Globalization
and the Multinational Firm.
1. International finance VS domestic
finance
In this resume there two resource that I
can explain :
a . the
first from e-book. In the e-book there are 3 major that distinguish
international finance from domestic finance.
Three major dimensions set international
finance apart from domestic finance. They are:
1.
Foreign exchange and political risks.
2. Market imperfections.
3.
Expanded opportunity set.
Foreign
exchange risk
|
The
risk that foreign currency profits may evaporate in dollar terms due to
unanticipated unfavorable exchange rate movements.
Ex:
·
Suppose $1 = ¥100 and you buy 10
shares of Toyota at ¥10,000 per share.
·
One year later the investment is worth
ten percent more in yen: ¥110,000
·
But, if the yen has depreciated to $1
= ¥120, your investment has actually lost money in dollar terms.
|
Political
Risk
|
Sovereign
(berkuasa) governments have the right to regulate the movement of goods,
capital, and people across their borders. These laws sometimes change in
unexpected ways.
|
Market
Imperfections
|
·
Legal restrictions on movement of
goods, people, and money
·
Transactions costs
·
Shipping costs
·
Tax arbitrage
|
Expanded
Opportunity Set
|
·
It doesn’t make sense to play in only
one corner of the sandbox.
·
True for corporations as well as
individual investors.
|
b.
And the another material come from internet
search is six major factors that
distinguish multinational from domestic financial management :
1. Different
currency denominations.
2. Economic
and legal ramifications.
3. Language
differences.
4. Cultural
differences.
5. Role
of governments.
6. Political
risk.
2. Why
do firms expand into other coutries ?
The reason to expand :
·
To seek new markets.
Because product in domestic has been
saturated.
·
To seek raw materials.
·
To seek new technology.
Corporate to the other corporation to
transfer knowledge. Because technology is easy to obsolete (expired)
·
To seek production efficiency.
In Indonesia, foreign firm can get efficiency
with indonesian’s cheap labor wages.
·
To avoid political and regulatory
hurdles.
·
To diversify.
In 1997 Indonesia affected by crisis and when
Indonesian people have firm in the another country, so the firm didn’t affect
by crisis.
3. Goals
for International Financial Management
I
get two resource about the goal of intrernationam financial :
the
first is :
Maximize Shareholder Wealth
l Long
accepted as a goal in the Anglo-Saxon countries, but complications arise.
n Who
are and where are the shareholders?
n In
what currency should we maximize their wealth?
Other Goals
l In
other countries shareholders are viewed as merely one among many “stakeholders”
of the firm including:
n Employees
n Suppliers
n Customers
l In
Japan, managers have typically sought to maximize the value of the keiretsu—a
family of firms to which the individual firms belongs.
l As
shown by a series of recent corporate scandals at companies like Enron,
WorldCom, and Global Crossing, managers may pursue their own private interests
at the expense of shareholders when they are not closely monitored.
l These
calamities have painfully reinforced the importance of corporate governance
i.e. the financial and legal framework for regulating the relationship
between a firm’s management and its shareholders.
And the second resource are:
Ø the
commonly accepted goal of an MNC is to maximize shareholder wealth.
Ø We
will focus on MNC’s that wholly own their foreign subsidiaries. => financial
managers throughout (melalui) the MNC have a single goal of maximizing the
value of the enire MNC.
-
Conflict with the MNC goal
Ø
Conflict of interest -> the agency
problem. the agency problem exist when a corp.’s shareholder differ from its
managers, a conflicts of goals can exist.
Ø
Agency cost are normally larger for MNC than
for purely domestic firms, due to (dikarenakan):
·
the difficult in monitoring distant
managerss.
·
the different cultures of foreign managers
·
the sheer size of the larger MNCs
·
the tendency to downplay (menyusut) short
term effect.
Ø
Subsidiaries managers may be tempted
(tergoda) to make decision that maximize that values of their respective
(masing-masing) subsidiaries.
5. Impact of Management Control
•
The magnitude
(kekuatan) of agency costs can vary with the management style of the MNC.
•
A centralized
management style reduces agency costs. However, a decentralized style
gives more control to those managers who are closer to the subsidiary’s
operations and environment.
•
Some MNCs attempt
to strike a balance - they allow subsidiary managers to make the key decisions
for their respective operations, but the decisions are monitored by the
parent’s management.
•
Electronic
networks make it easier for the parent to monitor the actions and performance
of foreign subsidiaries.
For example, corporate intranet or internet email
facilitates communication. Financial reports and other documents can be sent
electronically too.
6. Theories of International Business
Why are firms motivated to expand their business
internationally?
ΠTheory of Comparative Advantage by recargo
¤
Specialization by countries can increase
production efficiency.
Imperfect Markets Theory
¤
The markets for the various resources used in
production are “imperfect.”
ΠProduct Cycle Theory
¤
As a firm matures, it may recognize
additional opportunities outside its home country.
International Business Methods
There are several methods by which firms can conduct
international business.
•
International trade
is a relatively conservative approach involving exporting and/or importing.
¤
The internet facilitates international trade
by enabling firms to advertise and manage orders through their websites.
•
Licensing allows a
firm to provide its technology in exchange for fees or some other benefits.
•
Franchising
obligates (mewajibkan) a firm to provide a specialized sales or service
strategy, support assistance, and possibly an initial investment in the
franchise in exchange for periodic fees.
•
Firms may also
penetrate foreign markets by engaging (melibatkan,menggabungkan) in a joint
venture (joint ownership and operation) with firms that reside (bertempat
tinggal) in those markets.
•
Acquisitions
(mengambil alih, takeover) of existing operations in foreign countries allow
firms to quickly gain control over foreign operations as well as a share of the
foreign market.
•
Firms can also
penetrate foreign markets by establishing new foreign subsidiaries.
•
In general, any
method of conducting business that requires a direct investment in foreign
operations is referred to as a direct foreign investment (DFI).
•
The optimal
international business method may depend on the characteristics of the MNC.
8. MNC
A
firm that has incorporated on one country and has production and sales
operations in other countries.
There
are about 60,000 MNCs in the world. Many MNCs obtain raw materials from one
nation, financial capital from another, produce goods with labor and capital
equipment in a third country and sell their output in various other national
markets.
1
|
General
Electric
|
United
States
|
2
|
Vodafone
Group PLC
|
United
Kingdom
|
3
|
Ford
Motor Company
|
United
States
|
4
|
British
Petroleum Co. PLC
|
United
Kingdom
|
5
|
General
Motors
|
United
States
|
6
|
Royal
Dutch/Shell Group
|
UK/Netherlands
|
7
|
Toyota
Motor Corporation
|
Japan
|
8
|
Total
Fina Elf
|
France
|
9
|
France
Telecom
|
France
|
10
|
ExxonMobile
Corporation
|
United
States
|
