BMC Case Assignment: Group FRANCE
Group Members: Margot Ibgui, Carlos Milian, & Katelyn Wilson
Question 1: Identify the key criteria and considerations that need to be taken into account in evaluating BFSI entry in the proposed foreign markets.
Answer: The case identifies some of the key criteria and considerations when evaluating entries into foreign markets. These factors include the bank’s resources, the projected volume of international business, knowledge of and experience with foreign markets, banking structure and regulation in the countries’ targets for entry, tax considerations, and customer profile. Therefore, to determine the BFSI entry to the proposed markets, it is crucial to begin by completing an environment and market analysis. In this case, looking at each country and its growth prospects including GDP growth, political or social unrest, currency devaluations, political interventions, and social stability. Additionally, focusing on geographic proximity and location advantages can be useful when looking for low costs, a productive labor force, and even unique sources of raw materials. It is also important to include a financial analysis focusing on each country’s financial system along with its monetary laws and regulations, as well as analyzing the country’s current currency situation. In addition, becoming familiar with the different financial institutions provided in the proposed foreign markets will be beneficial in order to minimize the potential financial risks involved with certain banks and institutions. Also, it is important to consider that Victoria’s manager clarified that the mode of entry into the foreign markets, which included the acquisition of an existing company or a greenfield investment, was currently not their primary choice. The firm is also said to be prepared to provide the initial amount of equity capital that is required for the establishment of the five institutions. Hence, it is also beneficial to consider each
prospective country and its balance of payment, main sources of imports and exports, and the investments or trade agreements involved.
Question 2: Of the countries under consideration, which five would be most suitable for the immediate establishment of a BFSI subsidiary? Highlight the key issues for each of the selected countries and discuss the reasoning behind your recommendation.
Answer: Currently, BFSI has three foreign subsidiaries located in Canada, Mexico, and the United Kingdom. After analyzing each prospective country, the most suitable establishments we would recommend for a BFSI subsidiary include New Zealand, Serbia, Iceland, Thailand, and Peru. New Zealand is considered a suitable fit for a BFSI establishment as it has been ranked one of the most business-friendly countries in the world. A subsidiary in New Zealand is considered an independent legal entity, meaning it can limit the parent company’s liability and can help them easily adapt to the requirements of the local market. The subsidiary will also be treated the same as the local companies, allowing the parent company to save money from tax advantages or exemptions. However, they are still subject to a corporate tax rate of 28%. There are also no minimum share capital requirements necessary when opening a subsidiary. New Zealand’s GDP was estimated at around $249.89 billion in 2021 with an annual growth of 3.7% making it an attractive market to enter. Some of the requirements for a foreign company to open a subsidiary in New Zealand include opening a bank account with a local bank in order to deposit the share capital and having at least one director who is a permanent resident, if not they may apply as a temporary residence in the meantime. It is also important to note that their banking system consists of 26 registered banks, where almost 90% of the combined assets are owned by Australian banks. In this case, it is not required for financial institutions to be registered with these banking services, but the company must be registered and considered a bank. Before
deciding to invest in an establishment in New Zealand, it is important to consider that its subsidiary laws are a bit lengthy and require extensive resources but may be beneficial in the end when looking at the prospected business economy and financial growth the country has to offer. Serbia is also considered a suitable fit for a BFSI entry as they have one of Europe’s lowest tax rates at 15%. The country is also one of the only European countries with free trade agreements with the European Union, Russia, Belarus, and Turkey. Therefore, it creates an ideal location and multiple opportunities for companies to trade duty-free, across borders within a huge market segment. Another aspect to consider is that setting up a limited liability company in Serbia only requires a director and a shareholder of any nationality to register, along with a minimum paid- up capital of one euro. Foreign investors also have the opportunity to establish 100% foreign- owned businesses, own property, and can freely incorporate companies without restrictions. It is crucial to also consider when choosing the route of a public limited company in Serbia that they may be subject to more directors and a minimum paid-up share capital of 25,000 euros. In addition, all documents must be translated into their official language, which may slow down the process. Serbia also has lengthy tax payments that total 66 tax payments each year. Despite the lengthy process, Serbia would be a suitable fit as it has positive tax considerations, a broad customer profile, duty-free trade, and a huge projection of volume for international business. Another country that would be most suitable for a BFSI entry is Iceland. An LLC in this country can be 100% foreign-owned and operated by residents of OECD and EEA countries and in this case, BFSI already has a subsidiary in one of the EEA countries, the United Kingdom. In addition, an LCC in Iceland requires a minimum share capital of 3,500 euros and registration is usually completed in about five days. Iceland also makes it easy to conduct business as the corporate tax rate is 20% and English is widely spoken in most government departments, banks,
