Mod 6 - Topic 1 - The Multinational Corporation and Globalisation Flashcards
Multinational corporations face the same risks and opportunities as domestic companies. What additional risks do they face (6) ?
- currency risk
- different tax systems
- different cultures
- rules & regulations of different countries
- tariffs and other restrictions
- different costs of production
What is globalisation?
It is a transition process where a firm starts transacting in home country, then begins to import inputs to production and exports final products, then establishes a presence in a foreign county and then establishes operations there.
Globalisation is also an outcome - explain this?
Closer integration of the countries of the world, especially increased trade and movement of capital brought on by lower costs of transportation and communication.
What are the arguments for globalisation (8)?
- new markets & greater choice
- lower prices driven by competition
- increased growth and productivity
- quality is increased due to competition
- more efficient allocation of resources worldwide
- improves living conditions in poorer countries
- new opportunities created for these countries
- wage improvements generate demand which may create new export opportunities
What are the arguments against globalisation (7)?
- competition created against local companies
- environmental mismanagement
- technical advances decrease demand for labour
- capitalism ignores social welfare (culture)
- companies can shift for lower costs
- companies can shift due to lower tax rates
- weakens national sovereignty and identity
One of the issues of globalisation is that lagging developing countries are not fully sharing in the benefits , why is this the case (+4)?
Because the conditions are not there to allow development, including:
- stable effective government
- policies to encourage foreign investment
- progress towards domestic competition
- improvements in health, education and training
Another issue of globalisation is that white-collar jobs are being off-shored. What are the benefits of this practice for the firm (5) ?
- decrease costs
- increase competitiveness
- lower prices
- lost jobs are routine in nature
- greater flexibility (24/7)
Another issue of globalisation is that white-collar jobs are being off-shored. What are the drawbacks of this practice for the firm (5) ?
- additional costs to manage facilities
- productivity may be lower
- communication is more difficult
- cultural differences
- security breach risks
What is multinational corporation risk?
Risk present only because it transacts business across national borders
What are the multinational corporation risks (10)?
- exchange rates
- blockage of funds and capital
- cultural and religious
- ownership restrictions
- HR restrictions
- intellectual property
- Discrimination
- red tape & corruption
- Social stability (wars)
- Governmental and regulatory risk
What is an exchange rate?
The price of one countries currency in terms of another
What is hedging?
Various ways companies use to protect themselves from a potential loss from currency fluctuation
What are five different hedging techniques?
- Offsetting transactions
- Forward market
- Futures market
- Currency options
- Currency swaps
What is ‘offsetting transactions?
This is where goods of the same amount are exported to the same country as imported in the same period.
What is the forwards market?
Permits a company to buy or sell currency at a specific rate at a specific time, customised to its needs.
