Meeting 1 - Introduction to Multinational Enterprise and Multinational Financial Management
FOUNDATIONS OF MULTINATIONAL FINANCIAL MANAGEMENT
Transcript of FOUNDATIONS OF MULTINATIONAL FINANCIAL MANAGEMENT
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Multinational Financial Management Alan Shapiro7th Edition J.Wiley & SonsPower Points byJoseph F. Greco, Ph.D.California State University, Fullerton
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CHAPTER 1Introduction: Multinational Enterprise and Multinational Financial Management
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CHAPTER OVERVIEW:
I. The Rise of the Multinational Corporation
II. The Internationalization of Business and Finance
III. Multinational Financial Management: Theory and Practice
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PART 1 THE RISE OF THE MULTINATIONAL CORPORATION
I. The MNC: Definitiona company with production and distribution facilities in more than one country.
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THE RISE OF THE MULTINATIONAL CORPORATION
A. Forces Changing Global MarketsMassive deregulationCollapse of communismPrivatizations of state-owned industriesRevolution in information technologyWave of M&AEmergence of free market policiesRise of Big Emerging Markets (BEMs)
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THE RISE OF THE MULTINATIONAL CORPORATION
B. Prime Transmitter of Competitive Forces in the Global
Economy:The MNC emphases group performance
such asGlobal coordinated allocation of resources Market – entry strategyOwnership of foreign operationsProduction, marketing and financial activities
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THE RISE OF THE MULTINATIONAL CORPORATION
C. EVOLUTION OF THE MNCReasons to Go Global:
1. More raw materials2. New markets3. Minimize costs of production
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THE RISE OF THE MULTINATIONAL CORPORATION
RAW MATERIAL SEEKERSexploit markets in other countries
historically first to appearmodern-day counterparts
British PetroleumExxon
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THE RISE OF THE MULTINATIONAL CORPORATION
MARKET SEEKERSproduce and sell in foreign marketsheavy foreign direct investorsrepresentative firms:
IBMMacDonald’sNestleLevi Strauss
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THE RISE OF THE MULTINATIONAL CORPORATION
COST MINIMIZERSseek lower-cost production abroadmotive: to remain cost competitiveTexas InstrumentsIntelSeagate Technology
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THE RISE OF THE MULTINATIONAL CORPORATION
D. THE MNC: A BEHAVIORAL VIEW1. State of mind:committed to producing,undertaking investment andmarketing, and financing globally.
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THE RISE OF THE MULTINATIONAL CORPORATION
E. THE GLOBAL MANAGER1. Understands political and economic differences;2. Searches for most cost- effective suppliers;3. Evaluates changes on
value of the firm.
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Part II The Internationalization of Business and Finance
I. GlobalizationA. Political and Labor Union
Concerns
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The Internationalization of Business and Finance
B. Consequences of Global Competition
Acceleration of the global economy
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PART III. MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE
I. THE MULTINATIONAL FINANCIAL SYSTEMA. Main Objective of MNC: Maximize shareholder wealthB. Other Objectives Reflect Ability to Link:via affiliate transfer mechanisms
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THEORY AND PRACTICEC. 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.
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THEORY AND PRACTICE
E. ValueThe ability to avoid
national taxes has led to controversy.
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THEORY AND PRACTICE
II. FUNCTIONS OF FINANCIAL MANAGEMENT
A. Two Basic Functions:1. Financing2. Investing
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THEORY AND PRACTICE
B. Additional Factors Facing the MNC Executive
1. Political risk2. Economic risk
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THEORY AND PRACTICE
III. THEORETICAL FOUNDATIONSA. Useful Concepts from Financial Economics:1. Arbitrage2. Market Efficiency3. Capital Asset Pricing
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THEORY AND PRACTICEB. Importance of Total Risk1. Adverse Impactlower sales and higher costs2. Justifies hedging activities of MNC3. Diversification reduces risk
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THEORY AND PRACTICE
IV. THE GLOBAL FINANCIAL MARKET PLACEA. Inter-linkage by ComputersB. Market Acts as A GlobalReferendum Process:Currencies may rise or fall