Strategic and Global Finance (AF701) Report: Cafe de Coral Analysis

This report provides a comprehensive analysis of strategic and global finance, covering key concepts such as globalisation and its relationship with investment. It delves into factors affecting businesses, particularly focusing on Cafe de Coral as a case study. The report computes the current value statement of the company and proposes strategies to enhance its organizational value. It further examines strategic decisions made by Cafe de Coral and their financial impacts, explores various financial sources and associated risks, analyzes global risks and mitigation techniques, and discusses different investment strategies within a global context. The report offers insights into financial performance, risk management, and strategic planning in an international business environment.

STRATEGIC
AND

GLOBAL FINANCE

Contents
INTRODUCTION...........................................................................................................................2
1. Describing the meaning of globalisation and advantages of investment...........................2
2.Determining the factors affecting the enterprise.................................................................4
3.Computing current value statement of cafe de coral and strategies to gain organisational
value.......................................................................................................................................6
4.Describing strategic decisions taken by cafe de coral and financial impact of strategic
decisions.................................................................................................................................7
5.Elaborating different financial sources available and analysing the risk associated with each
source with its cost involved in handling risk........................................................................8
6. Discuss global risks, mitigation techniques and its different kinds associated the chosen
company...............................................................................................................................10
7. Explain about the different investment strategies and decisions adopted in the global
environment..........................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Globalisation refers to the process of interlinking the world by varied cultures,
economies and populations. Investment process is the ploughing funds in different companies to
gain holding in shares of a specific enterprise. This report contains the concept of globalisation
and relationship between process of investment and globalisation in task one. Explaining various
business environment factors on global basis and impact of factors on national and multinational
organisations in task two. Cafe de coral is established in the year 1968 which deals in fast food
chains and restaurants, headquartered in Shatin, Hong Kong. It's current value statement and
process of achieving the value and its strategies which helps to improve value of this company.
Recommendation of strategy Cafe de coral can adopt to improve its organisational value is
discussed in task three of this report. Strategic decisions are those which are related with
complete framework in which an organisation operates (Bandelj, Sowers, and Morgan, 2019).
Task four consists of strategic decision of Cafe de coral and its financial performance on the
basis of those decisions. In task fifth there is an explanation of distinct sources of finance and
risk of each financial source with all the costs of managing risks. Global risk of restaurant and
several mitigation techniques to overcome risk is discussed in task six. Task seven contains
different strategies of investment and decision taken to influence decisions have upon the global
environment.
MAIN BODY
1. Describing the meaning of globalisation and advantages of investment
Globalisation is the dispersion of goods, innovations, ideas, information and jobs across
globe. It is the process of integrating various economies of the world by enhancing free trade on
global basis. This creates an open environment for foreign investments into various sectors of an
economy. It provides several benefits to the home and host country which are as follows.
 Transfer of technology or innovations helps to meet the dynamic requirements of
consumers (Chen, and Sivakumar, 2021).
 According to the availability movement of labour intensive and capital intensive
technology is transferred from one country to another.
 Transportation facilities are improving with the introduction of free flow of goods and
services.
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Relationship between globalisation and investment process-
An investment is the process of purchasing asset or any other commodity with the motive of
creating income. There can be seen an interrelated relationship between globalisation and
investment which can be described as given below-
 Analysing different Markets-There are different market structure on the basis of degree
and nature of products and their elasticities. Globalisation is a tool to know about the
trends in the separate markets which aids in knowing the proportion of investment should
be invested to gain profits of the specific portfolio.
 Globalisation boosts international investing- Mutual interest and challenges link one
economic system to another. Globalisation provokes connected economies to invest in
each other for protection of financial health and gain new profits (Cheng, and et.al.,
2022). Companies take advantage of different pricing strategies and arbitrage process for
working class and other necessary supplies.
 Potential risk and opportunities- Globalisation helps to identify the threats of existing
and upcoming rivalries in the existing market. Risk imposes a negative impact on the
portfolio of the investor and opportunities implies positive influence on the project. For
the purpose of investing in long term assets it is mandatory to keep watch on every
production as well as service sector.
Advantages of investment-
Investment can be done in various forms such as foreign direct investment and foreign
portfolio investment. There are several pros of investment process which can be elaborated as
given below-
 Increased employment- Every economy is struggling with the problem of
unemployment, to solve this issue FDI benefits the recipient nation by improving the
production and services in the nation and income of the people get hike which eventually
rises the purchasing power of economy.
