Unformatted text preview: in one country to move easily to another.
16 MNCs vs DomesticFinancial Mgt 3. Language differences- The ability to communicate is
critical in all business transactions,
and here U.S. citizens are often at a disadvantage because
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
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
ground rules, is involved in the process, but its role is
Thus, the market provides the primary barometer of success,
and it gives the best clues about what must be done to
This view of the process is reasonably correct for the United
States and Western Europe, but it does not accurately
describe the situation in most of the world.
18 MNCs vs Domestic Financial Mgt Frequently, the terms under which companies compete, the
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
Thus, our traditional financial models have to be recast to
include political and other noneconomic aspects of the
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
without compensation assets within their boundaries.
This is political risk, and it tends to be largely a given rather
than a variable that can be changed by negotiation.
Political risk varies from country to country, and it must be
addressed explicitly in any financial...
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