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caSe Study 1.1
transWorld Minerals inC.
John Wright reclined fully his first-cla
caSe Study 1.1
transWorld Minerals inC.
John Wright reclined fully his first-class seat and pulled a sleeping mask over his eyes; he wanted to relax, he told the flight attendant, and would not have dinner for the next two or three hours. Wright was, however, anything but relaxed. A se- nior vice president in charge of international investment planning with Transworld Minerals Inc., a large multinational corporation based in Dallas, Texas, he was returning from a business trip to Salaysia, a small mineral-rich country in Asia. His company was considering a major investment there in a new coal-mining project, using Transworld’s recently developed advanced technology that highly automated all operations. Wright had just finished a preliminary evaluation of the prospects.
On the face of it, it looked like a great investment that would generate sub- stantial revenues in the long run. Salaysia had enormous deposits of coal in the northeastern parts of the country, located principally in Nebong Province. Most of these deposits had been recently discovered, as a result of a sustained geological exploration undertaken by Salaysia with the help of a large exploration firm from Australia. Most of the deposits were of high-quality anthracite coal, which was in considerable demand in steel manufacturing plants in China, Japan, and other newly industrializing economies of Southeast Asia.
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Case Study 1.1 29
The government seemed encouraging, primarily because it did not have the technology to exploit these reserves and was badly in need of additional export revenues to meet the deficits in its balance of payments. That meant, however, that much of the project would have to be financed by Transworld.
Transworld had substantial financial resources. Its net working capital had been expanding steadily over the past five years, and it had been on schedule in repay- ment of all its loans from leading international banks in four countries: the United States, United Kingdom, Japan, and China (via Hong Kong). It had an excellent credit standing, and two years ago, it had floated a successful bond issue in the UK market that raised 150 million pounds to finance a major project in Zambia. It had good working relationships with banks in Singapore and Hong Kong, two leading financial centers in the region. Wright also had had discussions with the local branches of three multinational banks in Salaysia, and they appeared to be interested, at least on a preliminary consideration basis.
Transworld was the world leader in advanced coal mining technology: its lat- est processes resulted in high-speed extraction; that is, the stacking and loading of coal from depths that had not been accessible to most of the existing mining techniques. Because the technology was highly automated, there were substantial economies because of saved labor costs. Most of the operations would be optimized by Transworld by using its sophisticated, computer-based optimization models that would generate the best possible sequencing, timing, and coordination of different operations, which would be at least 20 percent more efficient than the technology currently in use in Salaysia.
The company had substantial marketing strength. It ran coal-mining operations in several countries in Asia and Africa and had other mineral extraction operations in Latin America. Most of the products were sold to industrial consumers in Japan, Italy, and France. Transworld had strong business relationships with major shipping lines and considerable strength at the bargaining table while negotiating pricing for shipping its products. The world market for coal was expected to remain strong, and Transworld could reasonably expect to make at least an average level of profit on the exports of Salaysian coal.
There were, however, a few problems. Salaysia’s local coal mining company was exerting substantial pressure on the home government to allow it to run the new project. It argued that it could access a similar level of technology by entering into a joint venture with Intermetals, an Australian mining company from which it could obtain the technical know-how, while the local implementation of the entire project would be in its hands. This venture would mean that Salaysia would only be buying the technical know-how from Australia, and the entire mining, extraction,
(continued)
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Copyright @ 2015. Routledge.
All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.
30 Chapter 1 • An Introduction to International Business and Multinational Corporations
Case Study 1.1 (continued)
processing, shipping, and marketing operations would be carried out by the Salaysian Coal Mining Company. The company had access to relatively dated machinery and extraction processes, but it had considerable financial strength and good relations with the labor force. Although it was relatively unknown abroad, the company was a major force in Salaysia’s domestic mining industry. The management of the Salaysian Coal Mining Company also had good relations with the current minister of industries and was attempting to convince him that placing the entire project into the hands of multinational Transworld would be detrimental to the national interest and could lead to foreign domination of the domestic coal mining industry.
The Industries Ministry was weighing the two alternatives and had called for ad- ditional details before the proposals could be submitted to the Industrial Approvals Board of the Salaysian government for a final decision. John Wright indeed had much to think about as the plane headed back to Dallas.
diScuSSioN QueStioNS
1. WhatadditionalincentivesshouldWrightsuggesttoimprovetheattractive- ness of Transworld’s proposal to the Industries Ministry?
2. WhatstrategyshouldTransworldadopttooffsetthepoliticaladvantageenjoyed by the Salaysian Coal Mining Company?
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