AYU BUDI WARDHANI

C1B014048
INTERNATIONAL FINANCIAL MANAGEMENT

MULTINATIONAL CORPORATION
Multinational Corporation (MNC) also called transnational corporation, any corporation that is
registered and operates in more than one country at a time. Generally the corporation has its
headquarters in one country and operates wholly or partially owned subsidiaries in other
countries. Its subsidiaries report to the corporations central headquarters.
In economic terms, the profits of a firm to expand its business to other countries because:
1. A firm want to seek new markets, having a new market to sell to me will mean that,
there will be more growth, or the business can keep selling at maturity level when the
popularity of the product is dwindling in the domestic markets;
2. To seek raw materials, the raw material is a factor which is also very important to the
survival of a company. When a company feel raw materials in the country they are
thinning, the company could take the initiative by going to companies in other
countries that have the required raw materials the company so that the company can
still survive;
3. To seek new technology, the increasingly sophisticated technology used by the
company, the more easy and fast activities performed within the company. Time and
cost efficiency requirements cause the entrepreneurs feel the need to apply new
technology in the company;
4. To seek production efficiency, the less cost and time spent on producing an item, then
production will be more effective;
5. To avoid political and regulatory hurdles, usually there are in a country that has the
political policy which allows a company opens a new business, so it could appeal to
the owners of companies that want to develop;
6. To diversify, a company that does the differentiation in order to compare the results of
the previous product so that the product is getting better results.
In addition, there are six factors that distinguish multinational from domestic financial
management is:
1. Different currency denominations, the flow of cash from its subsidiaries in different
countries made up of different currencies, thus the analysis of exchange rates
(exchange rates) and the influence of the change of currency value to look for in
financial analysis;
2. Economic and legal ramifications, each country where the company operates has
economic and political institutions, and these differences pose a serious problem for
the holding company that wanted to consolidate the operations of its subsidiaries in
different countries;

3. Language different, the ability to communicate is a critical factor in any business

transactions especially for multinational companies. With good language proficiency
allows it to penetrate the market with ease;
4. Culture different, though in one geographical region which seems to be more
homogeneous culture, each country has a unique culture and a very influential
towards the value system and the role of business in society. Multinational
corporations should consider factored this culture especially in the determination of
objectives, risk taking, employment, and their ability to earn a reasonable profit;
5. Role of government, nearly all models in financial management assumes the existence
of a competitive market where terms of trade is determined by market participants.
Meanwhile, the Government was instrumental in creating the ground rules and
minimal participation. This condition is easily found in some developed countries, but
in many developing countries the role of the Government is so big in international
transactions. The role of this great Government due to economic considerations as
well as non economic;
6. Political risk, political risk is the possibility that multinational companies were taken
over by the State where the company is located.
The commonly accepted goal of an MNC is to maximize shareholder wealth. Moreover, we
will focus on MNCs that wholly own their foreign subsidiariesfinancial managers
throughout the MNC have a single goal of maximizing the value of the entire MNC.
Although the MNC has already had a clear purpose, but nonetheless there are conflicts that
could blocking the achievement of the goals of the MNC, such as:
1. For corporations with shareholders who differ from their managers, a conflict of goals
can exist - the agency problem.
2. Agency costs are normally larger for MNCs than for purely domestic firms.
The sheer size of the MNC,
The scattering of distant subsidiaries,
The culture of foreign managers,
Subsidiary value versus overall MNC value.