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INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Faculty of Management Sciences

Report on:
Analysis of Zong (China Mobile) Subsidiary in Bangladesh
Subject Name:
International Financial Management

Submitted To:
Sir Ch. Mazhar Hussain

Submitted by:
Mobeen Ghalib Satti 6262-FMS/MBA/F13

Zohaib Ali Shah 6269- FMS/MBA/F13

Syed Shahbaz Ali Shah 6271- FMS/MBA/F13


TABLE OF CONTENTS

CHAPTER NO 1

 Introduction
 Company Profile
 Vision
 Mission
 Core Values
 Objective Of The Study

CHAPTER NO 2

 Motives of DFI
 Benefits of DFI

CHAPTER NO 3

 Role of host Country

CHAPTER NO 4

 Technical Analysis
 Financial Analysis
 Calculations
 Calculations of Cash flows, NPV

CHAPTER NO 5

 Conclusion
CHAPTER NO. 1

Introduction:
We are opening a Subsidiary in Bangladesh, for this purpose we have to see the feasibility of
the project. We have concerned with many things which have a direct impact on our
investment. After the war in 1971, the relationship between Pakistan and Bangladesh were
not good, some countries barriers between these country effect on economy of those country.
Today after 45 years the situation is still not satisfactory but we hope and we foresee that the
situation is now progressing better which forces us to invest in Bangladesh.

Today we have to incur a cheaper cost, the cheap labour is also available, as the currency will
grow up in near future so the return will boost. The project is also feasible because there is a
relationship between people of Pakistan and Bangladesh. So there is huge number of people
who want to communicate in between two countries, as there is no other comfortable network
service provider so it gives us an edge or a plus point. When we start working in the
Bangladeshi people would love to communicate in a comfortable way.

International diversification is basically to reduce the risk of an organization by expanding in


other nations. By diversifying we mean that to invest in that country which is inversely
related to each other by means that if an organization is not performing well due to any
reason like political, cultural issues in one nation, the other nation that is not affected by these
situations, an organization can earn a reasonable revenue from that nation to overcomes the
negative impact of the conflict nation losses. So in this way companies can reduce the losses
and minimize the risk on a long term basis.

In our project we have decided that the company that we select would operate in a different
phases. In the first phase company would operate its operations Dhaka. The significance of
our project is that when the company enters in Bangladesh which results in the improvement
of the life style of the residences and also the communication network will improves. The
local entrepreneurs should show interest in it which results in increase in the trading or
Business. People would communicate from one place to another place in an efficient time.
They value the time and their money. Different expansion in industries and there is more
comfortable companies who provides communication in different ways.

We see that the project is very much suitable as you that there is no other standardized
Service provider and there is another concerned that links a direct connection with our project
success that is the policies of their present government. Whether the present government of
Bangladesh protects the investor or not. But we see that the government is very much co-
operative with the direct foreign investment because it brings prosperity to their country and
removes the uncertainty from the country.

Company Profile:
China Mobile Pakistan (China Mobile Pak) is a 100% subsidiary of China Mobile. The
pioneering overseas set up of China Mobile came through acquisition of a license from
Millicom to operate a GSM network in Pakistan. With ambitious plans to cater to the fastest
growing Pakistani market and to win over the ever demanding Pakistani customer, it will be
offering unprecedented coverage, voice and data services as well as a wide range of tariff
options to choose from. China Mobile Pak's edge comes from the experience and expertise of
running the world's largest telecom service and the commitment they make to set quality and
customer relations standards. China Mobile Pak is geared to offer neatly packaged VAS
products that will benefit the individuals, corporates as well as small businesses. Led by a
team of professionals from the field of cellular communication, China Mobile Pak is
determined to make its mark in the Pakistani market and to change the way people
communicate.

A first international step for China Mobile, Zong aims at touching the lives of all Pakistanis.
We serve to inspire and empower the people of Pakistan with innovative technology that
keeps pace with today's fast evolving culture. Expanding our wings of coverage to all
corners, making no distinctions along the way and most of all, maintaining excellence in
connectivity everywhere we go. Affordability & Innovation are what define us, aided with a
diverse set of entertaining and informative Value Added Services. With a state of the art
system, along with other services Zong allows and enables its users to avail the best possible
Mobile Internet bundles that are not offered anywhere else in the country making the
experience, truly a unique one. The basic idea is to allow people to communicate at their free
will! Making it a stress free environment where you are not worried about Tariffs, Capacity
Issues or Congestion, is it Network Coverage or Quality, it is all sorted. Zong is supported by
ground breaking communications, trend setting Customer Services and an unmatched Product
Offering that has redefined the rules of the game. Walking hand in hand with our nation, we
make a happier Pakistan. A thriving ground with success on every step, with a smile on
everyone's face be it rain or shine, with hopes higher than sky and the will… to 'Say it All!'