 Increase in exports- All the products manufactured in home country is not necessarily
meant for domestic consumption (Cho, and Chen, 2021). Investment process aids in
exchanging products which increases the flow of trade and with the help of special
economic zones and export oriented units’ trade becomes easier and flexible.
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 Meeting financial goals- Every organisation is developed with a purpose of achieving
organisational goals. Cafe de coral is designed with a purpose of delivering high quality
good to its customers. By following all the missions, it can create positive impacts on the
mind of the people and result in increased market share.
2.Determining the factors affecting the enterprise
The environment relating to business changes rapidly, therefore careful and systematic
planning is required before implementation of the business process. It is the responsibility of the
internal management of the business concern that before execution of any plan they must be
properly examined the top level management of the enterprise. (Coelho, Kamath, and
Vijayabaskar, 2020). It is important of the organisation to keep their eye open with respect to all
the external factor that could directly or indirectly affects the operation of the organisation.
Further the manager must ensure that there should be the fruitful strategies to deal with such
factors. In this statement we are considering that what the external factors are, how important
they are for the enterprise, and how they are affecting the operating effectiveness and efficiency
of the corporations.
 Technological factors: These factors affect the organisation in both ways. They earn
excess profit by following the technology or sometimes they lack in them which creates hurdles
for them in order to compete with the competitor. An enterprise creates GPS systems for
commercial as well as household vehicles that is a technological advantage for such enterprise
and for remaining are disadvantage. The organizations established or situated in their native
countries, will comparatively be less impacted by the effects of technological factors, then the
international organizations. As a matter of fact, the national Organizations are subjected to mild
deviations in the environment as opposed to multinational companies, who must keep track of all
the deviations in the technology applicable in each region it operates in.
 Economic factors: These factor affect the operation of the enterprise directly. E.g. of
such factors are Taxation rate, Interest rate, Rate of inflation in the country and so on. It is
important for the business concern to mould their strategies according to the government policy
in order to sustain in such competitive edge. Industries may have to work very hard to fulfil the
needs and requirement of employees and the management such as their salary hikes, timely
promotion, regular payment of bonus. (Dinçer, Yüksel, and Pınarbaşı, 2019). If the business
concern makes products considering the profit margin, then they have to reduce price of the
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product so that sales volume can be increased accordingly. For instance, the great depression
affected the national as well as multinational entities even though the same was originated in the
United States. This is often considered as an unfavourable situation for the global industries, due
to the fact that individuals concentrated on saving their earnings instead of spending them
towards the market, whether national or international. And as a result, organisations are cost
cutting the price of the product and reducing their overall production to recover their fixed cost.
 Political and legal factors: Rules and regulations are framed and implemented by the
political parties. There needs to be proper knowledge of how the new rules and regulations can
affect the business operations of a business. Every country has its own rules and regulations to
follow, which are specifically drafted by the legislation. Where, many a times the personal
disposable income is indirectly proposed by the government and as a result often leads to lower
than usual income earned by the individuals. If the income is not considered sufficient then the
home or global market will fail to sell significant amount of commodities to the consumers, or
establish themselves in the industry.
 Social factors: What is the taste of the consumer directly influenced by the place where
they are residing, their personal requirement, and their financial standing. For national
organizations, it is necessary to follow the trends and behaviour adopted by their targeted
audience, towards the market place. Furthermore, the international entities are required to follow
similar methods, however due to the geographical area being vast, the audience preferences may
differ significantly. (Dixon, 2019).
 Competitive factors: It is important to regular monitor the competition and the
competitors so that entity may increase their position in market. The national and multinational
companies will be faced with cut throat competition in the market and henceforth are required to
assess their achievement and drawback so that they learn what to include in their operation so
that loss of income cab be avoided.
 Global factors: The top level executives have a responsibility to stay on upper side of
local and foreign branches so that organisation can spread their business worldwide. The local
companies are often affected by the multinational organizations who may step foot in any
country to expand their area of business and henceforth may threaten their existence. However,
the national companies may also pose as a barrier for the international firms due to the fact that
the companies know how the local market is like and what factors to administrate.
