11/11/2018

INTERNATIONAL FINANCE

Tang My Sang

Chapter 1
Multinational Financial
Management:
An Overview

LEARNING OUTCOMES

 To identify the main goal of the multinational

corporation (MNC) and conflicts with that
goal;
 To describe the key theories that justify
international business
 Risks of international business

1
 11/11/2018

MNC’S

International business

International Trade Joint Venture

Acquisition of
Licensing
existing operations
Franchising Establishing new
foreign subsidiaries

INTERNATIONAL TRADE
 Trading rather than investing abroad

 The conservative approach to international

business

 Used to penetrate markets (by exporting)

 Obtain supplies at low cost (by importing)

5

LICENSING

 Involves selling copyrights, patents,

trademarks etc, in exchange for fees
(royalties)

 A company is selling the right to produce

their goods.
6

2
 11/11/2018

FRANCHISING

 The franchisor provides sales, service,

strategy, support and possibly some initial
investment in exchange for periodic fees.

 Managed by local residents

 Allows firms to penetrate foreign markets

without major investment. 7

JOINT VENTURES

Owned and operated by

two or more firms

Many firms penetrate foreign

markets by engaging in a joint
venture with firms that
reside in those markets

Applying their respective comparative

advantages in a given project 8

ACQUISITIONS OF EXISTING
OPERATIONS
Firms frequently acquire other
firms in foreign countries as a
means of penetrating foreign
markets.
Allow firms to have full control
over their foreign businesses and
to quickly obtain a large portion of
foreign market share.

The fastest way to grow. 9

3
 11/11/2018

ESTABLISHING NEW FOREIGN SUBSIDIARIES

Feature Require a large investment

Tailored exactly to the firm’s needs

Need a lot of time

10

OPERATIONAL OBJECTIVES OF MNCS

maximize
shareholder
wealth

Satisfy demand
of government ,
lenders ,
employees

11

CORPORATE CONTROL OF AGENCY PROBLEMS.

Conflict between firm’s manager and

shareholders

Representative cost in multinational companies

is often larger than domestic companies

12

4
 11/11/2018

RESTRICTIONS OBSTRUCT OBJECTIVES

Regulative
Restriction
- Tax
- Money
transaction
- Transfer
income abroad

13

GOVERNANCE STRUCTURE OF A
MULTINATIONAL COMPANY

Centralize
multinational financial
Management

Decentralize
multinational financial
Management
14

CENTRALIZE GOVERNANCE

Manager of
mother company

Cash governance of Cash governance of

subsidiary A subsidiary B

Receivable and Receivable and

inventory subsidiary A inventory subsidiary
governance B governance

Expenditure
Finance in Expenditure in Finance in15
in
subsidiary A subsidiary B subsidiary B
subsidiary A

5
 11/11/2018

DECENTRALIZE GOVERNANCE

Managers of Managers of
subsidiary A subsidiary B

Cash governance of Cash governance of

subsidiary A subsidiary B

Receivable and Receivable and

inventory subsidiary inventory subsidiary
A governance B governance

Finance in Expenditure Expenditure

Finance in
16
subsidiary in in subsidiary
subsidiary B
A subsidiary A B

THEORIES OF INTERNATIONAL BUSINESS

Why are firms motivated to expand

their business internationally?

Theory of Comparative Advantage

 Specialization by countries can increase

production efficiency.

Imperfect Markets Theory

 The markets for the various resources used in

production are “imperfect.”

THEORIES OF INTERNATIONAL BUSINESS

Why are firms motivated to expand

their business internationally?

Product Cycle Theory

 As a firm matures, it may recognize

additional opportunities outside its home
country.

6
 11/11/2018

PRODUCT CYCLE THEORY

19