California State University, Fullerton Multinational Financial Management Alan Shapiro 10th Edition John Wiley & Sons, Inc. PowerPoints by Joseph F. Greco, Ph.D. California State University, Fullerton

CHAPTER 1 Introduction: Multinational Enterprise and Multinational Financial Management

PART 1 THE RISE OF THE MULTINATIONAL CORPORATION I. The MNC: A Definition a company with production and distribution facilities in more than one country. with a parent company located in the home country at least five or six foreign subsidiaries 3

THE RISE OF THE MULTINATIONAL CORPORATION The MNC’s Evolution Reasons to Go Global: 1. More raw materials 2. New markets 3. Minimize costs of production 4

THE RISE OF THE MULTINATIONAL CORPORATION RAW MATERIAL SEEKERS exploit markets in other countries historically first to appear modern-day counterparts British Petroleum Exxon 5

THE RISE OF THE MULTINATIONAL CORPORATION MARKET SEEKERS Produce and sell in foreign markets Have heavy foreign direct investors Represented today by firms such as: IBM MacDonald’s Nestle Levi Strauss 6

THE RISE OF THE MULTINATIONAL CORPORATION COST MINIMIZERS seek lower-cost production abroad Their motive: to remain cost competitive Represented today by firms such as: Texas Instruments Intel Seagate Technology 7

THE PROCESS OF OVERSEAS EXPANSION I. OVERVIEW: A. Informal Exporting B. Sales Subsidiary C. Creation of Distribution System B. Overseas Production C. Licensing 8

THE PROCESS OF OVERSEAS EXPANSION A. Exporting 1. Minimal cost and risks 2. Low profits 3. Get to know the market

THE PROCESS OF OVERSEAS EXPANSION B. Sales Subsidiary 1. local office 2. greater customer service 3. increased communication

THE PROCESS OF OVERSEAS EXPANSION C. Creation of a Distribution System 1. new service facilities set up 2. create a warehouse system 3. marketing activities within a company’s own distribution system

THE PROCESS OF OVERSEAS EXPANSION D. Overseas Production 1. realize full sales potential 2. keep abreast of market developments 3. fill orders faster 4. greatest risk to the company with greatest potential for profit

THE PROCESS OF OVERSEAS EXPANSION D. Licensing 1. Alternative to setting up local production 2. Less risk than setting up local production 3. Relatively lower cash flow 4. Faster market entry time 5. Maintaining quality standards may be a problem

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