and throughout the business community. Additionally, companies can benefit from the protection of foreign investments including intellectual property, and enforcing contracts where investors can also expect efficient and fair treatment from the Icelandic courts and government. The country also has one of the world’s most competitive economies considering its broad double tax treaty network and it is a member of the European Free Trade Association. Their employment rate is considered far above the OECD average while their unemployment rate is considered one of the lowest in the OECD, displaying they have a strong market and economy. It is also important for a company to consider that it could be expensive to invest in a subsidiary in Iceland due to difficulties in opening a global corporate bank account and the country having the second-highest living costs, and one of the highest monthly salaries in Europe. However, we believe that the costs of operating in Iceland are worth it considering the quick and easy setup process along with the country’s strong economic and financial outlook. We would also recommend Thailand as a suitable fit for a BFSI entry due to its large consumer market and advantages from the country’s free trade zones. In this case, Thailand has a population of 69 million with a GDP per capita of $7,274, ranking them as the 40th most attractive consumer market in the world. Thanks to Thailand’s markups on manufactured goods and its free trade zones, companies can enjoy advantages such as a VAT exemption and customs duties exemption on all exports, along with up to eight years of tax holiday for promoted activities. In addition, Thailand’s transportation network is one of the best in Southeast Asia including its rail, sea, road, and air transportation. When setting up a regional headquarters office in Thailand, companies can expect a generous 10% corporation tax on income received from subsidiaries including royalties, interest, and intellectual property. Consequently, the dividends received from foreign subsidiaries are free from the country’s corporate income tax. It is also simple for US companies
to register a subsidiary in Thailand due to the USA-Thai Amity Treaty which established special rights and benefits for American citizens who want to establish their business in Thailand. Therefore, Thailand is an attractive spot for foreign investors considering its generous tax incentives and large consumer market. Lastly, Peru is also suitable for a subsidiary BFSI establishment since its business culture is very well respected. Peru’s business culture is highly relationship driven, which is definitely a positive aspect. One of the most important things in the business world is how you communicate and how well you interact with others. Peru’s total Gross Domestic Product (GDP) is $223.2 billion dollars which makes it an extremely attractive market to participate in. Additionally, Peru’s subsidiary laws do not require a minimum share of capital, but many financial institutions may require around $261 as a minimum deposit. Another step of establishing a subsidiary in Peru deals with opening a local bank account, where a company would have to deposit the capital contribution in either the local or foreign currency before beginning a business. To sum up, Peru has a low public debt to Gross Domestic Product (GDP) ratio, considerable international reserves, and a reliable central bank. This definitely shows that they are trustworthy and obtain a good amount of knowledge and experience in foreign markets.
Question 3: Which countries would be unsuitable for a BFSI subsidiary at this time, and what are the basic shortcomings in each case?
Answer: The prospective countries that seem unsuitable for a BFSI subsidiary include Oman, Kenya, Ghana, Honduras, and Ecuador. Even though there may be advantages to opening a subsidiary in Oman, we believe the disadvantages weigh them out. In this case, the country of Oman is known to have a future-oriented economy, great tax advantages, and a free trade agreement with the U.S. However, Oman remains on the European Union’s tax haven blacklist,
as the country has failed numerous times to report information protocols with global authorities. Another reason Oman is unsuitable at the time is that companies may face multiple market challenges considering its small population and small domestic market compared to its neighboring countries. The government focuses on Omanization where companies are required to have 15% to 60% of their workforce be Omani nationals. In addition, legislation usually favors Omani nationals, making it difficult for foreign companies to conduct business there. It also becomes hard to recruit foreign talent due to Omanization, causing some industries in Oman to face labor skill shortages. When it comes to trade regulations, it was assumed that not all GCC standards implemented by Oman were consistent with the obligations of the WTO SPS agreement. Therefore, their standards do not reflect Codex guidelines, raising concerns under this agreement. Overall, there seem to be many governmental restrictions and market challenges, making Oman unsuitable for a BFSI entry. Kenya is another attractive market, but many restrictions make it unsuitable at the time. Companies in Kenya suffer from high taxes outside of their free zones including 30% corporate tax, 20% withholding tax, and 16% VAT. Although Kenya is considered one of the best places to conduct business in Africa, it has a weak judicial system where foreign investors barely receive any support when it comes to solving disputes, along with corrupt public servants that may raise the cost of doing business. In addition, Kenya has a high crime rate where investors often must invest money in securing their property, land, and employees as well as considering the high business insurance premiums. Overall, opening a subsidiary in Kenya seems to be a huge financial burden and therefore is deemed unsuitable for a BFSI entry. Another country that would be unsuitable for a BFSI entry includes Ghana. To begin, it will take up to a year for a foreign company to fully establish its subsidiary in Ghana due to its lengthy and extensive subsidiary setup process. In this case, LLCs require at least one
