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Posted on April 26th, 2014, by

The major tendencies of modern global market are internationalization and globalization, along with intensive use of technology. In this environment, optimal choice for large companies with significant potential is expansion into other countries and foreign markets, in order to stimulate competition and get access to larger customer base. Such strategy, despite its numerous advantages such as greater revenues, strengthening of brand name and economies of scale, also has specific challenges in the sphere of economy and in the particular area of finance and capital investments. The purpose of this paper is to analyze the challenges of opening a new FedEx branch in Canada in the context of financial management.

The economies of US and Canada are similar in many ways, starting with the level of economic freedom and fiscal policy trends, ending with cooperation of the Bank of Canada and US Federal Reserve. At the same time, Canadian economy has significant differences from US economy in the context of financial management and capital investing. US economy maintains a significant budget deficit, while Canadian government supports balanced budget, moving from a small deficit to slight surplus (expected in 2012-2014 period) (Eilenberger et al., 2010). Canadian banking system is less diverse than the US one, but it is more stable and the majority of Canadian banks have expanded internationally, and have large financial bases (Williamson, 2011). Overall stability of banking system, less intense competition and prudence of Canadian investors led to risk-averse investor behavior in Canada, compared to that of the US.

Due to the policy of budget balancing, total tax rates are higher in Canada compared to the US. Canada has a more developed system of social programs than the US, and there is a 5% tax for national goods and services in Canada, which is not present in the US (Williamson, 2011). Provincial sales taxes also add to tax burden on businesses in Canada, compared to US. Furthermore, Canada has a less aggressive antimonopoly policy than the US, and due to this fact there exist oligopoly conditions in such spheres as transport, telecommunications and banking.

With regard to capital investments, Canadian market also differs from US market. Canadian economy has lower levels of investments and lower investments in R&D in particular (Williamson, 2011). Productivity of Canadian workers per hour is evaluated as 82% of the same characteristics for US workers (Williamson, 2011). One of significant challenges for Canadian market is to attract investments to increase efficiency of labor and capital use (Giammarino, 1998). Furthermore, the mechanisms of subsidies in Canada are widely used, and this leads to lower effectiveness of investments, compared to US practice of attracting competitive investors and use of profit maximization mechanisms (Giammarino, 1998).

One more challenge of Canadian market is the implementation of environmental standards, which might lead to increase of capital costs for companies. In addition to this, financial management in Canada, as it was mentioned above, is quite risk-averse, and this might represent a challenge to US companies willing to enter Canadian market. The processes of corporate decision-making in Canada are also different from the US (Giammarino, 1998), and the mechanisms of regulation are less flexible and less efficient than that of the US. This fact should also be taken into account by foreign companies willing to open branches in Canada.

Thus, FedEx financial managers might experience certain difficulties in opening a new FedEx brand in Canada. First of all, the challenges will take place for attracting investments if needed. FedEx already has a network of offices in Canada, so it will be easier for the company to attract funds, but still it might be more difficult than in the US. Secondly, the recoupment of capital investments will be longer than in the US, due to higher tax rates and taxation on national goods and services. Social security system will also impose a larger burden on financial performance of FedEx branch compared to that of the US. Additional challenges which might be experienced by financial management during opening a new FedEx branch are slower corporate decision-making and lower productivity of workers. However, these challenges can be addressed at the corporate level and adjusted by corporate management.

The challenges experienced by financial management of FedEx during opening a new branch will also significantly differ basing on the choice of branch: express department, ground department, freight, supply chain service, corporate department, tech connect, or office. Currently only FedEx Ground, FedEx freight, Smart Post and Custom Critical are present in Canada, and there is room for development of other FedEx branches in Canada. However, the specifics of local market should be considered before opening new branches.

Financial managers of FedEx should take into account that risk-averse approach of Canadian investors might hinder the process of opening the branch. At the same time, the events which took place at the Canada Post during the 2011 lockout show that there is room for development of logistics services at Canadian market, and FedEx can expand to occupy its niche in this market. Since Canadian market tends to oligopolies, FedEx can successfully become one of leading market players at Canadian logistics market.

 

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