Mid-Term Review (Chs 1-4) - Chapter 1 Current Multinational...

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Chapter 1 – Current Multinational Challenges and the Global Economy MNEs strive to take advantage of imperfections in national markets for products, factors of production, and financial assets The ‘marketplace’ consists of three elements: assets (government securities), institutions (e.g. banks), and linkages to provide the medium for exchange (e.g. LIBOR) Reasons for a firm to go multinational: market seeker – produce in local markets either to satisfy local demand or to export to markets other than their own; raw materials seeker – search for cheaper / more abundant materials in another country; production efficiency seeker – because production is cheaper in another country; knowledge seekers – to gain access to new technologies or managerial expertise; political safety seekers – establish operations in a country where expropriation and enterprise interference is unlikely Global Transitioning Phases: I. The domestic to international trade phase (foreign exchange risks are now borne and credit risk management to assess credit worthiness of foreign buyers and sellers must be emphasized); II. The international trade phase to multinational phase (firm must now establish foreign sales and service affiliates). Once the firm owns assets and acquires foreign subsidiaries, it will have finally entered the multinational phase of globalization The Foreign Direct Investment Sequence: The variety of strategic options available to a firm during the global transitioning process sequence, including: creating foreign sales offices, licensing agreements, manufacturing, etc. The creation of value requires (3) things: an open marketplace, high quality strategic management, and access to capital Chapter 2 – Financial Goals and Corporate Governance Two major forms of management goals: 1. Shareholder wealth maximization 2. Stakeholder capitalism. Western markets typically hold the philosophy that a firm’s objective should follow the shareholder wealth maximization (SWM) model. Conversely, controlling shareholders (other parts of the world) also strive to maximize long-term returns to equity. The stakeholder capitalism model takes on the view that all of a corporation’s stakeholders (employees, suppliers, local community, government, and creditors) must be considered in addition to the equity holders. SCM gives importance to total risk (which includes both operating and financial risk)

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