shareholder and two directors along with appointing a company secretary and local auditor to complete annual financial statements in accordance with their laws. In addition, you will need a registered office with a P.O. box for all communication, legal, and accounting records. Ghana’s subsidiary laws regarding LLCs include a minimum of $500,000 in paid-up share capital when establishing a wholly owned foreign company, where those numbers increase to $1 million if set up as a trading company. In 2013, Ghana was also forced to seek a bailout from the IMF due to a currency crisis that is threatening its economic and fiscal position even to this day. Therefore, Ghana does not seem to be suitable as it requires an extensive setup process and may be too expensive for a BFSI subsidiary to invest in. Another country that we considered to be currently unsuitable is Honduras. Honduras may not be the best choice for a BFSI subsidiary at the moment due to various reasons. Firstly, the country has a history of economic and political instability, which can negatively impact BFSI businesses. Additionally, Honduras has a smaller market size compared to other countries in the region, making it difficult for BFSI companies to generate enough revenue. The regulatory environment in Honduras is also still developing, which could cause compliance issues. Furthermore, the high crime rates and limited infrastructure in the country can pose security and technology challenges for BFSI companies. While these factors could change over time, at present, Honduras may not be the most suitable market for BFSI subsidiaries. Lastly, we considered Ecuador to be unsuitable as well. Ecuador may not be the optimal choice for a BFSI subsidiary due to several factors. Firstly, the country has encountered economic instability and high inflation rates in the past, which could pose significant challenges for BFSI companies in terms of maintaining profitability and managing risk. In addition, the market for BFSI products and services in Ecuador is comparatively smaller than other countries in the region, and the country’s political situation is somewhat uncertain,
with shifts in government and policies that could impact the BFSI industry. Furthermore, the regulatory framework in Ecuador is still in the process of development, which could generate uncertainties regarding compliance with local laws and regulations. Additionally, the use of the US dollar as the official currency of Ecuador could expose BFSI companies to currency risks. Even though these factors make Ecuador a less attractive market for BFSI companies currently, it is conceivable that the situation could evolve in the future.
Resources:
1. Moysidis, Anastasios and Roussakis, E.N. Bertos Manufacturing Corporation: Evaluating Markets to Invest Abroad.
2. European Commission, International Market Selection. Retrieved at https://single-market- economy.ec.europa.eu/sectors/tourism/eu-funding-and-businesses/business- portal/internationalisation-tourism-businesses/international-market-selection_en
3. https://www.state.gov/reports/2020-investment-climate-statements/new-zealand/ 4. https://newzealandcompanyformation.com/open-a-subsidiary-in-new-zealand/ 5. https://www.globalization-partners.com/globalpedia/new-zealand-employer-of- record/subsidiary/#gref
6. https://www.healyconsultants.com/serbia-company-registration/
7. https://www.linkedin.com/pulse/international-business-doing-oman-ahmed-dahab 8. https://www.healyconsultants.com/oman-company-registration/benefits- problems/#disadvantage
9. https://www.healyconsultants.com/kenya-company-registration/
10. https://www.healyconsultants.com/ghana-company-registration/#disadvantage
11. https://www.globalization-partners.com/globalpedia/ghana-employer-of- record/subsidiary/#content
12. https://www.healyconsultants.com/iceland-company-registration/#advantages
13. https://www.healyconsultants.com/thailand-company-registration/
14. https://www.globalization-partners.com/globalpedia/peru-peo/subsidiary/#gref
15. https://www.export.gov/article?id=Honduras-Banking-Systems
16. https://www.trade.gov/country-commercial-guides/honduras-country-commercial-guide 17. https://www.economist.com/the-americas/2019/05/16/honduras-a-risky-business
18. https://www.export.gov/article?id=Ecuador-Financial-Services
19. https://tradingeconomics.com/ecuador/gdp-per-capita
20. https://www.bbc.com/news/world-latin-america-55971992BMC Case Assignment: Group FRANCE
Group Members: Margot Ibgui, Carlos Milian, & Katelyn Wilson
Question 1: Identify the key criteria and considerations that need to be taken into account in evaluating BFSI entry in the proposed foreign markets.
Answer: The case identifies some of the key criteria and considerations when evaluating entries into foreign markets. These factors include the bank’s resources, the projected volume of international business, knowledge of and experience with foreign markets, banking structure and regulation in the countries’ targets for entry, tax considerations, and customer profile. Therefore, to determine the BFSI entry to the proposed markets, it is crucial to begin by completing an environment and market analysis. In this case, looking at each country and its growth prospects including GDP growth, political or social unrest, currency devaluations, political interventions, and social stability. Additionally, focusing on geographic proximity and location advantages can be useful when looking for low costs, a productive labor force, and even unique sources of raw materials. It is also important to include a financial analysis focusing on each country’s financial system along with its monetary laws and regulations, as well as analyzing the country’s current currency situation. In addition, becoming familiar with the different financial institutions provided in the proposed foreign markets will be beneficial in order to minimize the potential financial risks involved with certain banks and institutions. Also, it is important to consider that Victoria’s manager clarified that the mode of entry into the foreign markets, which included the acquisition of an existing company or a greenfield investment, was currently not their primary choice. The firm is also said to be prepared to provide the initial amount of equity capital that is required for the establishment of the five institutions. Hence, it is also beneficial to consider each
prospective country and its balance of payment, main sources of imports and exports, and the investments or trade agreements involved.
