Evaluation, Financing and Control of Overseas Projects
There are many practical and theoretical factors which are likely to encourage the commencement of overseas operations. Among the practical factors which are likely to motivate a company to set up production facilities rather than exporting are the introduction of import controls or tariff barriers, excessive transport costs, government concessions and nationalistic pressure. The main theoretical inducement is the advantage offered by diversification, for it can be shown by portfolio theory that geographical diversification of a portfolio has a similar effect on the reduction of risk as that of industrial or project diversification. As a result companies are able to reduce the volatility of their returns by both geographical and industrial diversification. This chapter considers the factors which should be taken into account in the appraisal of overseas projects, the assessment of the optimal method of financing and the problems of control.
KeywordsCash Flow Host Country Parent Company Transfer Price Spot Rate
Unable to display preview. Download preview PDF.