Multinational Financial Management

1
International Banking and Trade Finance
Chpt 1
2
Overview

• Managements goal
• Hurdles to achieving goal
• Theories of international business
• Globalization and trade

3
Multinational Challenges

• Managements goal
• increase shareholder wealth
• new international markets
• small and large companies benefit
• Hurdles to achieving goal
• agency problem
• constraints to business

4
Theories of International Business

• Comparative advantage
• e.g., shoes vs. computers software
• Imperfect markets
• goods and labor not easily transferred
• Product cycle
• domestic production
• export to foreign market
• foreign production

5
Globalization

• Reasons for increased linkages
• international trade and investment
• standardization of products and services
• privatizations
• national airlines, phone companies, mines, power
  plants, etc.

6
International Business Methods

• 1. International trade
• importing and exporting
• 2. Licensing
• MNC provides technology in exchange for goods and
  services (soft drink companies)

7
International Business Methods

• 3. Franchising
• MNC provides expertise and support for a fee
• 4. Joint Venture
• operations owned by complementary firms
• e.g., products of one meshes with distribution
  channels of another

8
International Business Methods

• 5. Acquisitions
• a quick method to obtain market share
• 6. Subsidiaries
• establishing new operations

9
Increased Globalization

• International trade
• Direct foreign investment
• Globalization and profitability

10
International Opportunities and Risk

• Opportunities
• Europe, Mexico, other places
• Risk
• exchange rate fluctuations
• foreign economies
• political risk

11
Summary

• Main goal of MNC is to maximize shareholder
  wealth
• Three theories justify international business
• comparative advantage
• imperfect markets
• product cycle
• Five common methods exist for conducting
  international business