Multinational Corporation Finance

Chap 1: Multinational Financial Management: An Overview

- Explain what MNC should do to reduce and prevent agency problems?
MNC may be able to reduce and prevent most agency problems with proper
governance.
- should clearly communicate the goals for each managers to ensure that all of them
focus on maximizing the value of the MNC, usually check whether each managers
decisions are satisfying the MNC’s goals.
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 Performance Evaluation and Performance Measurement
Organizations should use performance metrics to measure the performance of the
agent and ensure that they are acting in the best interests of the principal. Performance
metrics should be tailored to the specific needs of the organization and should be
regularly monitored to ensure that the agent is performing as expected.

 Performance based incentive plans

Incentive-based compensation plans, such as performance shares, are designed to
satisfy two objectives. First, they offer executives incentives to take actions that will
prolong shareholder wealth. Second, these plans help companies attract and retain
managers who have the confidence to risk their financial future on their own abilities-
which should lead to better performance.

 Corporate Governance and Internal Control

Organizations should ensure that appropriate procedures and controls are in place to
ensure that the agent is acting in the best interests of the principal. This can include
measures such as regular reporting and monitoring, internal audit processes, and
internal control systems.

 The threat of takeover:

A hostile takeover, which occurs when management does not wish to sell the firm, is
most likely to develop when a firm’s stock is undervalued relative to its potential
because of inadequate management.In a hostile takeover, the senior managers of the
acquired firm are typically sacked. The threat of a hostile takeover disciplines
managerial behavior and induces managers to attempt to maximize shareholder value.

 Direct intervention by institutional investors

Institutional investors can impact a firm’s managers in two initial ways. First, they can
meet with a firm’s management and offer a suggestion regarding the firm’s
operations. Second, institutional shareholders can sponsor an offer to be voted on at
the annual stockholders’ meeting. The results of these votes clearly influence
management options.

 Strategies to Align the Interests of Principals and Agents

This can include measures such as incentive structures, bonus systems, and
performance-based compensation. The incentive structures and bonus systems are
designed to ensure that the agent is motivated to act in the best interests of the
principal.

- Explain why MNC needs to pursue international business?

Three commonly held theories to explain why MNCs are motivated to expand their
business internationally are (1) the theory of comparative advantage, (2) the imperfect
markets theory, and (3) the product cycle theory. These theories overlap to some
extent and can complement one another in developing a rationale for the evolution of
international business.
(1) the theory of comparative advantage
Specialization by countries can increase production efficiency.
A country that specializes in some products may not produce other products, so trade
between countries is essential. Comparative advantages allow firms to penetrate
foreign markets
(2) the imperfect markets theory
the real world suffers from imperfect market conditions where factors of production
are somewhat immobile. Costs and often other restrictions affect the transfer of labor
and other resources used for production. In addition, restrictions may be placed on
transferring funds and other resources among countries. Because markets for the
various resources used in production are “imperfect”. Imperfect markets provide an
incentive for firms to seek out foreign opportunities.
(3) the product cycle theory
As a firm matures, it may recognize additional opportunities outside its home country.
A firm first becomes established in its home market, where information about markets
and competition is more readily available. To the extent that the firm’s product is
perceived by foreign consumers to be superior to that available within their own
countries, the firm may accommodate foreign consumers by exporting. As time
passes, if the firm’s product becomes very popular in foreign countries, it may
produce the product in foreign markets, thereby reducing its transportation costs. The
firm may also develop strategies to prolong the foreign demand for its product.

- Submit the solution of case study 17 on page 17 (at the end of slide)
a. Explain how the joint venture enabled Anheuser-Busch to achieve its objective
of maximizing shareholder wealth.
Many companies decide to expand their operations internationally in order to be able
to grow their profit margins and maximize shareholder wealth. By engaging in a joint
venture with Japan’s largest brewery, Anheuser-Busch was able to take advantage of
Kirin Brewery distribution channels and facilities to expand its market in Japan.

b. Explain how the joint venture limited the risk of the international business.
There are several risks associated with doing business internationally that can be
mitigated by joint ventures. Some of them include: inexperience, laws and
regulations, infrastructure, cultural and language barriers, and providing after sales
services. By joining Kirin Brewery, Anheuser-Busch minimized these risks. The
Japanese brewery can provide expertise in the target market, knowledge of laws and
regulations, the necessary infrastructure without having to invest huge amounts of
capital; knowledge of the culture and language, as well as customer service.

