TOPIC 1

MNCs & MULTINATIONAL

FINANCIAL MANAGEMENT

INNOVATION = INVENTION X COMMERCIALIZATION

CHAPTER ONE OVERVIEW

• Goals of MNCs
• The changing nature of the multinational enterprises
• “INTERNATIONAL” Financial Management?
• Multinational Financial Management: Theory & practice

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 - Công ty mẹ có thể chiếm 10%-100% VCSH trong cty con là tốt.
- Apple là vd tốt nhất cho mô hình quản trị dòng tiền.

MULTINATIONAL CORPORATION
• MNCs play a key role in world trade and carry huge
economic and political influence. At the onset of the
most recent recession, there were over 80,000 MNCs
employing over 77 million workers, accounting for
one‐third of the total world exports
(UNCTAD, 2009, 2010).
• MNCs are reshaping the structure of the world
economy.
– The true MNCs emphasizes group performance
– Companies are increasingly using offshore outsourcing as https://chiefexecutive.net/secrets-of-mini-multinationals/
a way of saving costs and boosting productivity.
EVOLUTION OF MNCs
1. Search for Raw Material 4. Knowledge Seeking
2. Market Seeking 5. Keeping Domestic Customers
3. Cost Minimization 6. Exploiting Financial Market Imperfections

CHANGING NATURE OF MNCs

1. The rise of non-U.S. multinationals

2. The growth of mini-multinationals.

3. New technology and Business models mean that companies can go

global from day one and use their small scale to compete in the big
league.
→ Democratising business

→ Not just tech

→ A plurality of products and services

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 BUSINESS GOALS?
→ Any profit-seeking organization that provides goods and services
designed to satisfy customers’ needs.

→ Social Enterprise: Business? Tối đa hóa doanh thu

Tối thiểu hóa cổ phiếu
Tối thiểu hóa số thuế
→ NGO? => Tối đa hóa giá trị

→ Nonprofit Organization? Fulbright University Vietnam

MULTINATIONAL CORPORATION

Goal of MNCs is maximizing shareholder’s wealth

 The SWM model – Shareholder Wealth Maximization (US

company)

 The CWM model – Corporate Wealth Maximization (European &

Japanese company): requires a single goal of value maximization
with a well-defined score card
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 OTHER GOALS
cổ đông
• In other countries shareholders are viewed as merely one among
many “stakeholders” of the firm including:
 Employees
 Suppliers
 Customers
• In Japan, managers have typically sought to maximize the value
of the keiretsu—a family of firms to which the individual firms
belongs.
• The profit Zone – what is the profit model?
Mô hình lợi nhuận

WHAT IS THE STUDY OF INTERNATIONAL FINANCE?

• Making investment and financing

• Decisions in a global market

• Cash flows associated with these decisions

• Risks associated with these cash flows

• The international financial markets

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 WHAT’S SPECIAL ABOUT “INTERNATIONAL” FINANCE?

• A changing Business World

• Political Risk

• Foreign Exchange Risk

• Market Imperfections Tính không hoàn hảo của thị trường

• Expanded Opportunity Set

INTERNATIONAL FINANCIAL MARKET

• Involves the study of:

– Exchange rate regimes
– Financial institutions
– Financial instruments
– International finance models
– Current international finance issues.
• The focus is to understand how The markets, instruments,
risks and rewards affect investment and financing decisions

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 OPERATING & FINANCING CASH FLOWS

Financial Cash Flows

Dividend paid to parent
Parent invested equity capital
Interest on intrafirm lending
Intrafirm principal payments
công ty mẹ công ty con

Parent Subsidiary

Payment for goods & services

Rent and lease payments
Royalties and license fees
Management fees & distributed overhead

Operational Cash Flows 11

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Dividends
Fees, Royalties, corporate overhead for services
Interest and repayment of credit/loan
Equity investment
Loans
Credit on goods and services

Capital goods
Technology
Management
Intermediate goods
Finished goods
Technology/market intelligence
Financial
flows

đồng tiền trên hóa đơn

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Alan C Sharpiro, Multinational Financial Management, 11th edition, Willey & son

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 MULTINATIONAL FINANCIAL MANAGEMENT

− MNC has considerable freedom in selecting the financial channels

through which funds and allocated profits are moved.
− MNCs have some flexibility regarding the timing of fund flows.
− The different modes of internal fund transfers available to the MNC
− Timing flexibility
− Value

