Strategic Finance

Assignment 02

Student Name: Koralagamage Kusal Kumara Fernando

UOB ID – 2212854

Unit Code - 22-23BLK2OCAAF046-6

Word Count – 3,679

Submission Deadline – 13/01/2023

List of Abbreviations
 SAD – Specialty Agriculture Division
 UK – United Kingdom
 ASD – Agriculture Supply Division
 ED – Engineering Division
 FDI - Foreign Direct Investment
 CFO – Chief Financial Officer
 GDP - Gross Domestic Product
 CRA - Credit Rating Agencies
 BOD – Board of Directors
 CRR – Credit Risk Rating
01. Introduction

Carr’s Group PLC is a manufacturing company mainly investing in the agricultural and
engineering sectors. This was established in 1831 and it was more than 190 years of history
and business establishment in the United Kingdom. This company is listed on the London
Stock exchange since 1972.

The Carr’s Group PLC consists of 03 divisions. These are the Speciality Agriculture division,
Agriculture Supplies division, and Engineering division. Manufacturers and supplies of feed
blocks, minerals, and boluses containing trace elements and minerals for livestock are done
by the Speciality Agriculture division. The Agricultural Supplies division manufactures
compound animal feed, distributes farm machinery and fuels, and runs a UK network of rural
stores, providing a one-stop shop for the farming community. Design and manufacturing
bespoke equipment, and providing technical services primarily in nuclear, oil and gas, and
defense industries are done by the Engineering division.

The key brands of SAD’s are Crystalyx, Horslyx, Smartlic, Tracesure, and Amino. The key
brands of ASD’s are carr’s billington and bibby agriculture. The key brands of EDs are
TELBOT, MSIP, and Power Fluidics.

The group consists of a parent company, subsidiaries, a joint venture, and associate
companies. Which are mainly operating in the United Kingdom and more than 57 locations
are operating their all the segments.

The corporate objective is a specific, measurable, and time-specific target to achieve the
overall corporate goal. Carr’s group PLC has serval objectives such as build value by
focusing on markets with growth potential, grow and diversify our international footprint,
differentiate through innovation and technology, and leading in our chosen markets. So, the
company is running with so many objectives in line with the corporate goal. When there are
certain objectives, those conflict with each other. Therefore, in dealing with multiple
objectives, the decision-maker should have the ability to prioritize the objectives according to
their goal (Mitra, A. 2017).

The term “stakeholder” literally means carrier of interest. It includes in it meaning a group of
people who have, to a varying degree, an interest in the performance or success of the
organization (Atti, G., Galantini, V. and Sartor, M. 2019). The stakeholders are individuals or

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Further, we can detail analyze the stakeholders of Carr’s Group PLC under using of
stakeholder mapping. Stakeholder mapping shows key stakeholders and their connections at
the glance. Stakeholder mapping categorizes stakeholders based on their power, interest,
influence, urgency, legitimacy, and more. Stakeholder mapping helps to group stakeholders,
and analyze and develop a stakeholder engagement plan.

The analysis of Carr’s Group PLC has a strategic plan not only to expand their business in the
UK but also expand in other several countries specially in an agricultural-related sector.
Because of when the development of business and/or if they reach some level in establish a
country, they expect to move to other countries mainly due to increasing shareholder wealth.
Not only that company expects to expand its business and catch another market share after
entering a new market segment. Therefore, Carr’s Group PLC also has a strategic plan to
expand its business in another country. Therefore, they look into foreign direct investment.
Because they seek options for opportunities to enter a different market under globalization.

Carr’s Group PLC has more intention to invest in a fertilizer manufacturing plant in an Asian
country due to the expansion of agricultural-related segment due to consideration of thinking
future. Because of based on the changes in the global situation, the agriculture sector takes
the major role and it creates more value to gross domestic income in every country. Also,
Asian counties have gaps and therefore can enter into the agricultural-related segment.
Thereby fertilizer has taken a major role in Asian countries in different ways. Therefore,
Carr’s Group PLC is more interested to invest in this area and obtain considerable market
share under this segment under their strategic plan and expand the business. Therefore, they
expect to properly analyze this area under detail.