c. Many international joint ventures are intended to circumvent barriers that

normally prevent foreign competition. What barrier in Japan did Anheuser-
Busch circumvent as a result of the joint venture? What barrier in the United
States did Kirin circumvent as a result of the joint venture?
Anheuser-Busch circumvented tariffs and quotas barriers as well as direct investment
barriers; because it is able to benefit from Kirin’s distribution system in Japan. Kirin
is able to learn more about how Anheuser-Busch expanded its product across various
countries, circumventing information and cultural barriers.

d. Explain how Anheuser-Busch could have lost some of its market share in
countries outside Japan as a result of this particular joint venture.
In joint ventures it is critical that both parties define their products and markets very
well because they are potential competitors of each other. It would have been
beneficial for Anheuser-Busch to demand a non-compete commitment from Kirin in
other markets if they wanted to expand to other markets that Kirin could potentially
reach.
Anheuser-Busch, the producer of Budweiser and other beers, has recently expanded
into Japan by engaging in a joint venture with Kirin Brewery, the largest brewery in
Japan. The joint venture enables Anheuser-Busch to have its beer distributed through
Kirin's distribution channels in Japan. In addition, it can utilize Kirin's facilities to
produce beer that will be sold locally. In return, Anheuser-Busch provides
information about the American beer market to Kirin.
a) Explain how the joint venture can enable Anheuser-Busch to achieve its
objective of maximizing shareholder wealth.
The joint venture creates a way for Anheuser-Busch to distribute Budweiser
throughout Japan. It enables Anheuser-Busch to penetrate the Japanese market
without requiring a substantial investment in Japan.

b) Explain how the joint venture can limit the risk of the international business.
The joint venture has limited risk because Anheuser-Busch does not need to establish
its own distribution network in Japan. Thus, Anheuser-Busch may be able to use a
smaller investment for the international business, and there is a higher probability that
the international business will be successful.

c) Many international joint ventures are intended to circumvent barriers that

normally prevent foreign competition. What barrier in Japan is Anheuser-Busch
circumventing as a result of the joint venture? What barrier in the United States
is Kirin circumventing as a result of the joint venture?
Anheuser-Busch is able to benefit from Kirin's distribution system in Japan, which
would not normally be so accessible. Kirin is able to learn more about how Anheuser-
Busch expanded its product across numerous countries, and therefore breaks through
an "information" barrier.

d) Explain how Anheuser-Busch could lose some of its market share in countries
outside Japan as a result of this particular joint venture.
Anheuser-Busch could lose some of its market share to Kirin as a result of explaining
its worldwide expansion strategies to Kirin. However, it appears that Anheuser-Busch
expects the potential benefits of the joint venture to outweigh any potential adverse
effects.
Tài liệu đc cho
a. Explain how the joint venture enabled Anheuser-Busch to achieve its objective
of maximizing shareholder wealth.
Many companies decide to expand their operations internationally in order to be able
to grow their profit margins and maximize shareholder wealth. By engaging in a joint
venture with Japan’s largest brewery, Anheuser-Busch was able to take advantage of
Kirin Brewery distribution channels and facilities to expand its market in Japan.

b. Explain how the joint venture limited the risk of the international business.
There are several risks associated with doing business internationally that can be
mitigated by joint ventures. Some of them include: inexperience, laws and
regulations, infrastructure, cultural and language barriers, and providing after sales
services. By joining Kirin Brewery, Anheuser-Busch minimized these risks. The
Japanese brewery can provide expertise in the target market, knowledge of laws and
regulations, the necessary infrastructure without having to invest huge amounts of
capital; knowledge of the culture and language, as well as customer service.

c. Many international joint ventures are intended to circumvent barriers that

normally prevent foreign competition. What barrier in Japan did Anheuser-
Busch circumvent as a result of the joint venture? What barrier in the United
States did Kirin circumvent as a result of the joint venture?
Anheuser-Busch circumvented tariffs and quotas barriers as well as direct investment
barriers; because it is able to benefit from Kirin’s distribution system in Japan. Kirin
is able to learn more about how Anheuser-Busch expanded its product across various
countries, circumventing information and cultural barriers.

d. Explain how Anheuser-Busch could have lost some of its market share in
countries outside Japan as a result of this particular joint venture.
In joint ventures it is critical that both parties define their products and markets very
well because they are potential competitors of each other. It would have been
beneficial for Anheuser-Busch to demand a non-compete commitment from Kirin in
other markets if they wanted to expand to other markets that Kirin could potentially
reach.