Unggayan, Joanarhel F.

July 22, 2022

BSBA FM 3-10s Special Topics in FM

CASE STUDY NO. 2

1. What is a multi-national corporation? Why do firms expand into other countries?

Generally, multi-national corporations are companies that operates in other
countries around the globe apart from its home country. They have a central office
based in their home country where coordination of global management is done while
other offices are located in other foreign countries. Multi-national companies have varied
types depending on their structures. They can be international, decentralized,
transnational or even global centralized.
The reason why these corporations expand is mainly to maximize profit, which is the
goal for every business out there. By expanding their operations, more customers will
get to know the brand or product which will result to increase in sales and revenues.
Other related reasons may also include finding countries where they can operate with
lower production costs and labor.

2. What are the five major factors that distinguish multinational financial management from
financial management as practiced by purely domestic firm?
Domestic and Multinational corporations have various differences not just from its
operations but also with their financial management. Here are the 5 major factors that
distinguishes them from each other:

1. Foreign exchange exposure and risk- Domestic firms use limited financial
instruments while multinational firms need to use financial instrument in order to
manage their forex exposure
2. Corporate governance - Regulations and institutions are well known for domestic
firms while for multinational firms, foreign countries regulation and institutional
practices are uniquely different.
3. Culture, history and institutions - For domestic firms, each country has a known
base case and they have direct and almost complete understanding of the
company’s culture and history. However, in the case of multinational firms, each
foreign country is unique and may not be easily understood by the central
management.
4. Political risk – Domestic firms have limited political risks compared to
multinational firm facing foreign exchange risks due to its subsidiaries, as well as
import/export and foreign competitors. Other than that, it can be challenging for
the company to keep up with political changes on the foreign country they are
based in.
5. Modification of domestic finance theories – Most of the times traditional finance
theories apply for a domestic firm while Multinational firms must modify finance
theories like capital budgeting and cost of capital because of foreign complexities
and differences.