012)

As geographical diversification gives chance profitability, at the same time it increase risk exposure of country. Following paragraph will describe situation where company can not handle alone itself, as MNC.

Colgate-Palmolive® is producing company, for production raw material, indigrients are needed to produce its range of products. Colgate for its production uses only Palm oil and imports this raw material from Indonesia and Malaysia. However, According to the Union of Concerned Scientists, palm oil plantations produce greenhouse gas emissions (GHGs). (“The Root of the Problem: What’s Driving Palm Oil Today, Ucsusa.org, June 2011). This type of ban obviously affects the production process of the company and price of Palm oil is positively correlated to the price of its products. So that, in 2012 company made contract with Brazil palm farmer to supply oil.

This risk in our case can be considered as political and as environmental factors too. Colgate is suffered as a buyer by resolution of Indonesia’s National Development Planning Agency about deduction in palm oil production.
(Shareholder review, 2012)

Risk management and strategies of Colgate-Palmolive®

In 2008 Oracle information system company provided Colgate company with SAP Treasury software solution for the whole corporation with its subsidiaries.

Main purpose of SAP Treasury system solution:

* collection lock boxes and current-day bank report in form the SAP R/3 General Ledger

* reconciliation automatically for Colgate company every day.

* management currency risk investigation

* enter hedging dealings to offset the currency exposure.

* estimate market risk, especially on foreign exchange and interest-bearing transactions.

* Key service that financial bridge for company to exchange fund and remaining loans with subsidiaries via intercompany account “

* integrated inbound electronic banking solution from Cerg Finance

* an outbound electronic banking solution from Citibank

* management its short, medium, and long-term payment flows and corresponding risk positions on a global

Historically, managers of Colgate Company do prefer key approaches to risk management. Colgate-Palmolive® currently established a world class foreign exchange risk management board in Switzerland and Board has five key objectives: 1. Foreign exchange risk exposure reporting. 2. Cost savings. 3. Accounting automation (FAS 133 requirements). 4. Counterparty management. 5. Streamlined internal controls.
(Annual report, Colgate. 2012)

Question 3. Discuss how the company makes use of the international credit market to its benefit?
Today every MNC tries effectively to use chance occurring in international financial market.
Colgate Company needed much more external funds to complete daily operations and number of acquisitions merger, to put it simply to fulfill the project of new innovations. Company had faced difficulties with withdrawal of $1 billion cash to acquire Sanex of Unilever in Europe.
As discussed above that in order to minimize risk exposure in terms of cost of debt and volatility of interest rates, the Group applied primarily Integrated Information Systems as SAP Treasure by Oracle® which conducts interest rate swaps, hedging fund and interest rate options.
Credit policy of Colgate Company is very firm in any business decision. Company has 3 major currency operation and.
Colgate company is friendly running its business with City bank in Europe borrowed number of credits and commercial loans costing more than billions dollars: followings are part of it:

In April 1999 1-year loan costing U.S. $250,000,000 364
In June 2002 5-year loan costing U.S. $500,000,000
In 2005 1-yaer commercial loan costing U.S. $330,000,000.

Historically the company is used to get and manage external funds and today in 2012 Colgate-palmolive issued $500 million worth of 10-year medium-term notes, fund coming from this financial instrument company is planning medium-size acquisition and joint-venture in mostly Asian countries. (Annual report, Colgate. 2012)

Appendix

1. Table of financial overview of the company Colgate-Palmolive. Available at; www.nasdaq.com/quote/clt

1 Year Target: | 114 | Share Volume: | 4,226,677 | 52 Week High /Low: | $ 116.71 / $ 94.56 | Market cap | 52,419,447,369 | P/E Ratio: | 21.76 | Earnings Per Share (EPS) | $ 5.15 | Annualized dividend | $ 2.48 | Dividend Payment Date | Feb. 15, 2013 | Current Yield | 2.18 % | Beta | 0.56 |

2. Graph of growth dynamics in Colgate-Palmolive® in India (based on annual reports for the years 2003-2012). 3. Graph of net sales realized by Colgate-Palmolive® by continent. Equity Research Report | January 19, 2012 http://www.wikinvest.com/stock/Colgate-Palmolive_ Company_%28CL%29/Value_Risk

References Kotler, P. and Keller, K. (2006) Marketing Management, 12th edition. Prentice-Hall. Property of Project Guru, www.projectguru.in Retrieved on July 15, 2006 from University of Phoenix rEsource Student
Madura, Jeff. (2009) International Corporate Finance 9th edition
South-Western Publications.

Eun and Renick (2009), International Financial Management, 5ed
McGraw Hill.

Stock Quota Summary. Colgate-Palmolive® 18.03.2013. Available at: http://www.nasdaq.com/symbol/cl
Annual Report of PROFILE SAP™ R/3® Customer, 2012. Implementation Success Colgate-Palmolive® Picks SAP Treasury™ for Global Treasury Information System. Available at: www.sap.com/report/colgate_palmolive.pdf Equity Research Report | January 19, 2012 http://www.wikinvest.com/stock/Colgate-Palmolive_Company_%28CL%29/Value_Risk Wiley Krugman P., Obstfeld M. (2002) International Economics: Theory and Policy. Printce hall, New York

Addison-Wesley EBEN SHAPIRO,Colgate Agrees to Acquire Mennen in $670 Million Deal, The New York

CHRIS V. NICHOLSON, Colgate Buys Unilever Business for $940 Million 2007. New York. Available at: http://dealbook.nytimes.com/2011/03/23/colgate-buys-unilever-business-for-940-million.html
Jack Neff. Colgate Pays $100 Million for 84% of Natural Toothpaste Brand http://adage.com/article/news/colgate-palmolive-buys-tom-s-maine-stake/107954/

Shareholder review, Colgate-Palmolive, New York, 2012. Available at: http://www.ceres.org/incr/engagement/corporate-dialogues/shareholder-resolutions/colgate-palmolive-palm-oil-2012