MULTINATIONAL FINANCIAL MANAGEMENT

mailboxcuckooManagement

Nov 10, 2013 (3 years and 9 months ago)

73 views

MULTINATIONAL
FINANCIAL
MANAGEMENT

Alan C. Shapiro

Sixth Edition

POWER POINT LECTURES:

J. F. GRECO, Ph.D.

California State University,
Fullerton



CHAPTER 1

Introduction: Multinational Enterprise and
Multinational Financial Management


CHAPTER OVERVIEW:

Part I. The Rise of the






Multinational








Corporation

Part II. Multinational Financial




Management: Theory




and Practice




PART I.

THE RISE OF THE MULTINATIONAL
CORPORATION


I. The MNC: Definition



a company with production and
distribution facilities in more
than one country.




THE RISE OF THE MULTINATIONAL
CORPORATION

B
.
Traditional Economic


Theory



1. Classical Theory:




a. Smith, Ricardo




b. Comparative






Advantage:





macroeconomic





differences





THE RISE OF THE MULTINATIONAL
CORPORATION



2. MNC supercedes




theory relating to:




a. mobility of factors




b. different costs/skills





between nations





THE RISE OF THE MULTINATIONAL
CORPORATION


C. EVOLUTION OF THE MNC



Reasons to Go Global:





1. raw materials





2. markets





3. minimize costs of






production

THE RISE OF THE MULTINATIONAL
CORPORATION


RAW MATERIAL SEEKERS



exploit markets in other
countries


historically first to appear


modern
-
day counterparts


Anaconda Copper


Standard Oil

THE RISE OF THE MULTINATIONAL
CORPORATION


MARKET SEEKERS


produce and sell in foreign
markets


heavy foreign
-
direct investors


representative firms:


IBM


Nestle


Levi Strauss


THE RISE OF THE MULTINATIONAL
CORPORATION


COST MINIMIZERS


seek lower
-
cost production
abroad


motive: to remain cost
competitive


representative firms:


Texas Instruments


Atari


Zenith



THE RISE OF THE MULTINATIONAL
CORPORATION

II. THE PROCESS OF




OVERSEAS EXPANSION



A. Exporting:



preferred market entry strategy




1. Advantages:





low cost





low risk





learning opportunity

THE RISE OF THE MULTINATIONAL
CORPORATION



2. Disadvantages





inability to realize full





sales potential



3. Use

of:





a. Foreign agents





b. Sales subsidiaries





c. Distribution system










THE RISE OF THE MULTINATIONAL
CORPORATION


B. OVERSEAS PRODUCTION




greater commitment to the local


market



1. Advantages:




a. Increased sales




b. Supply stability




c. Control




d. Comprehensive service

THE RISE OF THE MULTINATIONAL
CORPORATION




2. Question:





create or acquire




3. Acquisition





-
allows speedy





transfer of unused




parent skills;





-
used more by small





firms.

THE RISE OF THE MULTINATIONAL

CORPORATION


C. LICENSING




-
local firm agrees to





produce for a fee.



1. Advantages:




a. Minimum investment




b. Faster market entry




c. Less risk


THE RISE OF THE MULTINATIONAL
CORPORATION



2. Disadvantages of




licensing:




a. Low cash flow




b. Quality standards




c. New competitor









THE RISE OF THE MULTINATIONAL
CORPORATION


D. THE MNC: A BEHAVIORAL




VIEW



1. State of mind:




committed to producing,




undertaking investment



and

marketing, and




financing globally.

THE RISE OF THE MULTINATIONAL
CORPORATION


E. THE GLOBAL MANAGER



1. Understands political and




economic differences;



2. Searches for most cost
-




effective suppliers;



3. Evaluates changes on value



of the firm.

PART II.

MULTINATIONAL FINANCIAL
MANAGEMENT: THEORY AND PRACTICE

I. THE MULTINATIONAL



FINANCIAL SYSTEM



A. Main Objective of MNC:




Maximize shareholder



wealth



B. Other Objectives Reflect



Ability to Link:




via affiliate transfer




mechanisms










THEORY AND PRACTICE


C. Mode of Transfer:




Reflects freedom to select a



variety of financial channels.


D. Timing Flexibility:




Most MNC have some




flexibility in timing of fund



flows.

THEORY AND PRACTICE


E. Value




The ability to avoid national


taxes has led to controversy.



THEORY AND PRACTICE

II. FUNCTIONS OF FINANCIAL



MANAGEMENT



A. Two Basic Functions:




1. Financing




2. Investing

THEORY AND PRACTICE


B. Additional Factors Facing the



MNC Executive



1. Political risk



2. Economic risk




THEORY AND PRACTICE

III. THEORETICAL FOUNDATIONS



A. Useful Concepts from



Financial Economics:




1. Arbitrage




2. Market Efficiency




3. Capital Asset Pricing

THEORY AND PRACTICE


B. Importance of Total Risk



1. Adverse Impact




lower sales and higher



costs



2. Justifies hedging activities


of MNC



3. Diversification reduces risk

THEORY AND PRACTICE

IV. THE GLOBAL FINANCIAL




MARKET PLACE



A. Interlinkage by Computers



B. Market Acts as A Global




Referendum Process:




Currencies may rise or fall