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Bjorn- A hero of lifesize remote controlled cars
Bjorn- A hero of lifesize remote controlled cars

This remote-controlled Chevy Corvette and the mastermind behind its creation drives us crazy. With a top speed of 186 miles per hour and a 400 horsepower v8 engine under the hood, this 2006 c6 Corvette is already impressive.

Bjorn Harms is a Dutch computer technician and creator of the RC Corvette. Bjorn had a special set of requirements; it had to be a cool car; something sporty or fast. None of the controls could be visible. Like other RC cars, it needed a fail-safe, for obvious reasons.

But, most importantly, it had to still function as his daily driver. The way the system works is considered as pretty simple. They stole all different kind of pro body circles on the controls of the car. You select the proble, the braking, the steering and shifter. All those circles are booked up to a custom control unit.

It also houses the motor controllers and the receivers. The receivers communicate with the transmitter, so when one hits the throttle on the transmitter, the receiver receives the signal and sends the signal to the brothels of the call.

With authority, the entire building process took the yarn around one year to complete and cost him just over $4,000. With all the modifications, he made, Jorn didn’t forget about safety range.

This isn’t the only car Bjorn has modified to be remote-controlled. He did the same exact transformation to an original DeLorean dmc-12. The same car featured in Back to the Future.

Bjorn started working on the DeLorean short after the completion of the RC Corvette and the owner contacted him on Facebook news. Bjorn even converted a customer’s Pontiac Trans Am that he was modifying to resemble the vehicle featured in the 1980s TV series Knight Rider.

After building three full-sized remote-controlled cars, Bjorn doesn’t plan on stopping and he has some large aspirations for the future.

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Motives of Mergers and Acquisitions*
Motives of Mergers and Acquisitions*
  • Horizontal integration
    • When horizontal integration occurs, an increase in market share may occur. This will have a significant impact on the firm’s market power (monopoly power). However, the impact on the market power depends on the size of the merging firms and the level of competition in the industry.
    • Through horizontal integration, firms move from the perfect competition towards monopoly.
    • Market power in this case is the ability to set price in excess of marginal cost. According to the Lerner Index, market power depends on product differentiation, barriers to entry and market share.
    • Lerner Index= (P-MC)/ P where P is the price and MC is the marginal cost.
    • So, since horizontal integration increases market share, the Lerner index increases, leading to higher market power.
  • Vertical integration
    • For example, Chevron acquired Gulf Oil in 1984 to augment its reserves. This is back ward integration.
    • An example of forward integration is Lehman Brothers acquisition of E.F.Hutton.
    • This type of integration may occur for the following reasons.
      • To be assured of dependable source of supply
        • Eg: Mobil-Superior Oil
      • To obtain cost advantage over its rivals- due to lower transaction costs in transfer pricing
      • Need to have specialized inputs
    • According to the Hubris hypothesis, managers seek to acquire firms for their own personal motives and the pure economic gains to the acquiring firm are not the sole motivation in the acquisition.
    • Also, the winners’ curse of takeovers, state that bidders who over estimate the value of a target will win the contest, but they will be inclined to overpay.
  • Improved management
  • For large public firms, a takeover is the most cost-efficient way to bring about a management change.
  • Improve research and development
    • For example, Glaxo & Smith was formed in 1999 for R&D.
  • Improve distribution
  • Tax motive

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Diversification pathway-Mergers and acquisitions*
Diversification pathway-Mergers and acquisitions*
  • This motive has played a major role in M&A s that took place during the third merger wave. However, many companies have regretted their attempts at diversification.
    • For example, General Electric(GE), is no longer merely an electrics company. The firm has become a diversified conglomerate with operations in insurance, television stations, plastics, medical equipment and so on. Its success is partially from the type of companies it acquired. That is purchasing the first or second leaders of any industry.