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3.Computing current value statement of cafe de coral and strategies to gain organisational value
From the above statement presented, the Current share price of the company can be
identified at $13.30 HKD for 172000 shares and may increase up to $18.26 within a 52 weeks
range. The statement further defines the overall long term position of the company in the
industry and the Earnings before Interest and Tax are calculated at $90 HKD Million, with a
Sales or Revenue of $7509 HKD Million.
Following are the aspects that help the business to rise its value in the market:
 Diverse Customer Base: An organization often looks for consumers from different
origins or masses with varied choices and preferences, so as to avoid the chance of losing
significant amount of consumers who share the same interests and needs. Due to this
reason, the most successful companies do have diverse consumer base. Furthermore, the
products or services sold by the company are not necessarily adequate or suitable for each
kind of customer and therefore, by selling to individuals with different kinds of needs the
management can benefit their demand and supply factors along with mitigating effects of
loss due to one product (Gellers, and Jeffords, 2019). For increasing the value of a
business the management must optimize its resources optimally and concentrate on the
various methods followed to gain long term benefits.
 Return on Investment: It indicates the performance of the enterprise over the accounting
period to assess the effectiveness and efficiency of the entity. Business should be aware
of the requirements of their major funding source (typically a university), local
communities, and society as a whole, and seek their input actively and on a frequent
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basis. Business can build stronger and more successful research, teaching, and public-
outreach programmes and fundraising initiatives by knowing and addressing community
and societal needs (Kitamura, 2021). Business can monitor and describe the benefits on
investment to current and prospective donors using appropriate programme indicators.
 Importance of a Diversified Funding Portfolio: The establishment of varied portfolios
of financing sources that are more robust in difficult economic times will be one of the
most important aspects in guaranteeing the stability and sustainability of Business. An
institution's sensitivity to variations in any one source of financing is reduced by
diversifying its funding sources. Many Businesses, especially those linked with colleges,
are overly reliant on a single funding source (Kong, and et.al.,2021). As previously
stated, it is critical for parent institutions to offer a steady core of base support for their
Business, but they should also anticipate this support to be leveraged. Most Business
have several options for diversifying and supplementing their financing sources.
4.Describing strategic decisions taken by cafe de coral and financial impact of strategic decisions
Strategic choices affect the environment of the business completely, along with resources
and the person connected with them.
Salient Features of Strategic Decisions:
 For a corporation, strategic decisions have significant implication on the entity’s
resources. These decisions can be related to acquisition of new assets of the entity, modifying the
existing asset or relocating the same with existing assets. (Glushakova, and Vaysberg, 2020).
 The objective of strategic decisions is to maintained the balance between organisational
resources and their workforce capability to perform an activity.
 Strategic decisions are like the fuel for the organisation operation so that they go in the
right direction (Kouvelis, Dong, and Turcic, 2019).
 Since the business in working in the changing environment therefore regular updation is
required in the strategic decisions from time to time.
 Strategic judgements are difficult because they depend upon person to persons.
 Strategic choices are designed by the management team however sometimes it is not
clear as they are connected to future which is uncertain.
 The decision taken by the operation team will not match with the strategic team decisions
as they both have different perspective and targets.
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 Administrative choices are those which need to be address regularly so that they can
provide assistance to strategic or operational decisions of the entity (Lambert, Herbert, and
Rothwell, 2020).
 Reduction in cost is the strategic choice of an entity so that operation decisions can be
fulfilled that is profit earning. Operational decisions are reducing the number of workforce and
how they reduced by following certain process is an administrative decision.
 Identification, filtrations and implementation of various business process is one of the
advantages of strategic management. Example can be exploring products, markets or industry,
and business venture etc. can only be implemented if organisation engage in strategic planning.
 Strategic management enables entities to take look at the operations they are performing
so that cost-benefit analysis can be addressed in order to profits.
Financial Benefits of Strategic Decisions to an entity:
Many readings have established that business concern use strategic management which
makes profitable and successful than those entities who does not consider them in their business
model. Proper planning and implementation of same give an entity to control their business
activity considering the future which is unseen and not predictable in the rapid changing
environment of the twenty-first century. Every year there are thousands of start-ups or enterprise
fails to run their venture in United States, with the majority of them fails due to lack of decision
making at the corporate level (Lara, 2018).
