Intl Finance, Lecture 1

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Intl Finance, Lecture 1

• Old Thinking Buy American (1950s)
• New Thinking Buy the best product no matter
  where it is produced.
• The consumer wants world class products at
  aggressively lower prices. Mindset is important.
• Leads to export of jobs
• Your competition may well come from overseas

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Lecture 1, Continued

• Examples
• Big Steel dinosaur gt paid the price.
• Big 4 Automakers closed mind gt paid the price.
• RCA, Sylvania, Emerson TV failure to make
  investment in RD gt paid the price.

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Lecture 1, Continued

• Why are you here?
• To learn from the mistakes made by others.
• To learn to think strategically and globally.
• You compete globally whether you realize it or
  not.
• Be nimble or be history.

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Lecture 1, Continued

• A multinational Corporation is a company engaged
  in producing and selling goods and/or services in
  more than one country.
• Examples GM, IKEA, NOKIA, TOYOTA
• Doctrine of Comparative Advantage
• Classical trade theory (in the old days)
• Difference between countries matter. French wine,
  English Wool.
• Differences between corporations dont matter.

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Lecture 1, Continued

• Classical Trade Theory in todays world
• Differences among corporations matter.
• Differences among countries dont matter.
• Why?
• Goods and Services are mobile.
• While Factors of Production (Capital, Labor,
  Land) are relatively immobile, corporations are
  getting the capital and raw materials to the
  labor for assembly

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Lecture 1, Continued

• Differences between corporations matter
• Aggressive, nimble, global mindset
• Differences between countries dont matter
• Core nations now more homogeneous wrt to
  standards of living. Lifestyles are similar,
  resource endowments are not as important in
  knowledge-intensive societies, skills are global
  in nature. People around the world possess the
  skills corporations need---Need for Education.

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Lecture 1, Continued

• Americas Strong Points
• Individualism Entrepreneurship
• Advanced education is valued
• Improved Communication and Info Transfer
• Deregulation (spreading globally)
• The Rest of the World
• Collapse of Communism
• Privatization

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Lecture 1, Continued

• The Rest of the World Continued
• Improved Communication and Info Transfer.
• Consolidation (NAFTA, EU) (Efficiency and clout).
• Rise of Free-Market Policies.
• Vicious Competition
• Restructuring (consolidation)
• Investing heavily in technology

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Lecture 1, Continued

• Exhibit 1.1 (page 9) shows the increase in the
  growth in investment overseas by U.S. firms and
  foreign investment in the U.S.
• Why do U.S. MNCs go abroad
• Raw Material Seekers (earliest multinationals)
• Examples Mining Companies, Oil Companies
• Market Seekers (Coke, Buick, McDonalds)
• Old Days U.S. firms went abroad
• Today U.S. and Foreign Direct Investment.
• Cost Minimizers

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Lecture 1, Continued

• Characteristics of a Multinational Corporation
• Speed and ability to adapt and adjust
• Bill Welch, GE does not necessarily have the
  ability to forecast change, but can adjust to it
  quickly.
• The Limited New Idea to Product on the floor in
  60 days
• Integrated Thinking (i.e., world perspective to
  operations keeping political and economic risk in
  mind)
• What products to sell, Where to produce these
  products
• Where to obtain financing, Where to obtain raw
  materials
• Where to find employees

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Lecture 1, Continued

• Global competition is a win-win situation
• Improves global standard of living
• Lowers the cost to the consumer
• Can improve sales of American Goods and thus
  improve employment
• Supports Democracy (countries that do not invest
  in improving their legal systems
  (accountability)) will risk Capital Flight

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Lecture 1, Continued

• Markets bring sanity even to nations run by
  corrupt elites.
• Clinton Even a totally controlled society
  cannot resist the winds of change that economics
  and technology and information flow have imposed
  in this world of ours.
• Humanity, in general, makes economically rational
  decisions---Homo Economus

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Lecture 1, Continued

• Risks Unique to a MNC
• Exchange rate risk and inflation
• Differential tax rates
• Multiple currencies
• Currency controls and other political risks (like
  expropriation)

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Lecture 1, Continued

• Opportunities unique to a MNC
• International diversification multiple niches
  like GEs CAT Scanners
• International markets for products
• International markets for raw materials
• International markets for labor
• International markets for capital
• International markets for ideas