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  • This motive has played a major role in M&A s that took place during the third merger wave. However, many companies have regretted their attempts at diversification.
    • For example, General Electric(GE), is no longer merely an electrics company. The firm has become a diversified conglomerate with operations in insurance, television stations, plastics, medical equipment and so on. Its success is partially from the type of companies it acquired. That is purchasing the first or second leaders of any industry.
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  • Allied Signal in the 1990s, is a diversified manufacturer that has enjoyed impressive earnings growth and a high market valuation.
    • Sometimes, firms diversify to enter more profitable industries. It could be that the parent company has reached maturity stage or that the competitive pressures within that industry preclude the possibility of raising prices to a level where extra normal profits can be enjoyed.
      • However, in this case, firms may face the problem of lack of an assurance that those profit opportunities will continue for an extended time in the future.
      • According to economic theory, in the long run, only industries that are difficult to enter will have above average returns. This is because, when entering the low barrier industry, the expanding company will probably be forced to compete against other entrants.
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  • Allied Signal in the 1990s, is a diversified manufacturer that has enjoyed impressive earnings growth and a high market valuation.
    • Sometimes, firms diversify to enter more profitable industries. It could be that the parent company has reached maturity stage or that the competitive pressures within that industry preclude the possibility of raising prices to a level where extra normal profits can be enjoyed.
      • However, in this case, firms may face the problem of lack of an assurance that those profit opportunities will continue for an extended time in the future.
      • According to economic theory, in the long run, only industries that are difficult to enter will have above average returns. This is because, when entering the low barrier industry, the expanding company will probably be forced to compete against other entrants.
  • However, diversification has its benefits too.
    • Benefits of diversification
      • Coinsurance effect
        • This occurs when firms with imperfectly correlated earning combine and derive combined earnings stream that is less volatile.
        • For example, Elger and Clark showed that returns to stockholders in conglomerate acquisitions are higher than in non-conglomerate acquisitions.
        • However, Berger and Ofek found that diversification resulted in a loss of firm value that averaged between 13% and 15%.

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Synergy motive Mergers and acquisitions*
Synergy motive Mergers and acquisitions*
  • The two main types of synergy include
    • Operating synergy: Revenue enhancements and cost reductions
      • In this case, the revenue enhancing synergy is more difficult to achieve than cost reduction synergies. This is because there are many potential sources of revenue enhancements. For example, cross marketing, where one company lends its major brand name to an upcoming product line of a merger partner. However, revenue enhancing synergies are difficult to quantify and to build into valuation models. Thereby, cost related synergies are often highlighted in merger planning.
      • Cost reduction synergies can be a result of economies of scale. For example, Carnival, an originally low priced mass market cruise line, became the largest company in the industry through a broad acquisition program. Carnival was successful enough to acquire upper end cruise lines like Seaborne without reducing the quality and reputational integrity. This was possible because Carnival marketed the brands separately.
  • Financial synergy: Possibility that the cost of capital may be lowered by combining one or more companies.
    • Usually the combination of two firms reduces the risk if the firm’s cashflow streams are not perfectly correlated. So, if the Acquisition or merger reduces the volatility of the cash flows, suppliers of capital consider the firm less risky.
      • According to Higgins and Schall, debt coinsurance is the term to be used in this case. That is, if the correlations of the income streams of 2 firms is less than perfectly positively correlated, the bankruptcy risk is reduced.
      • However, the problem with this effect is that the benefits of this accrues to debtholders, not equity holders.
      • In addition, as a result of acquisitions, financial economies of scale are possible in the form of lower flotation and transaction costs.
      • In financial markets, a larger company has advantages that may lower the cost of capital to the firm. That is, it enjoys better access to financial markets lowering the costs of raising capital.

Similarly, flotation costs are lower for larger issues.

  • However, at times there can be synergy that never materialize too.

For example, Allegis Corporation was the brain child of CEO Richard Ferris. His dream was to form a diversified travel services company that would be able to provide customers with a complete package of air travel, hotel and car rental services. To achieve this, Ferris bought Hertz Rent a Car, Hilton international hotel chain and Westin International hotel chain. Accordingly, with one telephone call, customers could book their air travel, hotel reservations and car rental. Yet, the market failed to respond to this. This is a good example of management wanting to create a one stop shop for consumers, that the market failed to embrace.

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Growth oriented Mergers and Acquisitions*
Growth oriented Mergers and Acquisitions*
  • Growth through M&A is a more rapid process, although it has its own uncertainties.
    • For example, Johnson & Johnson, a manufacturer and marketer of a wide range of health care products engineered over 50 acquisitions as part of its growth between 1995-2005. This strategy at times meant that J&J would buy its competitors rather than trying to surpass them.
    • Also, when a company wants to expand to another geographical location, the best way is M&A. This is mostly quicker and less risky.
    • Furthermore, corporate managers are most of the time under the pressure of demonstrating successful growth. In such cases, managers often look at M&A as a way to slow growth.
    • However, management needs to critically examine the expected profitability of the revenue derived growth in order to determine whether the growth is worth its cost.
    • Also, companies with successful products in one national market may see cross border acquisitions as a way to achieve greater revenues and profits. Exchange rates can play an important role in this.
    • For example, In 2006, Hilton Hotels Corp offered to purchase the international hotel business unit owned by Hilton Group PLC. This move to expand from US was a response to the international expansion efforts of Hilton’s main rivals- Marriott International Inc and Starwood Hotels and Resorts Worldwide Inc.
  • According to Doukas and Travlos, acquirers enjoyed positive returns when they acquired targets in countries in which they did not previously have operations. This is because, when the company is already in the market and presumably less concerned about the gains that may be realized through an increased presence in the same region.
    • Gaughan (2007) concludes that the fastest way in which the globalness can be achieved is through acquisitions of companies in other international markets.
    • However, not always are the international deals successful.
    • For example, Daimler took over Chrysler in 1998. At this time, Chrysler was profitable although the market was changing at that time. Following the acquisition, sales of many of Chrysler’s profitable cars and SUVs declined due to changes in consumer tastes. In order to fix these problems, Daimler worked hard, at the expense of Mercedes. Mercedes was Daimler’s highly successful luxury brand. With this, the quality of Mercedes dropped, making it lose for BMW. A similar situation arose when Daimler invested in Mitsubishi.