Our Vision:

Become an indispensable digital life partner

Our Mission:

To lead the future innovatively through:

 Customer Centricity
 Boundary less Team
 Organizational Agility

Our Core Values:

Integrity & Accountability

Our People

 Take ownership & responsibility


 Do as they say

Openness

Our People

 Are transparent, open & candid


 Employ effective communication channel

Perseverance

Our People

 Strive hard and never give up


 Maintain positive spirit at all time
Passion

Our People

 Go above and beyond


 Demonstrate dedication & drive

Efficient Execution

Our People

 Have clear goals & deliver measurable results


 Strive for flawless execution

Objective Of The Study

 Purpose of Subsidiary (DFI)


 Nature of Risk and Uncertainty
 Capital Budgeting about Company
 Value of currency with comparison Pak Rupee – Bangladeshi Taka.
CHAPTER NO 2

Motives of DFI:

The basic purpose of Diversification is to improve profitability in term of increase in


Revenue or decrease in cost. One of the basic compulsions of MNC is to maximize the
shareholders wealth due to which it has to move towards those countries where they may find
cheap labour, land, capital and building I.e., cheap factor of production.

The basic objective of Multinational Company is to have international diversification, by


adding more and more projects in their portfolio. With it risk is lessen as majority of the
MNC have their subsidiaries with negative co-relations with each other. As if there is worst
situation in one Era Company can compensate it from the other era.

There are two types of motives:

 Revenue related
 Cost related

The Revenue related motive of foreign direct investment is.

 Attract new sources of demand


 Enter into profitable market
 Monopolistic advantages
 Reaction to trade Barrier
 Diversify internationally.

The international project reduces the firms cost and overall risk of the company .the major
aspect of international diversification is selecting foreign projects whose performance levels
are not highly co-related with the help of it various international projects do not experience
poor performance all in one time.
The Cost related motive of foreign direct investment is

 Economies of scale
 Foreign factor of productions
 Technology
 Foreign raw materials
 React to Exchange rate

The main objective of market seeking FDI is to serve domestic markets, which means that
goods are produced in the host country, and sold in the local market. As a result this type of
FDI is driven by domestic demand such as large markets and high income in the host country
Market size, wage levels and growth become essential characteristics for countries which
host market-seeking FDI. Market seeking FDI is also referred to as horizontal FDI since it
usually involves building similar plants in a foreign location to supply that market.

Benefits of DFI:

One of the biggest problems that multinational faces are control of their cost. For this purpose
they tried to obtain economies of scale. The potential benefit from DFI very with the
countries such as region of Asia v/s region of Europe as problem in one region may affect
their earnings, on the other hand the earning of the other region will support that company
and risk will be minimized. In the context of foreign direct investment, benefits are often a
matter of perspective. An FDI may provide some great advantages for the MNC but not for
the foreign country where the investment is made.

Access to markets:

FDI can be an effective way for you to enter into a foreign market. Some countries may
extremely limit foreign company access to their domestic markets. Acquiring or starting a
business in the market is a means for you to gain access. We are access a Bangladesh market
to invest in Communication network to access for all Bangladeshi people or customers. Every
customer is easily get services from zong network to communicate with peoples.
Access to resources:

FDI is also an effective way for you to acquire important natural resources, such as precious
metals and fossil fuels. Oil companies, for example, often make tremendous FDIs to develop
oil fields. For provides services of network required huge numbers of oil to run the plants.

Reduces cost of production:

FDI is a means for you to reduce your cost of production if the labour market is cheaper and
the regulations are less restrictive in the target foreign market. For example, it's a well-known
fact that the shoe and clothing industries have been able to drastically reduce their costs of
production by moving operations to developing countries. Also Bangladeshi Government
provides subsidies of different sectors like tax rebates and energy sector.

For example,

If a large factory is constructed in a small developing country, the country will typically have
to utilize at least some local labour, equipment, and materials to construct it. This will result
in new jobs and foreign money being pumped into the economy. Once the factory is
constructed, the factory will have to hire local employees and will probably utilize at least
some local materials and services. This will create further jobs and maybe even some new
businesses. These new jobs mean that locals have more money to spend, thereby creating
even more jobs.

