Monthly Archives: October 2016

Should BATs Buy More Tobacco? (Blog 4)

 

British American Tobacco (BAT) recently announced that it bid $47 billion dollars for 58% of Reynold American that wasn’t already under BATs control. Currently Reynold is the second largest tobacco company in the U.S. If BAT were to make this purchase it would solidify itself as the largest  tobacco company in North America. This extremely large purchase made me question what BAT’s decision process on making this offer was. In class twelve we discussed Nordstrom’s expansion into having more Canadian stores and why they might do it. The three things that BAT might have heavily considered was marketing, operations, and finance.screen-shot-2016-10-30-at-9-26-44-pm
The biggest of these three that BAT probably considered when it came to the purchase was operations; the reason being, operationally, the amount of outputs could change. But when a large producer of something buys more of the same product it usually helps with efficiency.
“BAT reckons its deal would generate $400m of annual savings”; this would be due to the fact that producing more in bulk is cheaper and more efficient. Also due to the fact that recently America became an attractive market for tobacco, BAT can also expect its inventory turnover to increase at a relatively high rate. Going off the fact that America is currently an attractive market, financially speaking, this purchase is a great option. Especially due to the fact that Reynolds owns Camel and Newport, two of the largest brands of cigarette sold in U.S. These two companies were both in the top three of sales in the U.S. in 2015. What this means for BAT is that it can grow as a company inside the U.S. somewhere that it isn’t know for having extremely good sales. Finally we have to look at marketing and how BAT is basically going to improve their businesses functionality after the expansion? One things we can expect is that the firm will put a lot of resources into improving “safe” smoking, which includes the production and sales of e-cigarettes. What’s interesting about this is only when you study all three of these points can you really get a good grasp on deciding whether purchasing a company, or expand a company.

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http://infossible.com/2015/06/05/worlds-most-popular-cigarette-brands/

https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/

https://www.google.ca/search?q=Reynolds+American&ie=utf-8&oe=utf-8&gws_rd=cr&ei=mYEWWOCyHJO4jwO4yqvIAQ

http://www.economist.com/news/business/21709346-huge-deal-points-broad-changes-cigarette-makers-big-tobaccos-new-ambitions

China’s Growing Housing Bubble (Blog 3)

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The Chinese housing market is something that is constantly fluctuating.  Recently though there has been a huge spike in the prices of property value in China as a whole but mostly in the large cities. What i’m sure isn’t a shock to anyone is that all of these houses are very new, but what is interesting is the Chinese builders have been making huge cities and buildings for years and no one has been moving into them. So why now is the Chinese housing market doing so well? This led me to thinking if it had anything to do with Porter’s 5 Forces of Industry Attractiveness. The main force that I thought this was affiliated with is Buyer power, because the buyer can directly affect the housing buy either choosing to buy or to not buy. A large portion of people buying housing in China are actually investors and people that aren’t actual permanent residents of the places they are buying. Another issue with people starting to buy these houses at 66% (the amount that the housing market prices have grown recently) higher values is that they might be borrowing to much from the banks which could cause long term financial issues affecting the market as a whole. The reason for this is if a lot of people buy houses at this increased price not only do they need to borrow more for the houses then they would have to previously. But they also would probably have to deal with higher property taxes as more and more people purchase houses and the demand for the property rises. Which feeds into another one of the 5 demands discussed in class “Barriers to entry” a spike in prices along with a spike in taxes would make it a lot harder for less economically sound people to join the housing market. Not only would these people not have as much money but the banks wouldn’t be able to give the people big enough loans to put a down payment on the houses. Eventually the prices will get so high that market will crash which is what happen in the US in third quarter of 2007 and ended in the end off 2008.

Sources:
http://www.economist.com/news/finance-and-economics/21708674-severe-imbalance-land-supply-fuels-chinas-wild-property-market-when-bubble
http://www.wsj.com/articles/china-housing-revival-buffers-economy-1463288631
http://uk.businessinsider.com/chinas-housing-market-is-going-nuts-again-2016-9
http://www.bloomberg.com/news/articles/2016-08-17/there-are-more-signs-that-china-s-property-market-is-cooling-off

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Trumps success in Pesos (Blog 2)

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There are many interesting ways for one to judge the way that an election is going in terms of how the candidates are doing. You can look at polls or at how many people attended a debate, or with the current election you can look at the value of the Mexican Peso. A recent Economist article did just that and the results are actually very interesting. Since the start of the year the value of the Peso has dropped 12%. One reason for this huge drop in value is due to the success of the Republican presidential candidate Donald Trump. Trumps stance on foreign policy and exchange with Mexico is that he wants to build a large wall, increase taxes on imports, and withdraw from the North American Free Trade Agreement. Not only would this negatively affect the Mexican economy but there would be affects to the Canadian economy. The question that immediately came into my head was, how do we know Trumps success is in any way linked to Peso? The answer came after the presidential debate on September 26th. Hillary blew Trump out of the water during the debate and the value of the Peso rose 2%. Of course the US election is not the only thing affecting the value of the Peso, another major area thats leading to the decline of the Peso is the reliance (18%) on its countries sources of oil. Mexico actually has had to raise interest rates 3 times in the last year to help fight this decline.  After having our class with Mr. Nagarajan about operations something that really interested me was looking at all of these different factors to determine how to run a business. Governments run similarly to businesses in the sense that they are trying to run smoothly and maximize efficiency. So this led me to my next question which was how does a business or government respond when something completely out of their control happens? In this Specific case I really feel that the Mexican government is gonna have to wait it out and pray for Hillary. But when it comes down to it the Peso has a lot more to worry about then just Trump.

 

 

 

 

http://www.economist.com/news/finance-and-economics/21707943-fear-trump-presidency-plays-havoc-mexicos-currency-slip-slidin-away

 

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