Question 2: Of the countries under consideration, which five would be most suitable for the immediate establishment of a BFSI subsidiary? Highlight the key issues for each of the selected countries and discuss the reasoning behind your recommendation.
Answer: Currently, BFSI has three foreign subsidiaries located in Canada, Mexico, and the United Kingdom. After analyzing each prospective country, the most suitable establishments we would recommend for a BFSI subsidiary include New Zealand, Serbia, Iceland, Thailand, and Peru. New Zealand is considered a suitable fit for a BFSI establishment as it has been ranked one of the most business-friendly countries in the world. A subsidiary in New Zealand is considered an independent legal entity, meaning it can limit the parent company’s liability and can help them easily adapt to the requirements of the local market. The subsidiary will also be treated the same as the local companies, allowing the parent company to save money from tax advantages or exemptions. However, they are still subject to a corporate tax rate of 28%. There are also no minimum share capital requirements necessary when opening a subsidiary. New Zealand’s GDP was estimated at around $249.89 billion in 2021 with an annual growth of 3.7% making it an attractive market to enter. Some of the requirements for a foreign company to open a subsidiary in New Zealand include opening a bank account with a local bank in order to deposit the share capital and having at least one director who is a permanent resident, if not they may apply as a temporary residence in the meantime. It is also important to note that their banking system consists of 26 registered banks, where almost 90% of the combined assets are owned by Australian banks. In this case, it is not required for financial institutions to be registered with these banking services, but the company must be registered and considered a bank. Before
deciding to invest in an establishment in New Zealand, it is important to consider that its subsidiary laws are a bit lengthy and require extensive resources but may be beneficial in the end when looking at the prospected business economy and financial growth the country has to offer. Serbia is also considered a suitable fit for a BFSI entry as they have one of Europe’s lowest tax rates at 15%. The country is also one of the only European countries with free trade agreements with the European Union, Russia, Belarus, and Turkey. Therefore, it creates an ideal location and multiple opportunities for companies to trade duty-free, across borders within a huge market segment. Another aspect to consider is that setting up a limited liability company in Serbia only requires a director and a shareholder of any nationality to register, along with a minimum paid- up capital of one euro. Foreign investors also have the opportunity to establish 100% foreign- owned businesses, own property, and can freely incorporate companies without restrictions. It is crucial to also consider when choosing the route of a public limited company in Serbia that they may be subject to more directors and a minimum paid-up share capital of 25,000 euros. In addition, all documents must be translated into their official language, which may slow down the process. Serbia also has lengthy tax payments that total 66 tax payments each year. Despite the lengthy process, Serbia would be a suitable fit as it has positive tax considerations, a broad customer profile, duty-free trade, and a huge projection of volume for international business. Another country that would be most suitable for a BFSI entry is Iceland. An LLC in this country can be 100% foreign-owned and operated by residents of OECD and EEA countries and in this case, BFSI already has a subsidiary in one of the EEA countries, the United Kingdom. In addition, an LCC in Iceland requires a minimum share capital of 3,500 euros and registration is usually completed in about five days. Iceland also makes it easy to conduct business as the corporate tax rate is 20% and English is widely spoken in most government departments, banks,
and throughout the business community. Additionally, companies can benefit from the protection of foreign investments including intellectual property, and enforcing contracts where investors can also expect efficient and fair treatment from the Icelandic courts and government. The country also has one of the world’s most competitive economies considering its broad double tax treaty network and it is a member of the European Free Trade Association. Their employment rate is considered far above the OECD average while their unemployment rate is considered one of the lowest in the OECD, displaying they have a strong market and economy. It is also important for a company to consider that it could be expensive to invest in a subsidiary in Iceland due to difficulties in opening a global corporate bank account and the country having the second-highest living costs, and one of the highest monthly salaries in Europe. However, we believe that the costs of operating in Iceland are worth it considering the quick and easy setup process along with the country’s strong economic and financial outlook. We would also recommend Thailand as a suitable fit for a BFSI entry due to its large consumer market and advantages from the country’s free trade zones. In this case, Thailand has a population of 69 million with a GDP per capita of $7,274, ranking them as the 40th most attractive consumer market in the world. Thanks to Thailand’s markups on manufactured goods and its free trade zones, companies can enjoy advantages such as a VAT exemption and customs duties exemption on all exports, along with up to eight years of tax holiday for promoted activities. In addition, Thailand’s transportation network is one of the best in Southeast Asia including its rail, sea, road, and air transportation. When setting up a regional headquarters office in Thailand, companies can expect a generous 10% corporation tax on income received from subsidiaries including royalties, interest, and intellectual property. Consequently, the dividends received from foreign subsidiaries are free from the country’s corporate income tax. It is also simple for US companies
to register a subsidiary in Thailand due to the USA-Thai Amity Treaty which established special rights and benefits for American citizens who want to establish their business in Thailand. Therefore, Thailand is an attractive spot for foreign investors considering its generous tax incentives and large consumer market. Lastly, Peru is also suitable for a subsidiary BFSI establishment since its business culture is very well respected. Peru’s business culture is highly relationship driven, which is definitely a positive aspect. One of the most important things in the business world is how you communicate and how well you interact with others. Peru’s total Gross Domestic Product (GDP) is $223.2 billion dollars which makes it an extremely attractive market to participate in. Additionally, Peru’s subsidiary laws do not require a minimum share of capital, but many financial institutions may require around $261 as a minimum deposit. Another step of establishing a subsidiary in Peru deals with opening a local bank account, where a company would have to deposit the capital contribution in either the local or foreign currency before beginning a business. To sum up, Peru has a low public debt to Gross Domestic Product (GDP) ratio, considerable international reserves, and a reliable central bank. This definitely shows that they are trustworthy and obtain a good amount of knowledge and experience in foreign markets.
