What is a MNC?

MNC Multi National Corporation

Defined as any company that engages in
some type of international business
Engage in International financial
Management i.e. investing and financing
decisions

What is the goal of a MNC?

Maximization of Shareholder wealth
Sometimes MNC managers make
decisions that conflict with the overall goal
of the organisation. These are called
Agency problems
The costs of ensuring that managers
maximize shareholder wealth are called
Agency costs

Controlling Agency problems

Parent Control clearly communicate
goals to subs and implement manager
compensation which is directly linked to
the goal congruence
Corporate control Large institutional
investors can influence the management of
a company.

Management styles of the MNC?

Centralized All decisions made by parent
Decentralized- Decisions made by
subsidiaries
Hybrid A mix of the above that attempts
to allow sub managers to make their
respective decisions while monitoring them
closely at the parent level

Why engage in International

Business?
Theory of Competitive Advantage
Imperfect Markets Theory
Product Cycle Theory

Ways of Engaging in International

Business
International Trade Exporting and
Importing
Licensing A firm provides its technology
for some benefit. This requires no major
investment, but there may be quality
control issues
Franchising Similar to licensing, but
usually applies to a specialized
service/product

Ways of Engaging in International

Business contd
Joint Ventures
Acquisitions of existing Companies
Quick way to penetrate foreign market
Establishing New Foreign Subsidiaries
Takes longer, but can be tailored
according to parent company needs.

Valuing a MNC
Value of Domestic Firm
V= PV of Future cashflows (discount rate is
cost of capital )

Valuing International cashflows

Foreign cashflows need to be converted to
home currency at expected exchange rate at
the end of the period.

Uncertainty Surrounding an
MNCs cash flows
International Economic conditions
Intenational Political Risk
Exchange Rate risk