Foreign exchange rate

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Other aspect of importance in FDI is the fluctuations of foreign exchange rate. Conducting an investment in an economically stable country (which means that the country also have little fluctuations of foreign exchange rate) will be a lot more desirable to invest in countries with high fluctuations. The fluctuations can be caused by political instabilities, economic crisis or social revolutions. The fluctuations could cause unpredictable behavior of our businesses abroad.

Considering the importance of predictability in order to build a viable finance and managerial strategy, companies usually avoid investment in a considered instable country. III. Carnival Corp and P & O Princes plc To grasp a clear understanding of the size and importance of both parties, it is necessary to previously elaborate the global market of the Cruise Operator Industry. We will then elaborate both companies’ condition and their endeavor of collaboration. III. 1 Global Cruise Market The Cruise Industry started in 1960’s as a merely leisure cruising. During its first years, the industry grew enormously.

By the 1980’s the larger cruise companies already constructing larger ships and the smaller companies trying to compete by acquiring second hand ships. In the 1990’s the cruise companies built “post-Panamax” ships, the ships weigh over 100. 000 tons and apparently too large to pas trough the Panama Canal. In 2001 there are 230 cruise ships worldwide and expected to grow to be 260 in 2003. These ships are acquired in international basis and untied to a particular country or regions, allowing it to easily move and travel around the globe (‘Commission’, 2002).

By 2002 there are four large international cruise operators which are Carnival with 43 ships, Royal Caribbean Cruise Line (RCCL) with 23 ships, P&O Princes plc (POPC) with 18 ships, and the Star Group which also owned 18 ships. On 2002, Carnival scheduled 12 ships to be produced by the end of 2004, POPC and RCCL ordered 5 ships and Star scheduled one ship delivered by the end of 2004. The largest ships in the world (The Voyager, Explorer and the Adventure) are owned by the youngest fleet of the four, the RCCL (‘Commission’, 2002).

The largest market for the cruise industry is from the North America, continued by the European market. In 2001, The North American Market consists of 7 million cruise passenger (72 % of world demand), 1. 9 million passenger originated from Europe (20 % of world demand) and 800. 000 passenger (8 % of world demand) are from Asia. For the last 5 years, the industry has grown faster than any other types of vocations. Continuous growth from years to come is expected to be 8 to 20 % of current market (‘Commission’, 2002). III. 2 Prior to Acquisition.

We will next elaborate both companies’ market and performance condition prior to the acquisition. III. 2. 1 Carnival Corporation Carnival is an American company founded in 1972. By the late 2002, Carnival Corporation has become the largest company in the cruise ship industry. Below is an elaboration of Carnival’s worldwide market in 2002. • Market Share Carnival’s cruise brands by July 2002 consist of Carnival Cruise Lines (CCL), Holland America Line (HAL), Costa Cruises (Costa), Cunard Line (Cunard), Seaborn Cruise Line (Seaborn) and Windstar Cruises (Windstar).

CCL offers an American Style cruises and control significant share of North American market. Carnival’s significant market in the United Kingdom is presented by its acquisition of Cunard in May 1998. In the year 2000, Carnival also acquired full control of Costa Cruises. Costa’s customers consist of 50 to 60% European cruise passenger, 35 to 45% Italian cruise passenger, 15 to 25% Spain cruise passenger and also some portion of the German market (‘Commission’, 2002).

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