Question 3: Which countries would be unsuitable for a BFSI subsidiary at this time, and what are the basic shortcomings in each case?
Answer: The prospective countries that seem unsuitable for a BFSI subsidiary include Oman, Kenya, Ghana, Honduras, and Ecuador. Even though there may be advantages to opening a subsidiary in Oman, we believe the disadvantages weigh them out. In this case, the country of Oman is known to have a future-oriented economy, great tax advantages, and a free trade agreement with the U.S. However, Oman remains on the European Union’s tax haven blacklist,
as the country has failed numerous times to report information protocols with global authorities. Another reason Oman is unsuitable at the time is that companies may face multiple market challenges considering its small population and small domestic market compared to its neighboring countries. The government focuses on Omanization where companies are required to have 15% to 60% of their workforce be Omani nationals. In addition, legislation usually favors Omani nationals, making it difficult for foreign companies to conduct business there. It also becomes hard to recruit foreign talent due to Omanization, causing some industries in Oman to face labor skill shortages. When it comes to trade regulations, it was assumed that not all GCC standards implemented by Oman were consistent with the obligations of the WTO SPS agreement. Therefore, their standards do not reflect Codex guidelines, raising concerns under this agreement. Overall, there seem to be many governmental restrictions and market challenges, making Oman unsuitable for a BFSI entry. Kenya is another attractive market, but many restrictions make it unsuitable at the time. Companies in Kenya suffer from high taxes outside of their free zones including 30% corporate tax, 20% withholding tax, and 16% VAT. Although Kenya is considered one of the best places to conduct business in Africa, it has a weak judicial system where foreign investors barely receive any support when it comes to solving disputes, along with corrupt public servants that may raise the cost of doing business. In addition, Kenya has a high crime rate where investors often must invest money in securing their property, land, and employees as well as considering the high business insurance premiums. Overall, opening a subsidiary in Kenya seems to be a huge financial burden and therefore is deemed unsuitable for a BFSI entry. Another country that would be unsuitable for a BFSI entry includes Ghana. To begin, it will take up to a year for a foreign company to fully establish its subsidiary in Ghana due to its lengthy and extensive subsidiary setup process. In this case, LLCs require at least one
shareholder and two directors along with appointing a company secretary and local auditor to complete annual financial statements in accordance with their laws. In addition, you will need a registered office with a P.O. box for all communication, legal, and accounting records. Ghana’s subsidiary laws regarding LLCs include a minimum of $500,000 in paid-up share capital when establishing a wholly owned foreign company, where those numbers increase to $1 million if set up as a trading company. In 2013, Ghana was also forced to seek a bailout from the IMF due to a currency crisis that is threatening its economic and fiscal position even to this day. Therefore, Ghana does not seem to be suitable as it requires an extensive setup process and may be too expensive for a BFSI subsidiary to invest in. Another country that we considered to be currently unsuitable is Honduras. Honduras may not be the best choice for a BFSI subsidiary at the moment due to various reasons. Firstly, the country has a history of economic and political instability, which can negatively impact BFSI businesses. Additionally, Honduras has a smaller market size compared to other countries in the region, making it difficult for BFSI companies to generate enough revenue. The regulatory environment in Honduras is also still developing, which could cause compliance issues. Furthermore, the high crime rates and limited infrastructure in the country can pose security and technology challenges for BFSI companies. While these factors could change over time, at present, Honduras may not be the most suitable market for BFSI subsidiaries. Lastly, we considered Ecuador to be unsuitable as well. Ecuador may not be the optimal choice for a BFSI subsidiary due to several factors. Firstly, the country has encountered economic instability and high inflation rates in the past, which could pose significant challenges for BFSI companies in terms of maintaining profitability and managing risk. In addition, the market for BFSI products and services in Ecuador is comparatively smaller than other countries in the region, and the country’s political situation is somewhat uncertain,
with shifts in government and policies that could impact the BFSI industry. Furthermore, the regulatory framework in Ecuador is still in the process of development, which could generate uncertainties regarding compliance with local laws and regulations. Additionally, the use of the US dollar as the official currency of Ecuador could expose BFSI companies to currency risks. Even though these factors make Ecuador a less attractive market for BFSI companies currently, it is conceivable that the situation could evolve in the future.
