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17. International Joint Venture. Anheuser-Busch, the producer of Budweiser and other
beers, expanded into Japan by engaging in a joint venture with Kirin Brewery, the largest
brewery in Japan. The joint venture enables Anheuser-Busch to have its beer distributed
through Kirins distribution channels in Japan. In addition, it could utilize Kirins
facilities to produce beer that would be sold locally. In return, Anheuser-Busch provided
information about the American beer market to Kirin.
a. Explain how the joint venture enabled Anheuser-Busch to achieve its objective of
maximizing shareholder wealth.
Many companies decide to expand their operations internationally in order to be able to
grow their profit margins and maximize shareholder wealth. By engaging in a joint venture
with Japans largest brewery, Anheuser-Busch was able to take advantage of Kirin Brewery
distribution channels and facilities to expand its market in Japan.
b. Explain how the joint venture limited the risk of the international business.
There are several risks associated with doing business internationally that can be
mitigated by joint ventures. Some of them include: inexperience, laws and regulations,
infrastructure, cultural and language barriers, and providing after sales services. By joining
Kirin Brewery, Anheuser-Busch minimized these risks. The Japanese brewery can provide
expertise in the target market, knowledge of laws and regulations, the necessary infrastructure

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without having to invest huge amounts of capital; knowledge of the culture and language, as
well as customer service.
c. Many international joint ventures are intended to circumvent barriers that normally
prevent foreign competition. What barrier in Japan did Anheuser-Busch circumvent as a
result of the joint venture? What barrier in the United States did Kirin circumvent as a
result of the joint venture?
Anheuser-Busch circumvented tariffs and quotas barriers as well as direct investment
barriers; because it is able to benefit from Kirins distribution system in Japan. Kirin is able to
learn more about how Anheuser-Busch expanded its product across various countries,
circumventing information and cultural barriers.
d. Explain how Anheuser-Busch could have lost some of its market share in countries
outside Japan as a result of this particular joint venture.
In joint ventures it is critical that both parties define their products and markets very
well because they are potential competitors of each other. It would have been beneficial for
Anheuser-Busch to demand a non-compete commitment from Kirin in other markets if they
wanted to expand to other markets that Kirin could potentially reach.

21. Valuation of Wal-Marts International Business. In addition to all of its stores in the
United States, Wal-Mart has 13 stores in Argentina, 302 stores in Brazil, 289 stores in
Canada, 73 stores in China, 889 stores in Mexico, and 335 stores in the United Kingdom.
Overall, it has 2,750 stores in foreign countries. Consider the value of Wal-Mart as being
composed of two parts, a U.S. part (due to business in the United States) and a non-U.S.
part (due to business in other countries). Explain how to determine the present value (in

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dollars) of the non-U.S. part assuming that you had access to all the details of Wal-Mart
businesses outside the United States.
In order to determine the present value of the non-U.S. part of the company, the first
thing to do would be estimate the amount of cash flows that the company will receive at the end
of the period in each currency by determining the present value of cash flows of all stores
within one country. Then, obtain a forecast of the exchange rate. After that, multiply the foreign
currency amount by the exchange rate forecasted. Finally, add all the estimated cash flows for
all the six currencies from all the countries where Wal-Mart has stores. However, it is important
to mention that determining future cash flows is subject to uncertainty because of the
international economic and political conditions that may affect exchange rates.

22. Impact of International Business on Cash Flows and Risk. Nantucket Travel Agency
specializes in tours for American tourists. Until recently, all of its business was in the U.S.
It just established a subsidiary in Athens, Greece, which provides tour services in the
Greek islands for American tourists. It rented a shop near the port of Athens. It also hired
residents of Athens, who could speak English and provide tours of the Greek islands. The
subsidiarys main costs are rent and salaries for its employees and the lease of a few large
boats in Athens that it uses for tours. American tourists pay for the entire tour in dollars
at Nantuckets main U.S. office before they depart for Greece.
a. Explain why Nantucket may be able to effectively capitalize on international
opportunities such as the Greek island tours.
Nantucket may be able to capitalize on such opportunity because it already has an
established business that American tourists know, and could penetrate a new market with some

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of the same customers that it has served on tours in the U.S. In addition, it could expand its
business by providing opportunities to tourist who want to visit other countries.
b. Nantucket is privately-owned by owners who reside in the U.S. and work in the main
office. Explain possible agency problems associated with the creation of a subsidiary in
Athens, Greece. How can Nantucket attempt to reduce these agency costs?
The main issue is that the employees of the subsidiary in Athens are not owners, and
may have no incentive to manage the business in a way that truly maximizes the wealth of the
owners. In order to improve that situation, goals should be set by the main office and subsidiary
managers should be rewarded when they reach those goals. Additionally, Nantucket may decide
to allow employees to have some ownership in the company, or they could have one of the
owners transferred to their location in Greece.
c. Greeces cost of labor and rent are relatively low. Explain why this information is
relevant to Nantuckets decision to establish a tour business in Greece.
Evidently, the low cost of labor and rent is beneficial to the company because it allows
Nantucket to create the subsidiary at a low cost and maximize the profit.
d. Explain how the cash flow situation of the Greek tour business exposes Nantucket to
exchange rate risk. Is Nantucket favorably or unfavorably affected when the euro
(Greeces currency) appreciates against the dollar? Explain.
Nantucket will be unfavorably affected when the euro appreciates against the dollar,
because its tour business in Greece results in dollar cash inflows and euro cash outflows. It will
require more dollars to be able to cover the costs in Greece if the euro value goes up.
e. Nantucket plans to finance its Greek tour business. Its subsidiary could obtain loans in
euros from a bank in Greece to cover its rent, and its main office could pay off the loans

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over time. Alternatively, its main office could borrow dollars and would periodically
convert dollars to euros to pay the expenses in Greece. Does either type of loan reduce the
exposure of Nantucket to exchange rate risk? Explain.
Neither type of loan will reduce Nantuckets exposure to exchange rate risk because,
even though euro loans would be used to cover euro expenses, Nantucket would need dollars to
pay off those loans. On the other hand, the dollar loans would still require conversion of dollars
to euros. In consequence, Nantucket is still unfavorably affected by the appreciation of the euro
against the dollar.
f. Explain how the Greek island tour business could expose Nantucket to country risk.
The Greek government may have some regulations for foreign tour operators that may
include higher taxes and some restrictions. This situation may put Nantucket at a disadvantage
in relation to other tour companies which are Greek.

27. Exposure of MNCs to Exchange Rate Movements. Arlington Co. expects to receive 10
million euros in each of the next 10 years. It will need to obtain 2 million Mexican pesos in
each of the next 10 years. The euro exchange rate is presently valued at $1.38 and is
expected to depreciate by 2 percent each year over time. The peso is valued at $.13 and is
expected to depreciate by 2 percent each year over time. Review the valuation equation
for an MNC. Do you think that the exchange rate movements will have a favorable or
unfavorable effect on the MNC?
The exchange rate movements in the euro may have an unfavorable effect on
Arlingtons value, whereas the expected movements in the peso may have a favorable effect.

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Nonetheless, the expected peso effect may be smaller because the dollar amount of business in
pesos is smaller. As a consequence, the overall effect should be unfavorable.

References
Larmore, C. (2011, January 16). 10 international business risks and challenges for small
businesses. Retrieved from http://voices.yahoo.com/10-international-business-riskschallenges-for-7526598.html
Madura, J. (2012). International financial management. (11th ed.). Ohio: Cengage Learning.