The objective of this assignment is to how to expand manufacturing operations and business
plan in another country by Carr’s Group PLC for the first time and elaborate on key
components that need to be more aware as Chief Financial Officer and give more details to
BOD under in-depth analyze of selected country and how it would help to increase
organization wealth.

Thereby this report gives the following areas of choice of a foreign country for foreign direct
investment under the analysis of characteristics, country risk determinants, and country credit
ratings and details of foreign direct investment movies under in-depth analysis.

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02. FDI Determinants and the Selection of a Country to Invest for Carr’s
Group PLC

Foreign Direct Investment is an ownership stake in a foreign company or plan made by an

investor, company, or government from another country. Normally, the term is used to
describe a business decision to acquire a substantial stake in a foreign business or to buy it
outright to expand operations to a new region. An example of FDI are acquisitions, mergers
partnerships in retail, services, logistics, or manufacturing.

When commonly analyze of the factor for FDI, management always considers the selected
country’s political stability, access to free trade area, wage rate, the minimum capital
requirement to invest, tax rates, government regulations, transport and infrastructure, size of
the market, competitors, and market scarcity, etc.

Carr’s Group PLC expects to operate the manufacturing of fertilizer plants by entering the
Asian market and increasing their business throughout Asian Countries in different business
lines. Because Few Asian Countries have vast areas and good weather conditions, they are
more considering the agriculture field. Also, they use chemical fertilizers when producing
agricultural produce rather than organic fertilizer. The further Asian market is huge and areas
are very large. Considering the last few years, some Asian counties have developed
considerably.

We analyze FDI, there needs to be considering different determinants when selecting a

country for investment. Because management is using shareholder funds for investing, it may
be high risk and high return when entering a foreign country for the first time and therefore
should need to evaluate under proper analysis due secure shareholders’ funds and increase the
shareholder’s wealth from these investments. Therefore, let’s look at the determinants.
Market size, GDP per capita, GDP growth of the country, Sovereign credit rating, political
stability, taxes and tariffs, inflation, exchange rates, interest rates, infrastructure availability,
employee law, ease of transport, etc. Following are a few of the details analyzed.

First, we look at market size. Market size is most important when entering FDI. Because if
the market size is large, there create opportunities to invest due to the availability of market
scarcity due to less investment or unable to fulfill market requirements throughout the
available competitors in the market. Market size should be one of the most important factors
to consider in new market entry decisions, as market size reflects the market’s post-entry
profit potential for entrants (Min, S., Kim, N. and Zhan, G. 2017).

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 Then another important determinant is the GDP per capita of the selected country. It shows
the sum of gross value added by all resident producers in the economy plus any product taxes
not included in the valuation of output divided into the mid-year population. It is considered
board measures the growth of the economy. GDP per capita is more closely associated with
the independent measure (Dipietro, R. and Anoruo, E. 2006).

GDP growth of the country is also considered another determinant company should be aware
of when FDI. Because it is a good measure to analyze how country’s development and it give
information to analyze of forecast economic growth of the country when evaluating FDI.
Growth of the economy, a rise in the real gross domestic product over time, is a necessary
condition for a country’s overall social and economic development (Rahman, M., Rana, H.
and Barua, S. 2019).

The other most important determinant is Sovereign Credit Rating. It results from credit rating
agencies’ assessments regarding a country’s creditworthiness and its government’s ability to
repay its debt in full and on time (Montes, C. and Costa, J. 2020). Therefore, when investing
in FDI, this needs to be aware. If not, there would create a risk for the recovery of investment.