Resources:
1. Moysidis, Anastasios and Roussakis, E.N. Bertos Manufacturing Corporation: Evaluating Markets to Invest Abroad.
2. European Commission, International Market Selection. Retrieved at https://single-market- economy.ec.europa.eu/sectors/tourism/eu-funding-and-businesses/business- portal/internationalisation-tourism-businesses/international-market-selection_en
3. https://www.state.gov/reports/2020-investment-climate-statements/new-zealand/ 4. https://newzealandcompanyformation.com/open-a-subsidiary-in-new-zealand/ 5. https://www.globalization-partners.com/globalpedia/new-zealand-employer-of- record/subsidiary/#gref
6. https://www.healyconsultants.com/serbia-company-registration/
7. https://www.linkedin.com/pulse/international-business-doing-oman-ahmed-dahab 8. https://www.healyconsultants.com/oman-company-registration/benefits- problems/#disadvantage
9. https://www.healyconsultants.com/kenya-company-registration/
10. https://www.healyconsultants.com/ghana-company-registration/#disadvantage
11. https://www.globalization-partners.com/globalpedia/ghana-employer-of- record/subsidiary/#content
12. https://www.healyconsultants.com/iceland-company-registration/#advantages
13. https://www.healyconsultants.com/thailand-company-registration/
14. https://www.globalization-partners.com/globalpedia/peru-peo/subsidiary/#gref
15. https://www.export.gov/article?id=Honduras-Banking-Systems
16. https://www.trade.gov/country-commercial-guides/honduras-country-commercial-guide 17. https://www.economist.com/the-americas/2019/05/16/honduras-a-risky-business
18. https://www.export.gov/article?id=Ecuador-Financial-Services
19. https://tradingeconomics.com/ecuador/gdp-per-capita
20. https://www.bbc.com/news/world-latin-america-55971992BMC Case Assignment: Group FRANCE
Group Members: Margot Ibgui, Carlos Milian, & Katelyn Wilson
Question 1: Identify the key criteria and considerations that need to be taken into account in evaluating BFSI entry in the proposed foreign markets.
Answer: The case identifies some of the key criteria and considerations when evaluating entries into foreign markets. These factors include the bank’s resources, the projected volume of international business, knowledge of and experience with foreign markets, banking structure and regulation in the countries’ targets for entry, tax considerations, and customer profile. Therefore, to determine the BFSI entry to the proposed markets, it is crucial to begin by completing an environment and market analysis. In this case, looking at each country and its growth prospects including GDP growth, political or social unrest, currency devaluations, political interventions, and social stability. Additionally, focusing on geographic proximity and location advantages can be useful when looking for low costs, a productive labor force, and even unique sources of raw materials. It is also important to include a financial analysis focusing on each country’s financial system along with its monetary laws and regulations, as well as analyzing the country’s current currency situation. In addition, becoming familiar with the different financial institutions provided in the proposed foreign markets will be beneficial in order to minimize the potential financial risks involved with certain banks and institutions. Also, it is important to consider that Victoria’s manager clarified that the mode of entry into the foreign markets, which included the acquisition of an existing company or a greenfield investment, was currently not their primary choice. The firm is also said to be prepared to provide the initial amount of equity capital that is required for the establishment of the five institutions. Hence, it is also beneficial to consider each
prospective country and its balance of payment, main sources of imports and exports, and the investments or trade agreements involved.
Question 2: Of the countries under consideration, which five would be most suitable for the immediate establishment of a BFSI subsidiary? Highlight the key issues for each of the selected countries and discuss the reasoning behind your recommendation.
