1. MULTINATIONAL FINANCIAL MANAGEMENT
Alan C. Shapiro
Sixth Edition
POWER POINT LECTURES:
J. F. GRECO, Ph.D.
California State University, Fullerton

2. CHAPTER OVERVIEW: Part I. The Rise of the Multinational Corporation
CHAPTER 1 Introduction: Multinational Enterprise and Multinational Financial Management
CHAPTER OVERVIEW:
Part I. The Rise of the Multinational Corporation
Part II. Multinational Financial Management: Theory and Practice

3. PART I. THE RISE OF THE MULTINATIONAL CORPORATION
I. The MNC: Definition
a company with production and distribution facilities in more than one country.

4. THE RISE OF THE MULTINATIONAL CORPORATION
B. Traditional Economic Theory
1. Classical Theory:
a. Smith, Ricardo
b. Comparative Advantage:
macroeconomic differences

5. THE RISE OF THE MULTINATIONAL CORPORATION
2. MNC supercedes theory relating to:
a. mobility of factors
b. different costs/skills
between nations

6. THE RISE OF THE MULTINATIONAL CORPORATION
C. EVOLUTION OF THE MNC
Reasons to Go Global:
1. raw materials
2. markets
3. minimize costs of production

7. THE RISE OF THE MULTINATIONAL CORPORATION
RAW MATERIAL SEEKERS
exploit markets in other countries
historically first to appear
modern-day counterparts
Anaconda Copper
Standard Oil

8. THE RISE OF THE MULTINATIONAL CORPORATION
MARKET SEEKERS
produce and sell in foreign markets
heavy foreign-direct investors
representative firms:
IBM
Nestle
Levi Strauss

9. THE RISE OF THE MULTINATIONAL CORPORATION
COST MINIMIZERS
seek lower-cost production abroad
motive: to remain cost competitive
representative firms:
Texas Instruments
Atari
Zenith

10. THE RISE OF THE MULTINATIONAL CORPORATION
II. THE PROCESS OF OVERSEAS EXPANSION
A. Exporting:
preferred market entry strategy
1. Advantages:
low cost
low risk
learning opportunity

11. THE RISE OF THE MULTINATIONAL CORPORATION
2. Disadvantages
inability to realize full
sales potential
3. Use of:
a. Foreign agents
b. Sales subsidiaries
c. Distribution system

12. THE RISE OF THE MULTINATIONAL CORPORATION
B. OVERSEAS PRODUCTION
greater commitment to the local market
1. Advantages:
a. Increased sales
b. Supply stability
c. Control
d. Comprehensive service

13. THE RISE OF THE MULTINATIONAL CORPORATION
2. Question:
create or acquire
3. Acquisition
-allows speedy transfer of unused parent skills;
-used more by small firms.

14. THE RISE OF THE MULTINATIONAL CORPORATION
C. LICENSING
-local firm agrees to produce for a fee.
1. Advantages:
a. Minimum investment
b. Faster market entry
c. Less risk

15. THE RISE OF THE MULTINATIONAL CORPORATION
2. Disadvantages of licensing:
a. Low cash flow
b. Quality standards
c. New competitor

16. THE RISE OF THE MULTINATIONAL CORPORATION
D. THE MNC: A BEHAVIORAL VIEW
1. State of mind:
committed to producing,
undertaking investment and marketing, and financing globally.

17. 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.

18. PART II. 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

19. 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.

20. THEORY AND PRACTICE
E. Value
The ability to avoid national taxes has led to controversy.

21. THEORY AND PRACTICE II. FUNCTIONS OF FINANCIAL MANAGEMENT
A. Two Basic Functions:
1. Financing
2. Investing

22. THEORY AND PRACTICE B. Additional Factors Facing the MNC Executive
1. Political risk
2. Economic risk

23. THEORY AND PRACTICE III. THEORETICAL FOUNDATIONS
A. Useful Concepts from Financial Economics:
1. Arbitrage
2. Market Efficiency
3. Capital Asset Pricing

24. THEORY AND PRACTICE B. Importance of Total Risk 1. Adverse Impact
lower sales and higher costs
2. Justifies hedging activities of MNC
3. Diversification reduces risk

25. THEORY AND PRACTICE IV. THE GLOBAL FINANCIAL MARKET PLACE
A. Interlinkage by Computers
B. Market Acts as A Global
Referendum Process:
Currencies may rise or fall