Fin Chapter 19

Chapter 19

What is a multinational corporation? Why do firms become multinational? Are there unique financial management issues that multinational encounter?

Nathan -

What is a multinational corporation? A multinational corporation is a firm that operates in an integrated fashion in a number of countries. Simply put a business that operates in two or more countries.

Why do firms become multinational? They become multinationals for a seven primary reasons (to seek production efficiency; to avoid political, trade, and regulatory hurdles; to broaden their markets; to seek new materials and new technology; to protect processes and products; to diversify; and to retain customers. However, I think the driving force behind becoming a multinational is simply globalization and its inherent competition. The bottom line is, if a firm wants to remain relevant in today’s global economy, it must seek out foreign markets and take advantage of “first-mover opportunities”.

Are there unique financial management issues that multinationals encounter?Absolutely Yes—with the most pervasive issue being the exchange rate and the risk that comes with it. However, a country’s money supply and price inflation are among the major risk factors affecting the exchange rate; not to mention the differences in accounting principles.

James -

A multinational corporation operates in an integrated fashion in a number of counties. They go “international” for these primary reasons.

- To take advantage of cheaper production costs in low-cost countries to improve production efficiencies.

- To avoid political, trade and regulations obstacles.

- To find growth opportunities, when home markets are saturated.

- Better access to raw materials and new technologies.

- For investment opportunities, when they don’t want to share their business practices.

- To diversify and limit adverse economic trends in a single country

- Suppliers follow customers abroad to retain business.

In addition to...