Multinational Financial Management Alan Shapiro 7th Edition J.Wiley & Sons Power Points by Joseph F Greco, Ph.D California State University, Fullerton CHAPTER Introduction: Multinational Enterprise and Multinational CHAPTER OVERVIEW: I The Rise of the Multinational Corporation II The Internationalization of Business and Finance III Multinational Financial Management: Theory and Practice PART THE RISE OF THE MULTINATIONAL CORPORATION I The MNC: Definition a company with production and distribution facilities in more than one country 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 Rise of Big Emerging Markets (BEMs) THE RISE OF THE MULTINATIONAL CORPORATION B Prime Transmitter of Competitive Forces in the Global Economy: The MNC emphases group performance such as Global coordinated allocation of resources Market – entry strategy Ownership of foreign operations Production, marketing and financial activities THE RISE OF THE MULTINATIONAL CORPORATION C EVOLUTION OF THE MNC Reasons to Go Global: More raw materials New markets Minimize costs of production THE RISE OF THE MULTINATIONAL CORPORATION RAW MATERIAL SEEKERS exploit markets in other countries historically first to appear modern-day counterparts British Petroleum Exxon THE RISE OF THE MULTINATIONAL CORPORATION MARKET SEEKERS produce and sell in foreign markets heavy foreign direct investors representative firms: IBM MacDonald’s Nestle Levi Strauss THE RISE OF THE MULTINATIONAL CORPORATION COST MINIMIZERS seek lower-cost production abroad motive: to remain cost competitive Texas Instruments Intel Seagate Technology 10 THE RISE OF THE MULTINATIONAL CORPORATION D THE MNC: A BEHAVIORAL VIEW State of mind: committed to producing, undertaking investment and marketing, and financing globally 11 THE RISE OF THE MULTINATIONAL CORPORATION E THE GLOBAL MANAGER Understands political and economic differences; Searches for most costeffective suppliers; Evaluates changes on value of the firm 12 Part II The Internationalization of Business and Finance I Globalization A Political and Labor Union Concerns 13 The Internationalization of Business and Finance B Consequences of Global Competition Acceleration of the global economy 14 PART III MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE I THE MULTINATIONAL FINANCIAL SYSTEM A Main Objective of MNC: Maximize shareholder wealth B Other Objectives Reflect Ability to Link: via affiliate transfer mechanisms 15 THEORY AND PRACTICE 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 16 THEORY AND PRACTICE E Value The ability to avoid national taxes has led to controversy 17 THEORY AND PRACTICE II FUNCTIONS OF FINANCIAL MANAGEMENT A Two Basic Functions: Financing Investing 18 THEORY AND PRACTICE B Additional Factors Facing the MNC Executive Political risk Economic risk 19 THEORY AND PRACTICE III THEORETICAL FOUNDATIONS A Useful Concepts from Financial Economics: Arbitrage Market Efficiency Capital Asset Pricing 20 THEORY AND PRACTICE B Importance of Total Risk Adverse Impact lower sales and higher costs Justifies hedging activities of MNC Diversification reduces risk 21 THEORY AND PRACTICE IV THE GLOBAL FINANCIAL MARKET PLACE A Inter-linkage by Computers B Market Acts as A Global Referendum Process: Currencies may rise or fall 22 ... Introduction: Multinational Enterprise and Multinational CHAPTER OVERVIEW: I The Rise of the Multinational Corporation II The Internationalization of Business and Finance III Multinational Financial Management: ... Competition Acceleration of the global economy 14 PART III MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE I THE MULTINATIONAL FINANCIAL SYSTEM A Main Objective of MNC: Maximize shareholder... and financial activities THE RISE OF THE MULTINATIONAL CORPORATION C EVOLUTION OF THE MNC Reasons to Go Global: More raw materials New markets Minimize costs of production THE RISE OF THE MULTINATIONAL