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Question 1

Goal of the MNC

Answer 1

maximize shareholders wealth

Question 2

what is the agency theory

Answer 2

The theory that directors always act in the best interest of shareholders is unrealistic.
The agency theory drops this assumption and accepts that managers of a firm may make decisions that conflict with the firm’s goal to maximize shareholder wealth.

Question 3

Agency problem

Answer 3

when a corporation’s shareholders differ from its managers, a conflict of goals can exist.

Question 4

Agency cost

Answer 4

the costs of ensuring that mangers maximize shareholder wealth

Question 5

International Business Methods (How companies expand )

Answer 5

1.International trade: involves exporting and/or importing
Penetrate markets by exporting
Obtain low cost supplies by importing
2.Licensing: selling copyrights, patents, trademarks, or legal rights in exchange for fees known as royalties. > a company sells the right to produce their goods. allows a firm to provide its technology in exchange for fees or some other benefits > Disney
3.Franchising: provide a specialized sales or service strategy, support assistance for a fee > mcdonads obligates a firm to provide a specialized sales or service strategy, support assistance and possibly an initial investment, in exchange for periodic fees. (McDonalds, expands to other countries
4.Joint ventures: venture operated by two or more firms, joint ownership and operation with firms that reside in those markets > partnership with another company; google and NASA on google earth
5.Acquisitions of existing operations: buy the brand. It allows firms to have full control over their foreign business and obtain a large portion of foreign market share.
6.Foreign subsidiaries: you go to another country and base company on that country.
7.Special Purpose Vehicles: These are separate companies set up by the one or more sponsoring MNCs to exploit a specific project. (as a separate company makes its obligations secure even if the parent company goes bankrupt. It has specific goals)

Question 6

What are the risks of going international?

Answer 6

1. Exposure to exchange rate
2. Exposure to foreign economies: poor economic conditions > high inflation, low demand, high interest rates, labor and material shortage
3. Exposure to political risk: restrictions, policies, government
4. Terrorism and war