Economy of China analysis essay: Business Expansion into China 1500 words. You are the CEO of a business that you want to develop significantly by expanding into a new country. You need to present a proposal to the board of directors of the company to gain their approval for the expansion. They are, generally, a bit risk-averse and medium to long-term thinkers. An expansion of this size requires special shareholder approval, only obtainable at an annual general meeting. Therefore, you only have one opportunity to pitch your proposal.
About the business:
Your business is a multi-national business financial services business. Founded in the UK in the 1980s, the business concentrates on providing specialist insurance, trade finance, and associated services, including consulting, for companies involved in international commodities trading. The business does not have retail customers. Its expertise and focus are business-to-business.
Shareholders and company control:
The company is listed on the main London Stock Exchange with a roster of institutional shareholders, the largest of which is an insurance company with a 6% stake. You and the other directors collectively own around 1.5% of the company. Capitalization is £440 million.
The business’s clients are the UK based in the main with 85% of the turnover and 90% of the profits after tax coming from London commodity traders and brokers. There are a few European based companies who provide the rest of the business. Group turnover is £ 500 million per annum with net profits at £ 60 million, and profits, after-tax, are £45 million. There is no debt. ROCE is 35%. Over the past few years, the business has stagnated somewhat. At the same time, you have been asked, on many occasions, to provide services for Australian commodity businesses who export to China. Similarly, Chinese buyers in London have asked you to provide services for them in their local markets. You feel that you should expand to exploit the Chinese market and believe that, in order to do the job properly, you need to commit to opening a business where commodity producers, sellers, and buyers are therefore in China. Over the years, a number of your predecessors have proposed similar actions. Indeed once the company did expand into the US market, only to close the operation when commodity prices slumped resulting in client collapses with your company being owed significant fees. You view this as a valuable learning experience for the company, rather than a reason not to try and expand again.
You have had long phone calls and lunches discussing ideas and options. You have gathered the information and have a plan in your mind. You conclude that China is a long-term, global-scale market. You also feel that, in order to compete and be taken seriously, you need to be there physically and culturally. To get the project up and running, you need a full Board of Director’s approval in order to propose the expansion to shareholders at the annual general meeting. You need to write a single Board Paper as a business report, covering all the essential information. The report will be reviewed and commented on by the Board committees. These are Audit, Remuneration, Nominations, and Corporate Social Responsibility. All the committees need to be convinced. You estimate the new business will turnover £150 million per annum with net profits at £48 million, and profits, after-tax, are £31 million. You think the capital requirement for the expansion is in the region of £60 million. Write your essay using APA guidelines.
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