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MULTINATIONAL FINANCIAL MANAGEMENT
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The Rise Of Multinational Corporation
As per theory of comparative advantage, developed by Adam Smith and David Ricardo, each nation should specialise in the production and export of those goods that it can produce with highest relative efficiency and import those goods that other nations can produce relatively more efficiently

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The Rise Of Multinational Corporation
It assumes that goods and services can move internationally but factors of production, such as capital, labour, and land are relatively immobile It also ignores the role of uncertainty, economies of scale, transportation and technology in international trade

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The Rise Of Multinational Corporation
During the 1980s and 1990s, fundamental forces have changed the global competitive environment:  Massive deregulation  The collapse of Communism  The sale of public sector – privatisation
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The Rise Of Multinational Corporation
 The revolution in information technologies

 The rise in the markets for mergers and
takeovers  Free-market policies in Third World nations
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The Rise Of Multinational Corporation
In effect, the traditional world economy in which products are exported has been replaced by one in which value is added in several different countries The prime transmitter of competitive forces in the global economy is the multinational corporation
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The Rise Of Multinational Corporation
Internationalisation of business is facilitated by a combination of factors:

 Falling regulatory barriers to overseas
investment  Rapidly declining telecommunications and transport costs  Freer domestic and international capital markets
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The Rise Of Multinational Corporation
A multinational corporation (MNC) is a company engaged in producing and selling goods or services in more than one country It ordinarily consists of a parent company located in the home country and at least five or six foreign subsidiaries

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The Evolution Of Multinational Corporation
Raw Material Seekers: - The earliest multinationals - Their aim was to exploit the raw materials that could be found overseas ( Cotton / Oil)

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The Evolution Of Multinational Corporation
Market Seekers: -He is the archetype of the modern multinational firm that goes overseas to produce and sell in foreign markets ( IBM/Volkswagen/Unilever)

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The Evolution Of Multinational Corporation
Cost Minimisers: - A fairly recent category - Seek out and invest in lower cost production sites overseas to remain cost competitive both

at home and abroad
( GE/ Intel/American Express)
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The Challenges before an MNC
 Multiplicity and complexities of the taxation system  Diversity of medium of financing

 Political risk
 Foreign exchange risk  Currency and institutional diversity

 Diversity of physical environment
 Ethical conflicts
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The Opportunities before an MNC
 Multiplicity of tax systems  Diversity of medium of financing  Currency and institutional diversity  Diversity of physical forces

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The Multinational Corporation

The essential element that distinguishes the true multinational is its commitment to seeking out, undertaking, and integrating manufacturing, marketing, R&D, and financing opportunities on a global, not domestic, basis

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The Multinational Corporation
Necessary compliments to the integration of worldwide operations are: flexibility, adaptability and speed – the ability to develop, make, and distribute products or services - enables companies to capture customers who demand constant innovation and rapid, flexible response
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The Multinational Corporation

Focus – figuring out and building on what a company does best i.e. divesting unrelated business activities and concentrate on core business

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The Global Manager
GE Chairman Jack Welch,

“ I’m not here to predict the world. I’m here to be sure I’ve got a company that is strong enough to respond to whatever happens.”
MNCs need a new breed of business person: the Global Manager
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The Global Manager

Global managers must know how to make the products, where the raw materials and parts come from, how they get there, the alternatives, where the funds come from, and what their changing relative values do to the bottom-line

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The Global Manager

They must also understand the political and economic choices facing key nations and how those choices will affect the outcomes of their decisions

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Multinational Financial Management

The main objective of multinational financial management is to maximise shareholder wealth as measured by share price

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Multinational Financial Management
Financial management is traditionally separated into two functions:

1. Financing decision – generating funds at the lowest possible costs
2. Investment decision – allocation of funds in such a way that shareholder wealth is maximised
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Multinational Financial Management
The Global finance manager has to focus his attention to:  Capital market imperfections  Asymmetries in tax treatment  Sources of revenues and costs
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World’s Top 10 MNCs
Based on the companies' fiscal year ended on or before 31 March 2011
Rank Company Country Field

1
2 3 4 5

Wall Mart Stores
Royal Dutch Shell Exxon Mobil BP Sinopec

USA
Netherlands USA UK China

Retail
Petroleum Petroleum Petroleum Petroleum

6
7 8 9

China National Petroleum
State Grid Toyota Motor Japan Post Holdings

China
China Japan Japan

Petroleum
Power Automobiles Diversified

10

Chevron

USA

Petroleum
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Top 10 countries with the most Global 500 companies, 2011
Rank 1 2 3 4 5 6 7 8 9 10 Country USA Japan China France Germany UK Switzerland South Korea Netherlands Canada Companies 133 68 61 35 34 30 15 14 12 11
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GOOD LUCK TO YOU
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