A similar example of international deal failure is General Motors(GM). One of the most embarrassing situations for GM was its investment in Fiat.

However, the Japanese automakers did not use acquisitions to expand in US. Instead, they continued to gain market share in US by opening plants in US. For example, Honda and Toyota.

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Mergers and Acquisitions*
Mergers and Acquisitions*

According to Flynn and Tobin (2019), mergers and acquisitions occur in waves. These waves are based on the conditions for agglomeration and fashion for company management to use acquisition as a growth strategy.

The first wave of mergers was in the USA during 1879-1904. This is when the US corporations attempted to establish monopoly positions in major industries.

Followed by this wave, the anti-trust laws were established. This still forms the basis of US competition policy.

Along the line, two subsequent waves of mergers and acquisitions took place within the anti-trust laws.

Modern mergers and acquisitions took place with the 4th wave. This is between 1981-1989. In this wave, large companies got involved, increasing the value of the mergers. During this wave, the first significant multi-national merger and acquisition activity took place. That is, the acquisition of Standard Oil by British Petroleum in 1987.

The 5th wave began in 1992, featuring an increase in use of equity. That is there was a period of consolidation as ‘roll up’ deals picked up the smaller companies in an industry. This was supported by the ability of specialised investment banks to offer complex, financing solutions to finance acquisitions. Furthermore, during this phase, international acquisitions took place too.

However, the large amounts of external funding which were necessary for the sustenance of repeated waves of Merger and acquisition activity, made it particularly prone to upsets in the global economy. For example, the dot com crash and financial crisis of 2007-08.

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International investment pathways*
International investment pathways*

International investments can be done in other countries via foreign direct investment(FDI) and portfolio investment.

The difference between these two types of investment is in terms of the investment giving the purchaser any control over the use of the asset or not.

FDI

FDI is also of two categories: horizontal and vertical.

Horizontal FDI is when a supply chain is established in more than one country.

Vertical FDI is the when a supply chain is replicated in more than one country.

Reasons for FDI to occur

  • Impact of transaction costs
    • Transactions costs are usually expensive and there comes a point at which it becomes more efficient to internalise the production of those goods and services rather than buy them.
    • In such case, the firm has to acquire the supplier companies or set up new ones. In this case, most of the supplier companies are in another country. Thereby, the logic of minimising the transaction costs results in MNEs.
    • A counter tendency can occur via outsourcing, where the main company stays a single entreprise in order to minimise costs.
  • Impact of economies of scale
    • In certain industries, there are very large minimum efficient plant sizes. These are especially the industries with high R & D costs. In these cases, a single R & D with a spread of manufacturing plants close to markets is the best.
    • Similarly, companies might want to avoid taxation and regulation by locating in another country.

PORTFOLIO INVESTMENT

Acquisition of securities in quantities that do not give the purchasers control over the entreprise invested in, is known as portfolio investment.

All of these investment paths face changes based on various factors.

According to the world investment report 2019 of UNCTAD, the Global FDI fell for the third consecutive year. This is mainly because of the large scale repatriations of accumulated earnings by US MNEs in the first two quarters of 2018, which was a result of tax reforms introduced in US at the end of 2017.


