What is a MNC?

MNC – Multi National Corporation

Defined as any company that engages in

some type of international business

Engage in International financial

Management i.e. investing and financing
decisions
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 What is the goal of a MNC?

• Maximization of Shareholder wealth

• Sometimes MNC managers make
decisions that conflict with the overall goal
of the organisation. These are called
Agency problems
• The costs of ensuring that managers
maximize shareholder wealth are called
Agency costs

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 Controlling Agency problems

• Parent Control – clearly communicate

goals to subs and implement manager
compensation which is directly linked to
the goal congruence
• Corporate control – Large institutional
investors can influence the management of
a company.

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Management styles of the MNC?

• Centralized – All decisions made by parent

• Decentralized- Decisions made by
subsidiaries
• Hybrid – A mix of the above that attempts
to allow sub managers to make their
respective decisions while monitoring them
closely at the parent level

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 Why engage in International
Business?

• Theory of Competitive Advantage

• Imperfect Markets Theory
• Product Cycle Theory

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 Ways of Engaging in International
Business

• International Trade – Exporting and

Importing
• Licensing – A firm provides it’s technology
for some benefit. This requires no major
investment, but there may be quality control
issues
• Franchising – Similar to licensing, but
usually applies to a specialized
service/product
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 Ways of Engaging in International
Business cont’d

• Joint Ventures
• Acquisitions of existing Companies –
Quick way to penetrate foreign market
• Establishing New Foreign Subsidiaries
– Takes longer, but can be tailored
according to parent company needs.

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 Valuing a MNC

• Value of Domestic Firm

• V= PV of Future cashflows (discount rate is
cost of capital )
• Valuing International cashflows
• Foreign cashflows need to be converted to
home currency at expected exchange rate at
the end of the period.

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 Uncertainty Surrounding an
MNC’s cash flows
• International Economic conditions
• Intenational Political Risk
• Exchange Rate risk

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