Multinational Financial

Management
Internationalization
Transportation
Communication
It processing
World class economy
Mobility of capital

Global
suppliers

Global Global
Competitors customers

2
Competitive Advantage- Adams Smith

Move 4 m’s internationally

Produce and sell with highest relative

efficiency

3
 Made in 10 countries
Sold in 144 countries

Designed in California

Parts and clothing in Japan,

China, Hong Kong, Malaysia,
Indonesia, Korea, Italy, Taiwan

Assembled in Mexico

4
Swiss Based Pharmaceutical Co.,

Capital London
Equipments Germany
Customers All over the world

5
 Fortune 500
• Motorola
• Gillette
• Dow Chemical
• Colgate Palmolive
• McDonald
• Hewlett Packward
(Majority of earnings from outside countries)

6
 THE RISE OF THE
MULTINATIONAL CORPORATION

I. The MNC: A Definition

– a company with production and distribution
facilities in more than one country.
– with a parent company located in the home
country - incorporated
– foreign subsidiaries

7
THE RISE OF THE MULTINATIONAL
CORPORATION
A. Forces Changing Global Markets
– Massive deregulation
– Collapse of communism
– Privatizations of state-owned industries
– Revolution in information technology
– Wave of M&A
– Emergence of free market policies in Third World
Nations
– Countless nations accepting the standards of free
market capitalism

8
 THE RISE OF THE MULTINATIONAL
CORPORATION
A. The Rise of China as a Global Competitor

• the most dramatic change in the

international economy over the last decade
• the number one destination for foreign
direct investment (FDI)

Note: FDI is the acquisition of assets by foreign

companies
9
 THE RISE OF THE MULTINATIONAL
CORPORATION
B. The Prime Transmitter of Competitive Forces
in the Global Economy: The MNC
• Global coordinated allocation of resources
• Market – entry strategy
• Ownership of foreign operations
• Production, marketing and financial
activities
(84 percent of china’s exports are by MNC’s
in China)

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THE RISE OF THE MULTINATIONAL
CORPORATION
C. The MNC’s Evolution
Reasons to go Global:
1. More raw materials
2. New markets
3. Minimize costs of
production

11
THE RISE OF THE MULTINATIONAL
CORPORATION
RAW MATERIAL SEEKERS
exploit markets in other countries
historically first to appear
modern-day counterparts
British Petroleum
Exxon

12
THE RISE OF THE MULTINATIONAL
CORPORATION
MARKET SEEKERS
Produce and sell in foreign markets
Have heavy foreign direct investors
Vast marketing and distribution network
Global Branding
Represented today by firms such as:
IBM
McDonald’s
Nestle
Levi Strauss
13
THE RISE OF THE MULTINATIONAL
CORPORATION
COST MINIMIZERS
seek lower-cost production abroad
- Out sourcing manufacturing, accounting,
customer complaints, credit evaluation etc.
Their motive: to remain cost competitive
Represented today by firms such as:
Texas Instruments
Intel
Seagate Technology
14
THE RISE OF THE MULTINATIONAL
CORPORATION
What is the MNC?
from a Behavioral View
it’s a state of mind committed to globally
producing,
undertaking investment,
marketing, and
financing.

15
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.

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INTERNATIONAL FINANCIAL
MANAGEMENT

17
 INTERNATIONALIZATION OF
BUSINESS AND FINANCE

I. Globalization
II. Political and Labor Union
Concerns
III. Consequences of Global
Competition:
The acceleration of the global
economy
18
 MULTINATIONAL FINANCIAL
MANAGEMENT

I. The MNC’s Policies

A. Main Objective of MNC:
Maximize shareholder wealth

B. Other Objectives Reflect Its Ability

to Link:
via affiliate transfer mechanisms

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 MULTINATIONAL FINANCIAL
MANAGEMENT
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.
E. Value
The ability to avoid national
taxes has led to controversy.
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 MULTINATIONAL FINANCIAL
MANAGEMENT
II. FUNCTIONS OF FINANCIAL
MANAGEMENT
A. Two Basic Functions:
1. Financing
2. Investing

21
 MULTINATIONAL FINANCIAL
MANAGEMENT
B. Additional Factors Facing the
MNC Executive
1. Political risk
2. Economic risk

22
 MULTINATIONAL FINANCIAL
MANAGEMENT
III. THEORETICAL FOUNDATIONS
A. Useful Concepts from
Financial Economics:
1. Arbitrage
2. Market Efficiency
3. Capital Asset Pricing

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 MULTINATIONAL FINANCIAL
MANAGEMENT
B. Importance of Total Risk
1. Adverse Impact
lower sales and higher costs
2. Justifies hedging activities of MNC
3. Diversification reduces risk

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 MULTINATIONAL FINANCIAL
MANAGEMENT
IV. THE GLOBAL FINANCIAL
MARKET PLACE
A. Inter-linkage by Computers
B. Market Acts as A Global
Referendum Process Where :
Currencies may rise or fall

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 International Financial Mgt
Macro Economic Globalisation and MNC
Environment IMS
BOP
Foundations of FE Market
International financial
International Parity
mgt relationship
And fore casting FE
rates

26
 International Financial Mgt
Financial environment International banking
and money market
World Financial International Bond
markets and Market
institutions Int Equity Market
Futures Options on
Foreign exchange
Swaps
Int PF Investment
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 International Financial Mgt
Management of the MNC Management of economic
FE exposure and management exposure
Transaction
Translation
FM of MNC
FDI
Cross Border Acq
Int. Capital structure
Cost of Capital
Int. Capital Budgeting
Int. Cash Mgt
Exports/Imports
Int. tax env

28