Kasapreko Company Limited is a wholly Ghanaian-owned company with branches in Nigeria, South Africa and Germany. With relevant examples, explain the eclectic paradigm that Kasapreko might have fulfilled, before venturing international. [15 Marks]
b) Knowing that accounting and reporting laws differ widely around the world thereby posing risks for the international business, briefly explain for each how physical asset valuation (PAV) and research and
development (R&D) costs are likely to pose risks?

Kasapreko Company Limited

a) Eclectic Paradigm fulfilled by Kasapreko before venturing internationally in Nigeria, South Africa, and Germany:

1) Ownership Rights:  These are proprietary information and various ownership rights of a company, comprising intellectual property rights, branding rights, copyright, trademark or patent rights, plus the use and management of internally-available skills.  Typically, ownership rights are considered to be intangible. They include what gives a company competitive advantage, such as reliability reputation.   Kasapreko must have considered how it would protect these rights before opening branches in the three locations.  The property laws of the respective countries would have been examined to discover if its ownership rights would not be undermined.

2. Location advantage is the second necessary eclectic paradigm necessarily considered by Kasapreko.  Locations advantages refer to natural or created resources located in any particular environment. In addition, companies which want to locate branches in foreign countries must assess the comparative advantages to performing specific functions within a particular nation.  Location advantages are often fixed in nature and generally immobile.   For example, labor may be relatively cheapest in Nigeria compared to the other locations.  Kasapreko could also consider availability and costs of resources like crude oil and natural gas before it decides the function that the Nigerian branch would be performing for the company vis-a-vis the other branches in South Africa and Germany.  Perhaps, due to access to advanced technological skills in South Africa and Germany, it may decide to concentrate Research and Development for its production in both countries.  The Nigerian branch may provide it with access to natural resources and huge market for its products.

3. Internalization Advantages:  According to investopedia.com, "internalization advantages signal when it is better for an organization to produce a particular product in-house, versus contracting with a third-party."  Issues under consideration here are cost-effectiveness,  ability of outsourcing production to meet the organization’s needs and quality standards at lower costs,  a greater degree of local market knowledge, and skilled employees who can make a better product."

b) Accounting and reporting laws differ widely around the world, though many countries have now adopted International Financial Reporting Standards, IFRS.  This has reduced the differences and risks for international businesses.  At the same time, countries will pose different challenges and risks with regard to physical asset valuation and research and development due to availability of skills and technology.

1) Physical Asset Valuation:  Asset valuation is the process of determining the fair market value of a tangible asset.  The elements involved in this valuation exercise are existence of the market and the skills of the valuers.  In some jurisdictions like Nigeria, it may be difficult to establish the fair market values of some tangible assets if the assets are of a specialized nature and there is no alternative use for them.  This is caused by the level of development in each jurisdiction.  The risk then is that while it is possible to value a physical asset in South Africa, the same asset may not be easy to value in Nigeria, due to the absence of a market or skilled valuers for such assets.  This is a factor which Kasapreko must consider before investing in an asset since such physical assets may be immobile or cost-inefficient to move between branches.

2) Research and Development Costs is another important consideration for a company wishing to establish international branches, because the costs are mostly substantial and may not be recoverable.  It is therefore important to examine the risks posed in this regard before such costs are incurred for some particular international branches.

Explanation:

a) According to investopedia.com, "an eclectic paradigm, also known as the ownership, location, internationalization (OLI) model or OLI framework, is a three-tiered evaluation framework that companies can follow when attempting to determine if it is beneficial to pursue foreign direct investment (FDI)."

Eclectic paradigm examines the relationships and interactions of the various components of a business in a holistic manner to determine if some production or service provision approaches provide greater returns.

b) Physical Asset Valuation is the process of determining the fair market or present value of physical assets, using book values, and absolute valuation models like discounted cash flow analysis.  Physical assets include investments in property, plants, and equipment.

c) Research and Development costs are the cost which a company incurs in the process of obtaining new knowledge that to create new technology, products, services, or systems for sale or its use.  Research and Development costs add to the company's bottom line.