Usec Inc. Case

L1: An Introduction to Multinational Finance

Goals of the Multinational Corporation

• Stakeholders

Shareholder maximisation is far from the only objective of the MNC. Other stakeholders (suppliers, customers, employees, managers, debt holders, society – anyone with an interest in the company) have interests in the firm which are in conflict with shareholder wealth maximisation.

• Agency costs

Agency costs refer to any loss in value from conflicts of interest between managers and other stakeholders; mainly shareholders.

The presence of agency costs does not mean managers will not act in the best interest of shareholders; just that it is costly to encourage them to do so.

Countries differ in the extent to which they protect each of these stakeholders.

• Socialist countries place emphasis on employee welfare

• Some countries emphasise environmental welfare, others promote economy detriment to the local environment.

The Challenges of Multinational Operations

• Recognizing and Overcoming Cultural Differences

Managers and employees of an MNC must deal with unfamiliar business and different cultures as they seek to extend the firm’s competitive advantage into new and unfamiliar markets.

Basic cultural differences:

• Language – interpretation

• Body language – eye contact, greetings

Differences in the functional areas of business:

• Differences in legal, accounting and tax systems ( unfamiliar tax laws, accounting and legal conventions, and business procedures.

• Differences in personnel management ( must adapt human resource management

• Differences in marketing ( different ways of persuasion for different cultures

• Differences in distribution ( some cultures do not trust ‘impersonal’ discount stores and only shop from local family owned businesses

• Difference in financial markets ( Islamic banking customs, depositors do not receive set rate of return, instead get a...