However, according to UNCTAD, in 2019,

  • FDI in Africa is on the rise owing to
    •  the stable economic growth in Morocco that drew investment in several sectors such as automotive and finance
    • The business facilitation measures and investment ready SEZs
    • Investment in minerals in Congo
  • FDI to developing Asia increased marginally due to
    • Robust investment from other Asian countries in terms of investment diversion and relocations of manufacturing activity from China.
    • Strong intra-ASEAN investments- Singapore was the regional investment hub
  • FDI in Latin America and Carribean declined
  • FDI to transition economies continued to decline due to
    • International political factors
    • Domestic policies that aimed at reducing investment round tripping
  • FDI to developed economies fell sharply
  • FDI to structurally weak economies remain fragile

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Barriers to international investment*
Barriers to international investment*

International investment is smaller than it theoretically should be, because

  • many governments intentionally place barriers in its way
  • difficulty in overcoming the risk of intertemporal exchange in an international setting

MANY GOVERNMENTS INTENTIONALLY PLACE BARRIERS IN ITS WAY

In the 19th century, there were not many limits to globalization. But, in the early 20th century, after world war 1, these barriers increased with the motive of preventing foreigners from owning domestic assets and domestic investors from using domestic savings to purchase foreign assets.

Right after 2nd world war, almost all the countries prevented the acquisition of foreign assets. This was mainly because the countries wanted domestic savings to be within the country in order to fund the reconstructions of the countries. However, when all the countries follow the same pattern, the potential gains of foreign investment are lost.

Another reason behind the imposition of such barriers can be claimed as the fear from the pre-world war 2 colonial era. In other words, the fear that foreigners would control their economies.

Thus, the loss of the gains from international investment: dynamic gains from technology flows, became more apparent during post world war 2.  Hence, liberalization of international investment spreaded throughout the world.

It is due to these reasons, during past decades there has been a rapid growth of international investment.

DIFFICULTY IN OVERCOMING THE RISK OF INTERTEMPORAL EXCHANGE IN AN INTERNATIONAL SETTING

Even with liberalization of international investment, intertemporal transactions are difficult to carry out.  

First, since intertemporal trades involve the exchange of something today for something else later, there is a fundamental risk of one party to the agreement having an incentive to accept a payment now but then deliver on the future obligation. Thereby, there is a risk of spending and not receiving the products.  Thus, in the absence of guarantees that the future obligations will be met, these transactions will not take place even though it may benefit both parties, if successfully completed.

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In order to reduce this fundamental risk, most countries use the threat of

  • compensatory payments
  • fines
  • confiscation of goods or wealth
  • imprisonment
  • use of collaterals

Moreover, this risk is high in international trade due to the differences in

  • legal systems
  • traditions
  • views of acceptable business practices

Second, even without theft and dishonesty, the future can be difficult to predict.

In an international setting, asymmetric information becomes a great contributor to the risk. This is the case of information which savers require on order to accurately assess issuers of stock, sellers of bonds, entrepreneurs and borrowers becomes unavailable or costly to acquire.

Due to such situations, markets cannot efficiently allocate savings to investment projects. This is the condition of adverse selection or moral hazard.

Adverse selection

This is when buyers have difficulty in verifying the quality of assets. In this case, they purchase the worst assets.

Moral hazard

This is the situation of the party who obtains the product first would act differently than if he had not received it. Thereby, monitoring will be done in this case by the lenders to monitor borrowers. However, in international circumstances monitoring costs will be high due to geographic distance, cultural distance, etc

Also, the future of international investment can be difficult to predict due to the foreign exchange risk.

This is the risk associated with the changes in exchange rates. This greatly depends on the countries’ macro economic policies. This type of risk can be dealt with using forward exchange markets, although they permit hedging only among the major currencies for short periods of more than a year or so.

Alternatively, assets and liabilities can be balanced across countries and currencies, although such hedging requires suboptimal allocation of investment, which will reduce the gains from international investment.

Third, the lagging development of international institutions is a barrier to international investment.

Lack of markets where assets can be conveniently exchanged is a main problem for potential investors.

  • Efficient exchange of assets requires

     Banks

     Stock markets

     Bond markets

     Corporate banks

     Venture capitalists

     Insurance and pension funds

     Micro lenders

    Governments to maintain transparent and predictable legal systems where fraud is punished

    Stable political systems

    Consistent and predictable economic policies

Thereby, according to Van den Berg (2003), the main barriers to international investment include:

  • Government policies to restrict investment
  • Risk
  • Asymmetric information
  • Exchange rate risk
  • Relative underdevelopment of international institutions

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Scariest Pets in 2019
Scariest Pets in 2019

Many of us have pets. Cats, dogs or even something more exotic like a
gecko or a ferret. But, some people like to take it just a little bit farther.

For some people a giant Python writhing about the house just isn’t quite scary enough. They need something even more horrifying from a lion to a grizzly bear.

Lion

Rashed Saif Belhasa , a billionaire boy living in the United Arab Emirates likes to collect the most exotic animal you can find. His Instagram is dedicated to showing off his latest play things from flamingos to cheetahs. This guy has an entire safari in his backyard.