Answer: Currently, BFSI has three foreign subsidiaries located in Canada, Mexico, and the United Kingdom. After analyzing each prospective country, the most suitable establishments we would recommend for a BFSI subsidiary include New Zealand, Serbia, Iceland, Thailand, and Peru. New Zealand is considered a suitable fit for a BFSI establishment as it has been ranked one of the most business-friendly countries in the world. A subsidiary in New Zealand is considered an independent legal entity, meaning it can limit the parent company’s liability and can help them easily adapt to the requirements of the local market. The subsidiary will also be treated the same as the local companies, allowing the parent company to save money from tax advantages or exemptions. However, they are still subject to a corporate tax rate of 28%. There are also no minimum share capital requirements necessary when opening a subsidiary. New Zealand’s GDP was estimated at around $249.89 billion in 2021 with an annual growth of 3.7% making it an attractive market to enter. Some of the requirements for a foreign company to open a subsidiary in New Zealand include opening a bank account with a local bank in order to deposit the share capital and having at least one director who is a permanent resident, if not they may apply as a temporary residence in the meantime. It is also important to note that their banking system consists of 26 registered banks, where almost 90% of the combined assets are owned by Australian banks. In this case, it is not required for financial institutions to be registered with these banking services, but the company must be registered and considered a bank. Before
deciding to invest in an establishment in New Zealand, it is important to consider that its subsidiary laws are a bit lengthy and require extensive resources but may be beneficial in the end when looking at the prospected business economy and financial growth the country has to offer. Serbia is also considered a suitable fit for a BFSI entry as they have one of Europe’s lowest tax rates at 15%. The country is also one of the only European countries with free trade agreements with the European Union, Russia, Belarus, and Turkey. Therefore, it creates an ideal location and multiple opportunities for companies to trade duty-free, across borders within a huge market segment. Another aspect to consider is that setting up a limited liability company in Serbia only requires a director and a shareholder of any nationality to register, along with a minimum paid- up capital of one euro. Foreign investors also have the opportunity to establish 100% foreign- owned businesses, own property, and can freely incorporate companies without restrictions. It is crucial to also consider when choosing the route of a public limited company in Serbia that they may be subject to more directors and a minimum paid-up share capital of 25,000 euros. In addition, all documents must be translated into their official language, which may slow down the process. Serbia also has lengthy tax payments that total 66 tax payments each year. Despite the lengthy process, Serbia would be a suitable fit as it has positive tax considerations, a broad customer profile, duty-free trade, and a huge projection of volume for international business. Another country that would be most suitable for a BFSI entry is Iceland. An LLC in this country can be 100% foreign-owned and operated by residents of OECD and EEA countries and in this case, BFSI already has a subsidiary in one of the EEA countries, the United Kingdom. In addition, an LCC in Iceland requires a minimum share capital of 3,500 euros and registration is usually completed in about five days. Iceland also makes it easy to conduct business as the corporate tax rate is 20% and English is widely spoken in most government departments, banks,
and throughout the business community. Additionally, companies can benefit from the protection of foreign investments including intellectual property, and enforcing contracts where investors can also expect efficient and fair treatment from the Icelandic courts and government. The country also has one of the world’s most competitive economies considering its broad double tax treaty network and it is a member of the European Free Trade Association. Their employment rate is considered far above the OECD average while their unemployment rate is considered one of the lowest in the OECD, displaying they have a strong market and economy. It is also important for a company to consider that it could be expensive to invest in a subsidiary in Iceland due to difficulties in opening a global corporate bank account and the country having the second-highest living costs, and one of the highest monthly salaries in Europe. However, we believe that the costs of operating in Iceland are worth it considering the quick and easy setup process along with the country’s strong economic and financial outlook. We would also recommend Thailand as a suitable fit for a BFSI entry due to its large consumer market and advantages from the country’s free trade zones. In this case, Thailand has a population of 69 million with a GDP per capita of $7,274, ranking them as the 40th most attractive consumer market in the world. Thanks to Thailand’s markups on manufactured goods and its free trade zones, companies can enjoy advantages such as a VAT exemption and customs duties exemption on all exports, along with up to eight years of tax holiday for promoted activities. In addition, Thailand’s transportation network is one of the best in Southeast Asia including its rail, sea, road, and air transportation. When setting up a regional headquarters office in Thailand, companies can expect a generous 10% corporation tax on income received from subsidiaries including royalties, interest, and intellectual property. Consequently, the dividends received from foreign subsidiaries are free from the country’s corporate income tax. It is also simple for US companies
to register a subsidiary in Thailand due to the USA-Thai Amity Treaty which established special rights and benefits for American citizens who want to establish their business in Thailand. Therefore, Thailand is an attractive spot for foreign investors considering its generous tax incentives and large consumer market. Lastly, Peru is also suitable for a subsidiary BFSI establishment since its business culture is very well respected. Peru’s business culture is highly relationship driven, which is definitely a positive aspect. One of the most important things in the business world is how you communicate and how well you interact with others. Peru’s total Gross Domestic Product (GDP) is $223.2 billion dollars which makes it an extremely attractive market to participate in. Additionally, Peru’s subsidiary laws do not require a minimum share of capital, but many financial institutions may require around $261 as a minimum deposit. Another step of establishing a subsidiary in Peru deals with opening a local bank account, where a company would have to deposit the capital contribution in either the local or foreign currency before beginning a business. To sum up, Peru has a low public debt to Gross Domestic Product (GDP) ratio, considerable international reserves, and a reliable central bank. This definitely shows that they are trustworthy and obtain a good amount of knowledge and experience in foreign markets.
Question 3: Which countries would be unsuitable for a BFSI subsidiary at this time, and what are the basic shortcomings in each case?