Additionally, tax revenue is generated from the products and activities of the factory, taxes
imposed on factory employee income and purchases, and taxes on the income and purchases
now possible because of the added economic activity created by the factory. Developing
governments can use this capital infusion and revenue from economic growth to create and
improve its physical and economic infrastructure such as building roads, communication
systems, educational institutions, and subsidizing the creation of new domestic industries.
CHAPTER NO. 3

Role of the Host Country:

In DFI some governments allow international acquisition but imposed special requirements
such as acquiring local firm or do not threaten the local market share of the local companies.
The MNC may even be required to retain all the employees of the target firm so that
unemployment and general economic conditions should not be disturbed or adversely
affected. Foreign direct investment (FDI) influences the host country’s economic growth
through the transfer of new technologies and know-how, formation of human resources,
integration in global markets, increase of competition, and firms’ development and
reorganization. Empirically, a variety of studies considers that FDI generate economic growth
in the host country. However, there is also evidence that FDI is a source of negative effects.
Given this ambiguity of results, the present paper makes a review of the existing theoretical
and empirical literature on the subject, intending to shed light on the main explanations for
the divergence of results in different studies. The main idea that stands out in this review is
that the effects of FDI on economic growth are dependent on the existing or subsequently
developed internal conditions of the host country (economic, political, social, cultural or
other). Thus, the host countries authorities have a key role in creating the conditions that
allow for the leverage of the positive effects or for the reduction of the negative effects of
FDI on the host country’s economic growth.

 FDI allows the transfer of technology particularly in the form of new varieties of
capital inputs that cannot be achieved through financial investments or trade in goods
and services. FDI can also promote competition in the domestic input market.
 Recipients of FDI often gain employee training in the course of operating the new
businesses, which contributes to human capital development in the host country.
 Profits generated by FDI contribute to corporate tax revenues in the host country.

Of course, countries often choose to forgo some of this revenue when they cut corporate tax
rates in an attempt to attract FDI from other locations. For instance, the sharp decline in
corporate tax revenues in some of the member countries of the Organization for Economic
Cooperation and Development (OECD) may be the result of such competition. There are
several ways in which the entrance or existence of foreign firms might affect wages in the
host countries where they operate. One is if these firms offer higher wages than are paid by
domestic firms. That possibility raises the question, dealt with in subsection 1, of whether
they do pay higher wages. Even if they did pay higher wages, there might be no overall
impact on wage levels if the higher wages simply reflected the selection by foreign firms
among workers, plants, or locations. They might select superior workers who would
command high wages from any employer, or acquire higher wage plants or firms, or
concentrate their activities 20 in high-wage industries or regions of a country.

According to it MNC possess Monopolistic Advantage over the local firms of Host Country.
The firm Enjoys Monopolistic Advantage due to Superior Knowledge and Advance
technology. (Intangible skills, technologic processes unique product differentiation).
According to it first of all company operates in home country then exports its products after
that it itself moves to that specific country and then has competition there. It deals with the
following factors country specific, companies’ specific relating to trade and foreign direct
investment. Country specific deals with geographical environment and Government
regulatory framework, production and transportation cost, research and development
advantages, political environment, taxes and fiscal policy and cultural environment.

CHAPTER NO. 4

Technical Analysis:

In this we basically analyse the feasibility of our project weather the diversification of the
Zong (China Mobile) is feasible or not so; at first we want to know that how the management
team that would works for a Zong organization in Bangladesh. Managers hold an ample
importance while managing and taking decisions. The management plan of the network
program is designed in such a way that cans maximum increase the traffic on network.
Managers have certain responsibilities and duties as a tool for management plan coordinator.

Firstly the top managers are involved in the management. Top managers are likely to be from
Pakistan as well and with the passage of time they hire the educated employees from the
Bangladesh residences and trained them according to the needs of an organization which
helps in ensuring good response from that country. We also observed that they are very keen
to make different strategies that are essentially necessary for the organization that if the
certain plan fails then in that situation how the company will react and respond to the
alternative plan. Direct foreign investment basically means the same because the ultimate
objective is to earn profit and to minimize the uncertain risk. Managers are well aware of the
motive of an organization and they are making policies according to their desired motives.
They are thinking the different network to operate in Bangladesh on a step expansion basis.
They also focus to give authority to the branch level managers to handle their issues but
under the monitoring of a centralized management.