5.Elaborating different financial sources available and analysing the risk associated with each
source with its cost involved in handling risk
There are different sources of finance which can be described as given below:
Debt –
It is the most common source of finance which is cheaper and requires regular payment
to its suppliers (Lioliou, and Willcocks, 2019.). It offers tax shield to an organisation because
interest paid on particular debt is a charge against profit and can be shown as an expense in profit
and loss
Risk associated with debt-
1. Credit risk or default risk- While investing in a particular debt it is crucial to
investigate about the credit rating of an organisation because it reveals about the true and
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fair view of an organisation. An organisation with low credit rating increases the chances
of default.
2. Interest rate risk – Acquisition of debt includes interest payment also which is required
to be paid monthly or quarterly depending upon the policies of the organisation.
Fluctuations in the rate of interest contributes to the failure of payment of debt.
3. Market risk – According to different situation such as pandemic, financial crises prices
of interest rate may vary up to a large extent. At the time of covid, cafe de coral faced a
huge loss due to global lock-down because expenses of interest are not able to recover
due to low turnover of sales.
Equity Financing-
It is a form of finance in which an enterprise sell ownership of its company share in
return of capital. It can be done in two ways either private placement of stock to its employees or
public stock offering (Ma, Wang, and Chan, 2020). It offers dividend as appreciation in the value
of shares. There are different types of shares either redeemable or irredeemable. It does not
create any additional burden on the organisation.
Risks associated with equity-
1. Sharing of profits- An enterprise allotting its share of company is also required to shares
percentage of gains with its investors. Dividing gains with shareholders reduces the
profitability of the organisation.
2. Dilution of ownership- While selling share of company to its investors reduces the
ownership of actual owners. Shareholders have right to vote in the affairs of the company
which distributes the decision making power and may sometimes result in the
mismanagement in the organisation.
3. Missing growth opportunities – Funds are blocked with its investors as a result chances
of earning higher returns is least (Macklem, 2020). An enterprise cannot reinvest its share
so it will result in missing opportunities available in the existing market. Cafe de coral
has many subsidiaries such as super congee & Noodles and the Spaghetti house most of
its funds are invested in shares to its stakeholders which results in missing many chances
of profitability.
Lease financing-
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It involves two party’s lessor and lessee. Lessor transfer its assets to the lessee in lieu of
lease payments. It benefits both the parties as lessor receives recurring payments which helps to
operate its operations smoothly and lessee benefited by giving payment of asset at uniform basis
(Mittelman, and Falk, 2018). It reduces the burden of huge cost of asset and break into unified
EMI's. There are mainly two types of lease on the basis of ownership-
A. Operating lease- In operating lease, it does not transfer ownership to the lessee. Depreciation
and other expenses are charged in the books of lessee.
B. Financial lease – It consists of transfer of risk and reward to the lessee. Depreciation and
other overheads are also shown in the books of accounts of lessee.
Risk associated with lease financing-
1. Maintenance cost - Expenses incurred in maintaining leased fixed assets carry huge cost
and reduces the benefits derived from the same.
2. Limited tax related benefits - In a newly start up business where depreciation and other
expenses are low at the same time tax shield provided from these expenses are also less.
3. Complexity in documentation- While entering into lease agreements, there are various
processing and formalities in framing agreement. It creates trouble for Cafe de coral to
follow such registration process and not adherence to these process may increase legal
cost of the respective company.
Identification of the costs involved in management of the global risk:
The global financial risks are identified as the various loop holes or barriers present in the
management of the investments made towards in an organization. The financial risks are often
the cause of concern for the companies who aim towards growth prospects and is required to
manage its position in the industry. Following are types of costs for managing the risks:
 Costs of Entry – To mitigate the risk the companies would have to establish a risk
management procedure and furthermore implement the same by way of procedures, rules,
regulations, techniques and training, which must be provided to the employees.
 Ongoing Maintenance costs – As by the name, these costs are associated with the
overviewing the system, so as to track any gaps or problems within the management’s
techniques. Henceforth those charged with governance are required to assess and address
the risks coherently.
6. Discuss global risks, mitigation techniques and its different kinds associated the chosen
company.
The global risks are described as the unification of all the unfavourable occurrences which are
caused by dynamic environmental factors and furthermore creates significant negative influence
over the economy of several countries and industries as a whole for a substantial time period or
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