On Instagram, his feat of photos showcases more beautiful and
extravagant animals than the Prince Ali parade from Aladdin. Imagine having your very own Simba swaggering around the house. That’s one
heck of a burglary deterrent and he’s not the only person to make a pet cat
out of something far bigger than your standard domestic kitty.

A New Jersey woman by the name of Guinea Fine is the owner of a huge bobcat called Rocky and Rocky is far from your typical cat. His boxer Floyd Mayweather is getting on the trend of appreciating a curvier Kitty.

When a video showing him struggling to control his pet tiger in a crowded hotel room, thousands of animal rights activists came to the defense of the tiger claiming that the animal was being severely mistreated but this is not a list of people who own scary cats.

Hyenas

This guy is certainly brave to have hyenas as a pet.

Alligator

It’s not just the cuddly scary animals people keep as pets. Sometimes, it’s the rough and scaly ones. For example, 55 year old Florida woman, Mary Thorn, she has a pet alligator that she loves so much but she even
dresses him up for the holidays and takes him for the occasional motorcycle
ride.

Ms Thorn insists that Rambo named for either the Sly Stallone character or
the thespian gecko played by Johnny Depp who can know for sure is gentle and kind she even compares him to a dog.

She says he loves being petted going for long walks on a leash and even has been trained not to bite and to keep his jaws clamped tight when others are around.

In March 2016, the Gator garnered national attention when Thorn said the Florida Fish and Wildlife Conservation Commission (FWC) denied her a permit to keep him. As far as Ms Thorn was concerned Rambo was
her gorgeous pet.

She didn’t care that he was nearly 15 feet long and a thousand pounds. He was hers and she was going to fight for him. Thorn told ABC, the News
Corporation at the time that she had a permit to keep the 15 year old American alligator ever since she rescued and brought him home more than seven years ago, when Rambo was just a little over a long.

However, the Gator has grown to be over six feet and a recently added
condition for a permit stated that Gators over six feet needed to be kept
on a property with at least 2.5 acres of land. FWC spokesman Gary Morse told ABC News in March but if there’s one thing a woman who’s friends with an alligator is going to be good at its biting back, she wouldn’t back down without a fight.

With the help of superstar lawyer, Spencer Sheehan, Mary fought to keep
Rambo. After several months of legal battles, Miss thorn received the news
that Rambo could stay, she was officially an alligator owner again.

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Technological progress is necessary for sustainable economic growth*
Technological progress is necessary for sustainable economic growth*

According to the Solow Model, increased saving and investment can lead to economic growth in the medium term. For permanent economic growth, continuous technological progress is required.

Technological progress requires the creation of new ideas and knowledge from the scarce resources of an economy. Schumpeterian model of economic growth specifies that innovation is the result of intentional, costly investment in research and development activities.

The Shumpeterian process of innovation and knowledge creation specifically states that the quantity of innovations generated in the economy is a function of

  • the supply of resources in the country
  • profit from innovating
  • efficiency of R & D activities in terms of the amount of resources necessary to generate an innovation.
  • the discount factor

Hence, technological progress gets boosted up by international investment. This is because international investment contributes to globalization. Thereby, international investment raises the potential profits from innovation.

The gains for human welfare are greater when innovation is applied throughout the world, rather than only in one country.

Further, international investment reduces the cost of innovation because it facilitates the flow of ideas. For instance, Foreign direct investment(FDI) leads to transfer of technology to the recipient countries. Other forms of investment also facilitates information flows between economies.

Foreign investment also stimulates innovation by increasing competition. For example, Japan’s second largest retailer, Aeon actively adopted methods which the pioneers in the retail industry such as Walmart of U.S. and Carrefour of France had adopted before.

International investment and Economic Growth

Ceteris Paribus, foreign investment is good for growth. Yet, if the foreign borrowing leads to high level of foreign debt, the investment flows can reduce long term growth.

According to Geert Bekaert and Campbell Harvey, letting foreigners invest in local stock markets is good for the economic growth because of the lower cost of loanable funds. However, Joshua Aizenman provides evidence that portfolio investments like equity investments can cause financial crisis. This may retard economic growth.

FDI specially tends to have large technology spillovers. Hence, there is a positive correlation between investment in productive equipment and countries’ rates of economic growth.

Also, the effect of equipment investment on economic growth is stronger in developing economies in the early stages of industrialization than in developed countries.

Thus, foreign investment raises the economy’s steady state of output while embodying new technology. This helps transfer technology from high tech to low tech countries.

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