Financial Analysis:

Profit and loss is the main element the Zong (China Mobile) is concerned with. The market is
new and it is a great opportunity for the firm to get a monopolistic advantage there. Profit and
loss statement is basically an income statement that shows the profitability of an organization.
It shows that what an expected profit is for a given period. The period may be monthly,
quarterly or yearly as well. The profit and loss would be splinted in two sections the revenue
and the expenses. As it is an expected profit and is totally based on assumptions so we
foresee that the people of the Bangladesh are consistently searching for a comfortable
network service provider which is a plus sign that the customers are always there and by
providing those services they can get high revenues because the network were loaded fully
according to their maximum capacity of network. The investors are always concerned with
the return when the return is high they can show intent to invest more in the Zong (China
Mobile). As the expenses were estimated to be low because of cheap labour, land, capital the
cost they bear as an exchange rate is also low which helps ultimately reducing the expenses
of an organization and increases the revenues.

They are investing now because when the subsidiary remits the money back to the parent
company it will be in a greater value. They will invest in a lessor amount of dollars but will
get huge returns. The government of Bangladesh provides different incentives to us according
to their policy that they would provide tax free land and the there are no electricity charges
for the new administrations. It will ultimately reduce the Cost of investment.
Description Estimated Cost (Million)
Operational Land 13

Equipment 12

Working Capital 15

Misc. Cost 5

Total 45 M

Equity = 0.70 Debt = 0.30

Description Debt Equity


Amount 13.5 M 31.5 M
Weight 0.3 0.7
Cost 0.12 0.15

WACC = WeKe + WdKd

WACC = (0.70*0.15) + (0.30*0.12)

WACC = 0.140

WACC = 14.1%
Calculations of Cash flows, NPV
Initial Investment is 45(M)

Year 2016 2017 2018 2019 2020


Revenue 22000000 25000000 27000000 30000000 32000000

(Variable Cost) 1400000 1700000 2100000 2400000 2700000

(Fixed Cost) 10000000 10000000 10000000 10000000 10000000

EBT 10600000 13300000 14900000 17600000 19300000

(Tax) @ 35 % 3710000 4655000 5215000 6160000 6755000

Earning After Tax 6890000 8645000 9685000 11440000 12545000

Depreciation 5000000 5000000 5000000 5000000 5000000

Net Cash Flow 11890000 13645000 14685000 16440000 17545000

(Withholding Tax) @ 10 1189000 1364500 1468500 1644000 1754500


%
After paid to parent 10701000 12280500 13216500 14796000 15790500

Salvage Value 80000000

NCF Transfer to Parent 10701000 12280500 13216500 14796000 95790500

Exchange rate .74 .76 .78 .80 .82

Cash received by parent 7918740 9333180 10308870 11836800 78548210

PV 6940175.28 7124564.89 6942000 6983362.83 40614379.5

Cumulated NPV:

2016 (6940175.28-45000000) = -38059824.72


2017 [(6940175.28+7124564.89)-45000000]= -30935259.83
2018 [(6940175.28+7124564.89+6942000)-45000000]= -23993259.83
2019 [(6940175.28+7124564.89+6942000+6983362.83)-45000000]= -17009897
2020 [(6940175.28+7124564.89+6942000+6983362.83+40614379.5)-45000000]= 23604482.50
CHAPTER NO 5

Conclusion:

We will be in a position for a long time to create monopoly and to get full advantage in terms
of revenue as well as good will is created which will help us in long term; once confidence
will be created of the costumers it will prove to be very much helping full for us. Furthermore
on the other side we will get benefit of other opportunities as well such as construction of
some basic infrastructure such good communication network.

We have decided to open a subsidiary in Bangladesh just due to the reasons that we have
found Bangladesh as a profitable place for us in order to generate profit, for the parent
company. As it is crystal clear that there is no other service provider like us who is working
there at the moment. We will be considered as the pioneer there in this field and we will take
the full benefit of the first mover strategy. Government will also support us as by watching us
different other multinational companies will also get confidence to invest in Bangladesh.

With the passage of time we will increase our operations to other cities as well due to us there
poverty will decrease people will become loyal to us. As our corporate social responsibility
will try to set up health care unit as well. Due to the international diversification and the
addition of one more project in our portfolio our risk will be minimized and revenue will get
a boost. Company will also get benefit in such a way that the renitences what the parent
would receive would be more as compared to the amount of investment.

The project is feasible because we have seen many factors that can affect our project. But of
course there are certain elements and incentives. When we have discussed about the
management in our project the management team and the policies of the management are
very enthusiastic and energetic. They planned their future activities and are very stick to their
policies and monitor consistently about the performance.