Lecture-9-MNC+Management

These differences also make it difficult for

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Unformatted text preview: in one country to move easily to another. trained 16 MNCs vs DomesticFinancial Mgt 3. Language differences- The ability to communicate is 3. Language critical in all business transactions, and here U.S. citizens are often at a disadvantage because and they are generally fluent only in English, while European and Japanese business people are usually fluent in several languages, including English. Thus, they can invade US markets more easily than US can Thus, penetrate theirs. penetrate 17 MNCs vs Domestic Financial Mgt Role of governments- Most financial models assume the existence of a competitive marketplace in which the terms of trade are determined by the participants. The government, through its power to establish basic The ground rules, is involved in the process, but its role is minimal. Thus, the market provides the primary barometer of success, Thus, and it gives the best clues about what must be done to remain competitive. remain This view of the process is reasonably correct for the United This States and Western Europe, but it does not accurately describe the situation in most of the world. describe 18 MNCs vs Domestic Financial Mgt Frequently, the terms under which companies compete, the Frequently, actions that must be taken or avoided, and the terms of trade on various transactions are determined not in the marketplace but by direct negotiation between the host government and the multinational corporation. This is essentially a political process, and it must be treated This as such. Thus, our traditional financial models have to be recast to Thus, include political and other noneconomic aspects of the decision. decision. 19 MNCs vs Domestic Financial Mgt Political risk- A nation is free to place constraints on the transfer of corporate resources and even to expropriate transfer without compensation assets within their boundaries. This is political risk, and it tends to be largely a given rather This than a variable that can be changed by negotiation. than Political risk varies from country to country, and it must be addressed explicitly in any financial...
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