Infrastructure plays a key role as far as economic growth is concerned, as it essentially tries
to act as a bridge between the aspirational class of people and their dreams (Acharya, A. and
Mishra, B. 2017).

Then we look at how to select the country for FDI. The below chart shows the opportunity
risk grid for cross-country evaluation under finding the data from different sources for
evaluating and selecting the country for investment.

Opportunity-Risk Grid for Cross-Country Evaluation

Countries
         
Variable Weight India China Indonesia Bangladesh Year Source
Opportunities              
- Fertilizer Importation (US Bn) 20% 9.12 2.77 2.2 1.65 2021 Statista
- Credit Risk Rating 10%            
Trading
BBB- A+ BBB BB-
Fitch Ratings     Economics
Trading
Baa3 A1 Baa2 Ba3
Moody’s     Economics
Trading
BBB- A+ BBB BB-
S&P     Economics
World
Development
- GDP growth (annual %)  5% 8.70% 8.10% 3.70% 6.90% 2021 Indicators

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 World
Development
- GDP per capita growth (annual %) 5% 7.80% 8% 3% 5.70% 2021 Indicators
142000 232064 58426 4473 The World
- New businesses registered (number) 2% (2020) (2020) (2016) (2018)   Bank
Trading
- Corporate Tax 8% 35% 25% 22% 30% 2021 Economics
Trading
- Inflation Rate 7% 5.88% 1.80% 5.51% 8.71% 2021 Economics
Trading
- Population Mn 10% 1380 1413 274 166 2021 Economics
Trading
- Interest Rate 7% 6.25% 3.65% 5.50% 5.75% 2022 Economics
- Average Monthly Net Salary (After
Tax) in USD 11% 555.51 1,107.66 339.6 252.58   NUMBEO
The World
- Agricultural land (% of land area) 5% 60.20% 56.10% 33.20% 76.10% 20.2 Bank
               
Risks              
- Political stability index (-2.5 weak; The Global
2.5 strong) 10% -0.62 -0.48 -0.51 -0.97 2021 Economy

According to the information in the chart above, the most suitable countries to invest in a
fertilizer plant in China or India due to most of the circumstances favorable to these 02
countries than the other 02 countries. The prospective investors analyze the business plans to
choose the most promising undertaking, based on varied selection criteria (Motta, G.,
Quintella, R. and Garcia, P. 2015). Considering of above data, India’s market size of fertilizer
is high compared to China. That is the main point when selecting the country due to other
data also favorable. Therefore, Carr’s Group PLC is suitable to invest in India due to Hugh’s
capacity in the fertilizer industry.

03. Risk Determinants and Country Credit Rating

When organizations do the FDI, they should aware of the risk determinants of the selected
country due to obtain the effectiveness of the selected investment. Therefore, they need to
analyze risk determinants properly to minimize the risk of FDI. A few important factors are
as follows to evaluate every country before investing. Country risk, economic risk, financial
risk, political risk, trade openness, inflation volatility, financial market development and rate
of return investment, etc.

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Then, we evaluate mainly related to the political risk factor in the selected country is most
important. Political risk is defined as the probability of the host country’s unwillingness or
failure to provide or ensure an encouraging business investment environment, either because
of state policies or events and circumstances which are outside its control (Al-Khouri, R.
2015). Examples of political risk factors are government stability, policy consistency, an
attitude of the population, currency inconvertibility, blockage of fund transfer to repatriate
funds, war, health, bureaucracy, corruption, etc.

Financial risk factors example of the risk of financial distress, changes in interest rate, current
and potential state of the country’s economy and its indicators, probability of changing
regulations and taxes, possible government restrictions based on history, exchange rate,
inflation rate, etc. Transferring aspects of open foresight to financial risk governance requires
a proper definition, acknowledging that financial risk can be defined as the “possibility of
experiencing a loss” of economic value (Kirchmair, T. and Wiener, M. 2019). Financial risks
seem inadequate in allowing informed investment decisions and effective risk management in
a context where the integration of financial markets, instruments, and participants often
makes it problematic to separately analyze different risks (Mertzanis, C. 2014).

