NODAL LOGISTICS AND CUSTO BRAZIL Harvard Case Solution & Analysis


What is a REIT?

REIT is basically a security that is more like mutual funds, which provide advantages for the small investors to own a real estate property by investing in it and earning the income from the rents received. It can be of three types Equity REIT, Mortgage REITand a combination of these two that is, Hybrid REIT. With the help of this security, an individual investor can have the opportunity to buy their own property. The capital structure of REIT should contain at least 100 shareholders in which no one should have more than 50% ownership. In addition to this, this security also has different tax implementations as compared to the other securities. According to the law, these securities should have a dividend payout structure of 90%, which make it highly attractive for the investors who seek income from their investment. Therefore, under operating such structure, REIT does not pay taxes on income.

The reason of Nodal Logistics to enter in the Brazilian market is that it is an emerging market that has the favorable factors for the growth of Nodal’s business, including the increasing population, cheap and easy availability of the skilled labor, and the last but not the least is the consideration of geographical strategic point. It is a legal requirement to do trade and investment in the local currency, thus the company had to deal in Brazilian currency.  In addition to this, the company seeks a return of less investment in five years time period, but this investment could have a significant devaluation risk in the Brazilian currency. In addition to these reasons, Brazilian Market is just like a commercial hub and an attractive opportunity for the multinational firms like the Nodal Logistics to enhance their business by increasing their revenues and minimizing costs.

3. What special challenges do Nodal face entering the Brazilian market?

Previously, the company was practicing its overall trade with the other countries outside America by considering US Dollars as the functional currency, which significantly helped the company in minimizing its transaction risk to a greater extent upon receiving the cash flows from the other countries. However, the technique employed by the company will not help it in dealing with one another risk, that is the exchange rate fluctuation risk as well as the regulations that are imposed by the other countries on trading with them. However, entering in the Brazilian market could be very different for Nodal Logistics, for the reason of their laws relating to the real estate investment that must be done in their own currency. In addition to this, the risk that the company would face relating to the currency fluctuation is more with the exchange rate risk because of the reason that most leases are covered between five to twelve years, which could be highly problematic for Nodal Logistics to bear risk for such a long time. The overall situation concludes the fact the entrance of Nodal Logistics in the Brazilian market could be highly challenging because of the fluctuation in the economic conditions prevailing in the country and the investment could also not be able to be move to the home country, which increases both the currency as well as the exchange rate risk.

The exposure of these risks is also very high; by dealing with the subsidiary in the subsidiary’s, currency is also increasing the foreign exchange risk because ultimately, cash flows need to be converted into Dollar. l................

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