Answer: The prospective countries that seem unsuitable for a BFSI subsidiary include Oman, Kenya, Ghana, Honduras, and Ecuador. Even though there may be advantages to opening a subsidiary in Oman, we believe the disadvantages weigh them out. In this case, the country of Oman is known to have a future-oriented economy, great tax advantages, and a free trade agreement with the U.S. However, Oman remains on the European Union’s tax haven blacklist,
as the country has failed numerous times to report information protocols with global authorities. Another reason Oman is unsuitable at the time is that companies may face multiple market challenges considering its small population and small domestic market compared to its neighboring countries. The government focuses on Omanization where companies are required to have 15% to 60% of their workforce be Omani nationals. In addition, legislation usually favors Omani nationals, making it difficult for foreign companies to conduct business there. It also becomes hard to recruit foreign talent due to Omanization, causing some industries in Oman to face labor skill shortages. When it comes to trade regulations, it was assumed that not all GCC standards implemented by Oman were consistent with the obligations of the WTO SPS agreement. Therefore, their standards do not reflect Codex guidelines, raising concerns under this agreement. Overall, there seem to be many governmental restrictions and market challenges, making Oman unsuitable for a BFSI entry. Kenya is another attractive market, but many restrictions make it unsuitable at the time. Companies in Kenya suffer from high taxes outside of their free zones including 30% corporate tax, 20% withholding tax, and 16% VAT. Although Kenya is considered one of the best places to conduct business in Africa, it has a weak judicial system where foreign investors barely receive any support when it comes to solving disputes, along with corrupt public servants that may raise the cost of doing business. In addition, Kenya has a high crime rate where investors often must invest money in securing their property, land, and employees as well as considering the high business insurance premiums. Overall, opening a subsidiary in Kenya seems to be a huge financial burden and therefore is deemed unsuitable for a BFSI entry. Another country that would be unsuitable for a BFSI entry includes Ghana. To begin, it will take up to a year for a foreign company to fully establish its subsidiary in Ghana due to its lengthy and extensive subsidiary setup process. In this case, LLCs require at least one
shareholder and two directors along with appointing a company secretary and local auditor to complete annual financial statements in accordance with their laws. In addition, you will need a registered office with a P.O. box for all communication, legal, and accounting records. Ghana’s subsidiary laws regarding LLCs include a minimum of $500,000 in paid-up share capital when establishing a wholly owned foreign company, where those numbers increase to $1 million if set up as a trading company. In 2013, Ghana was also forced to seek a bailout from the IMF due to a currency crisis that is threatening its economic and fiscal position even to this day. Therefore, Ghana does not seem to be suitable as it requires an extensive setup process and may be too expensive for a BFSI subsidiary to invest in. Another country that we considered to be currently unsuitable is Honduras. Honduras may not be the best choice for a BFSI subsidiary at the moment due to various reasons. Firstly, the country has a history of economic and political instability, which can negatively impact BFSI businesses. Additionally, Honduras has a smaller market size compared to other countries in the region, making it difficult for BFSI companies to generate enough revenue. The regulatory environment in Honduras is also still developing, which could cause compliance issues. Furthermore, the high crime rates and limited infrastructure in the country can pose security and technology challenges for BFSI companies. While these factors could change over time, at present, Honduras may not be the most suitable market for BFSI subsidiaries. Lastly, we considered Ecuador to be unsuitable as well. Ecuador may not be the optimal choice for a BFSI subsidiary due to several factors. Firstly, the country has encountered economic instability and high inflation rates in the past, which could pose significant challenges for BFSI companies in terms of maintaining profitability and managing risk. In addition, the market for BFSI products and services in Ecuador is comparatively smaller than other countries in the region, and the country’s political situation is somewhat uncertain,
with shifts in government and policies that could impact the BFSI industry. Furthermore, the regulatory framework in Ecuador is still in the process of development, which could generate uncertainties regarding compliance with local laws and regulations. Additionally, the use of the US dollar as the official currency of Ecuador could expose BFSI companies to currency risks. Even though these factors make Ecuador a less attractive market for BFSI companies currently, it is conceivable that the situation could evolve in the future.
Resources:
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2. European Commission, International Market Selection. Retrieved at https://single-market- economy.ec.europa.eu/sectors/tourism/eu-funding-and-businesses/business- portal/internationalisation-tourism-businesses/international-market-selection_en
3. https://www.state.gov/reports/2020-investment-climate-statements/new-zealand/ 4. https://newzealandcompanyformation.com/open-a-subsidiary-in-new-zealand/ 5. https://www.globalization-partners.com/globalpedia/new-zealand-employer-of- record/subsidiary/#gref
6. https://www.healyconsultants.com/serbia-company-registration/
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9. https://www.healyconsultants.com/kenya-company-registration/
10. https://www.healyconsultants.com/ghana-company-registration/#disadvantage
11. https://www.globalization-partners.com/globalpedia/ghana-employer-of- record/subsidiary/#content
12. https://www.healyconsultants.com/iceland-company-registration/#advantages
13. https://www.healyconsultants.com/thailand-company-registration/
14. https://www.globalization-partners.com/globalpedia/peru-peo/subsidiary/#gref
15. https://www.export.gov/article?id=Honduras-Banking-Systems
16. https://www.trade.gov/country-commercial-guides/honduras-country-commercial-guide 17. https://www.economist.com/the-americas/2019/05/16/honduras-a-risky-business
18. https://www.export.gov/article?id=Ecuador-Financial-Services
19. https://tradingeconomics.com/ecuador/gdp-per-capita
20. https://www.bbc.com/news/world-latin-america-55971992