The credit risk rating is the most important factor when FDI’s. Because it shows the ability of
creditworthiness of the relevant country. Nowadays there are a lot of credit rating agencies
available worldwide and they evaluate countries’ credit ratings. Few worlds recognize credit
rating agencies such as Fitch Ratings, Moody’s Investors Service, DBRS, AM Best, Standard
& Poor’s and ICRA, etc. The definition of credit rating is an evaluation of the credit risk of a
prospective debtor (an individual, a business, a company, or a government), forecasting their
ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.
Credit rating agencies play an important role in the capital markets by providing investors
with information about the relative financial strength of the companies they rate (Feldmann,
D. and Read, J. 2013). Provide independent, reliable, publicly accessible credit risk
assessments that issuers and their stakeholders as well as investors and regulatory bodies
need to value issuers’ creditworthiness (Lopatta, K., Tchikov, M., and Korner, F. 2019).

When evaluating credit rating, the following determinants are considered by CRA. GDP
performance, interest rates, exchange rates, inflation rates, financial market performance by
the banking sector, economic development measures by government and sectors, government
budget balances and its spending disciplines, fiscal debt levels, capability to serve repayment
of debts, external indices such as corruption, etc.

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Based on the selected country of India for FDI by Carr’s Group PLC according to the in-
depth analysis of all the areas, the following is the detailed analysis of India’s country risk
and credit rating.

Firstly, look at the country’s risk area, India is currently vast development in the past decade
in most of the sectors have been developing. Further, the business sector has been developing
well and most of the businesses established in India. The few advantages of establishing a
business in India are a massive population, a comprehensive taxation system, Low
operational cost, a well-regulated financial system, a wide trade network, business-friendly
law, etc.

Under considering political factors in India, it is the largest democracy in the world. The
political environment is greatly influenced by factors such as the government’s policies,
politicians’ interests, and the ideologies of several political parties. As a result, the business
environment in India is affected by multivariate political aspects.

Considering the financial factors India has had good economic growth last few years and a
strong financial and bank setup available. However, India also faced covid-19 pandemic and
it also Hugh impacted the Indian economy as a result of inflation rates and interest rates have
been raised, but expect a reduction of this thing in the future under economic growth.

When considering the CRR, is under a good rating level in India. That shows that the medium
risk level and India’s credit rating represent in the above chart under a few recognized credit
rating agencies. It represents the minimum risk level.

04. Motives of Foreign Direct Investments for Carr’s Group PLC

Carr’s Group PLC expects to enter the foreign operation under the agriculture-related
business segment mainly due to the agriculture segment having been rising vastly in the last
few decades. The reason for developing the agriculture segment is that covid 19 pandemic
period most countries had to fulfill their food requirement own due to restrictions on
importation.

Further, Carr’s Group PLC’s entry into the other market is currently under the foreign
operation in the agriculture-related segment not only limited to that they have a strategic plan
to operate other engineering-size manufacturing plants established in the future in that
selected country based on the fulfill future market requirement under this division as well.

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Also, the board of directors intends to expand Carr’s group PLC business not only in the
United Kingdom but also, they interested to enter another market which was realized in the
recent board meeting. The main reason for this seems to be like, Russia Ukraine war
considerably affect the UK economy and therefore businesses should expand to other
countries rather than European countries to minimize the risk of business and safeguard the
shareholder’s funds. Also, it will help future other expansions by the strategic plan of Carr’s
Group PLC. The crucial role of strategic planning is in enabling business organizations to
reach better and long-term competitive positions and performance (Shammari, H. and
Hussein 2008).

