Chapter 1 Flashcards
The commonly accepted goal of an MNC is to
maximize shareholder wealth.
Financial managers throughout the MNC have a single goal of maximizing the value of the
entire Multinational Corporation (MNC)
Countries specialize in products that can be produced with relative efficiency and trade them.
Theory of Comparative Advantage
Since markets for the factors of production are imperfect (not freely transferable), firms seek out foreign opportunities.
Imperfect Markets Theory
Firms first establish in the home market, then export, establish foreign subsidiaries, and differentiate or expand product lines in foreign country.
Product Cycle Theory
The marginal returns on MNC projects are above those of purely domestic firms since MNCs have expanded opportunity sets of possible projects from which to select.
Investment opportunities
MNCs can obtain capital funding at a lower cost due to their larger opportunity set of funding sources around the world.
Financing opportunities
involves exporting and/or importing.
International trade
allows a firm to provide its technology in exchange for fees or some other benefits.
Licensing
obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment, in exchange for periodic fees.
Franchising
(joint ownership and operation) with firms that reside in those markets.
Joint venture
of existing operations in foreign countries allow firms to quickly gain control over foreign operations as well as a share of the foreign market.
Acquisitions
- Many MNCs use a combination of methods to increase international business.
- In general, any method of conducting business that requires a direct investment in foreign operations is referred to as a direct foreign investment (DFI).
Establishing new foreign subsidiaries.
International business usually increases an MNC’s exposure to:
- exchange rate movements
- foreign economies
- political risk