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FOUNDATIONS OF INTERNATIONAL FINANCIAL MANAGEMENT

• Three basic concepts provide the foundation for study of international

finance: arbitrage, market efficiency, and capital asset pricing model
• Arbitrage: Taxes arbitrage, risk arbitrage, currency arbitrage… financial market arbitrage,
regulatory system arbitrage,
• Market efficiency:
– An efficient market is one which new information is readily incorporated
in the price of traded securities . In an efficient market can not expect to
prosper by finding overvalued or undervalued assets.
– All funds require the same risk-adjusted returns
– Absent tax consideration or government intervention, market efficiency
suggests that there are no financing bargains available

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 ROLE OF THE FINANCIAL EXECUTIVE IN AN EFFICIENT MARKET

• Financial executives of MNCs face added political and

economic risks, as well as more complex tax laws and
multiple money markets.
• Financial managers can create value by taking advantage
of capital market imperfections and tax asymmetries

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INTERNATIONAL OPPORTUNITIES

Cost-benefit Evaluation for

Purely Domestic Firms versus MNCs
Purely
Investment
Domestic
Opportunities MNC
Marginal Firm
Return on
Projects MNC
Purely
Marginal Domestic
Cost of Firm
Capital
Financing Appropriate Size for
Opportunities Purely Domestic Appropriate Size for
Firm MNC

X Y Asset Level
of Firm
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 VALUATION MODEL FOR MNC
• DOMESTIC MODEL

 m 
  E (CF $ , t ) 
n
 j =1 
Value =   
t =1  (1 + k )t 

 

E (CF$,t ) = expected cash flows to be received at the end of period t
n = The number of periods into the future in which cash flows
received
k = the required rate of return by investors

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VALUATION MODEL FOR MNC

• VALUING INTERNATIONAL CASH FLOWS

 m 
n   E (CF j , t )  E (ER j , t )
 j =1 
Value =   
t =1  (1 + k ) t


 

E (CFj,t ) = expected cash flows denominated in currency j to be
received by the U.S. parent at the end of period t
E (ERj,t ) = expected exchange rate at which currency j can be converted
to dollars at the end of period t
k = the weighted average cost of capital of the U.S. parent
company

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 QUESTION?
1. Why is it important to study international financial management?
2. How is international financial management different from domestic financial
management?

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OPPORTUNITY COST #
The opportunity cost of good X in Number of units of good Y/
term of good Y = Number of units good X

Product #1 Product #2 Opportunity Cost

$1 buys 2 candies $1 buys 4 stamps 1 candy = 4/2 = 2 stamps 1 stamp =2/4=0.5 candies

$1,000,000 buys 4 $1,000,000 buys 10 1 car = 10/4 = 2.5 boats 1 boat =4/10=0.4 cars
cars boats

Output /hour = 25 Output /hour = 5 1 calculator = 5/25=0.2 1 computers = 25/5= 5 calculators

calculators computers computers

1 worker can produce 1 worker can produce 1 lbs of wheat = 2000/8000 = 1 lbs of cotton = 8000/2000 = 4 lbs
8000lbs of wheat 2000lbs of cotton 0.25lbs of cotton of wheat

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 IN-CLASS EXERCISE # 1
TOTAL OUTPUT PER WORKER
COMPUTERS CALCULATORS
USA 10 2000
UK 12 3000
OPPORTUNITY COST
Cost of CAL (in term of Com.) Cost of Com (in term of Cal.)

USA 0.005 200 (EXPORTER)

UK

1COM=180 CAL.
1 CAL=0.0038 COM
1COM=260 CAL.
1 CAL=0.0055 COM

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SOLUTION IN-CLASS EXERCISE # 2

TOTAL OUTPUT PER WORKER
COFFEE TEA
BRAZIL 9000 lbs 300 lbs
CHINA 5000 lbs 200 lbs
OPPORTUNITY COST
Cost of TEA (in term of Cof) Cost of Cof. (in term of tea)

BRAZIL
CHINA
BRAZIL CHINA
1 pound of tea = 32 lb Cof.
1 pound of cof = 0.035 lb tea
1 pound of cof = 0.065 lb tea
1 pound of tea = 20 lb Cof.

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 IN-CLASS EXERCISE # 3
TOTAL OUTPUT PER WORKER
FOOD (F) CLOTHING (C)
USA 400 10
GERMANY 1000 20
OPPORTUNITY COST
COST OF F (in term of C) COST OF C (in term of F)
USA
GERMANY
USA GERMANY
1C=35F
1F=0.04C
1F=0.01C
1C=52F

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