1. Given the changes that have occurred in the international capital markets during the past decade, does Merrill Lynch’s strategy of expanding internationally make sense? Why?In a couple past decades the world has become a smaller place especially in the sense of communication and ability to conduct business internationally. With the emergence of new technologies managing and controlling has become easier than ever before, thus allowing companies to go global introducing their services and products in various countries.
Not only technical assistance gave such a rise to multinational businesses but also international policies of countries that were closed before for foreign investment. For instance countries such as Japan and former Soviet Union have opened their markets for big companies from the United States and other economically developed countries.
2. What factors make Japan a suitable market for Merrill Lynch to enter?The fact of Merrill Lynch’s leading position in the States and its acquisition of the leading mutual funds companies of economical giants such as Britain and Canada have made it possible at least theoretically to enter Japanese market. On the other hand it didn’t consider national buying characteristics and regulations over financial service industry. However the removal of number of restrictions and allowing Japanese people to purchase foreign bonds and stock in the mid 1990 had made Japanese market suitable for entrance and establishment of foreign capital. Moreover their government understood the necessity of new “blood” in country’s economy which would be donated by foreign companies to enhance competition and bring in more funds.
3. Review Merrill Lynch’s 1997 reentry into the Japanese private client market. Pay close attention to the timing and scale of entry and the nature of the strategic commitments Merrill Lynch is making in Japan. What are the potential benefits associated with this strategy? What are the costs and risks? Do you think the tradeoff between benefits and risks and costs makes sense? Why?The first attempt of Merrill Lynch to enter Japanese market failed as their market was not regulated to accept international players. In 1997 however the situation changed under the WTO agreement for the better allowing foreign firms to sell financial services to their national investors. Regarding their previous experience they were hesitating to enter Japanese market but it was clear that this time things have changed with open market and huge amount of assets owned by Japanese households were too attractive to miss such opportunity. It was perfect timing for Merrill Lynch as there were only few other foreign competing companies and their prior experience in private client market made it even more suitable. The bankruptcy of Yamaichi Securities in 1997 was a perfect circumstance for American company to start entering Japanese market. They first considered a joint venture that would allow minimum spending as they had a chance to use already existing distribution system of a known Japanese bank. On the other side they didn’t see their presence on the market due to this venture in the long run thus they reconsidered this deal and were lucky to hire workers and buy Yamaichi’s branch offices in 1997. Merrill Lynch definitely won in this situation when establishing their company’s position on the market without reporting and coordinating their moves with another Japanese company. The risk they took when working on their own paid off very quickly and significantly to their benefit, regarding enormous value of the assets held by the company.
4. The collapse in stock market values in 2001–02 resulted in Merrill Lynch’s Japanese unit incurring significant losses. In retrospect, was the Japanese expansion a costly blunder or did the company simply get hit by macroeconomic events that were difficult to predict and avoid?The years 2001-2002 were significant for all big businesses worldwide as global collapse of the stock markets occurred. This event can hardly be predicted by anyone as it is caused by the macroeconomic factors that are not controlled by a single country, and needles to say by a company. Evidently predicting such an event would soften the crisis for Merrill Lynch however completely avoiding it was impossible because international business is tightly connected with macroeconomic conditions as it was in this case. Lay offs and closing of most of their retail locations was the only way company could manage to survive and continue operating on the Japanese market. Future showed that this decision was a smart one and led to renewing of company’s power because almost all assets were still controlled by the parent company.
5. Do you think Merrill Lynch should continue in Japan? Why?After years of experience and success on the Japanese market it would be not wise to withdraw now. Practice shows that this company was able to withstand such tribulations as loss of half of their profit and huge lay off of workforce and still in less than six months they were up and running. Having loyal customers and knowledge of specifics of Japanese market structure are core competencies of Merrill Lynch as compared to other players in this field. They definitely should continue conducting business in Japan although they are not guaranteed to have it stable and flawless all the time, as 2001-2002 crisis has proved.
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