Therefore, during the initial evaluation of the business ideas, Carr’s group realize that they
can enter through FDI for fertilizer manufacturing (Chemical) operations in Asian county.
Out of the Asian country, India is the most suitable country for FDI through the fertilizer
manufacturing operation after the evaluation more information was obtained from different
kinds of sources above mentioned. The main reason to enter the fertilizer market is that the
Indian market has a scarcity of fertilizer operations and a large market segment.
Segmentation is a central concept for successfully managing marketing strategies and
programs within the industrial setting (Clarke, A. and Freytag, P. 2012).

The following key thing we have highlighted under entering to fertilizer operation. The
growth of the Indian fertilizer market is driven by the increasing demand for food in India
due to the rising population and limited land availability. Hugh’s agricultural demand and the
increasing size of the potential customer base are expected to drive the market demand for
fertilizer in the region due to the growing consumption of fertilizer. Further, the increase in
agriculture production and government initiatives to enhance credit availability along with
increasing investments are supporting India’s fertilizer growth during the forecast period.
Also, India’s sustainable production of food grains and the consumption of fertilizer are
expected to increase over the coming year in the country. These are the things that expect to
enter the Indian fertilizer market.

When entering to fertilizer market in India Carr’s Group PLC expects to catch market share
in the Chemical Fertilizer industry. The expectation is to enter the fertilizer operation in 2024.
While the year 2023 expects to perform each analysis and make the business plan based in
line with the strategic plan of Carrs’ Group PLC. The initial year expects an ability to reach at
least 2% of the Indian Market share and expects to achieve 10% of the market share within

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the next 05 years. Because of Indian fertilizer market segment is considerable compared to
other countries.

Carr’s Group PLC expects to enter the Indian market under its brand with a separate legal
entity through the Indian fertilizer business regulation process. This is expected to invest
under the direct investment as a subsidiary company or Joint Venture if the ability to find
another investor. Later expect to be a registered quoted public company in India.

In 1st year Carr’s Group PLC expects to perform the followings under the entering process of
the Fertilizer market in India. As the first step need to conduct research that should include
the area’s most important crop and most popular fertilizer product. The simplest and probably
most common form of a qualitative research design involves a ‘snapshot’ collection of
qualitative data (Haenssgen, M 2019). Based on the research, then prepare the business plan
based on the business strategy for the fertilizer company in accordance with the group
strategic plan. Then, apply for the fertilizer license and obtain it. It is most important and
without a license, unable to do commercial activities. After that select a suitable location to
establish the manufacturing plant. It is a long-term lease period or rented out in free trade
zone. Thereby important to consider transportation, infrastructure facilities, the distance of
the port and other facilities, and ease to enter the customer base. Then, need to register the
company under the Indian regulation. After establishing the plant including the warehouse,
blending plant, chemical plant, etc. Finally, the most important thing is the marketing strategy
of the company to acquire a considerable dealer base and reach expect market share.

Then we discuss how to find the required cash flow for investment. Initially need to prepare
the budget for the required funding and it needs to be approved by BOD. Then Carr’s Group
PLC can find funds in different ways. That is, use company funds allocated under the budget
for this FDI. Then, the business proposal submission to the bank and obtain a bank loan.
Other than that Carr’s Group PLC can issue shares to the market and find the required
funding. Funds established for intergeneration savings or foreign exchange reserve
investment purposes exhibit higher risk tolerance and lower liquidity requirements (Meng, C.
2015).

Finally, we look at why we are entering the fertilizer market in India compared to other Asian
countries. In Asia, it is a large economical country and a more developing country in the
business sector. Also evaluating other things, India is suitable to invest.

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According to the conclusion of this report, FDI is a vast area and must evaluate very
carefully, and take investment decisions under proper evaluation. Evaluation is not limited
and it should be vast. Because when entering first time as an investment in a foreign country,
the risk would be vary high. Management is using shareholders’ funds and therefore BOD
should careful when to take an investment decision. This report elaborates on FDI in
evaluating vast areas and proper analysis with data.

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Appendices

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