CONTENTS

Nguyen Thi Dieu Chi – Multinational Business Finance

Chapter 1. Multinational Financial Management: An Overview

Chapter 2. Exchange Rate Risk Management
Chapter 3. Multinational Cash Management
Chapter 4. Multinational Capital Budgeting
Multinational Business Finance Chapter 5. International Capital Structure and the Cost of Capital

Multinational Corporate Finance Chapter 6. Short-Term Financing

Chapter 7. Foreign Direct Investment and Cross Border Acquisitions

School of Banking and Finance

Nguyen Thi Dieu Chi Assoc. Prof. Dr. 2

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REFERENCES
Nguyen Thi Dieu Chi – Multinational Business Finance

- Course books:
[1] Phan Duy Minh (2010), Giáo trình Quan trị tài chính công ty đa quốc gia,
Học viện Tài chính.
[2] David K.Eiteman, Arthur I. Stonehill, Michael H.Moffet (2011),
Multinational Business Finance, 14th Edition, Pearson. Chapter 1
- References:
[1] Cheol. S. Eun and Bruce G. Resnick (2015), International Financial
Management, 7th Edition, McGraw Hill/Irwin.
Multinational Financial
[2] Jeff Madura (2013), Cheol. S. Eun and Bruce G. Resnick (2015),
International Financial Management, 7th Edition, McGraw Hill/Irwin Management: An Overview
International Financial Management, 12th Edition, South Western.

School of Banking and Finance

3 Nguyen Thi Dieu Chi Assoc. Prof. Dr.

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CONTENTS Multinational corporations

Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance

Multinational corporations A multinational enterprise (MNE) is defined as one that has

Formation of multinational corporation operating subsidiaries, branches or affiliates located in foreign

countries.
Goal of multinational corporation
The ownership of some MNEs is so dispersed internationally that
Agency Problems
they are known as transnational corporations.
Management Structure of an MNC The transnationals are usually managed from a global perspective
Theories of International Trade rather than from the perspective of any single country.
Examples: Coca Cola, Wal-mart, Sony, Toyota v.v…
International Business of MNC

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 Top 10 multinational companies International sales statistics
Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance

1 General Electric United States Foreign Foreign Net Net Foreign Foreign
Revenue Revenue Profit Profit Assets Assets
2 Vodafone Group PLC United Kingdom ($ billions) (% of total ($ billions) (% of total ) ($ billions) (% of total )
)
3 Ford Motor Company United States ExxonMobil 143.0 69% 10.2 60% 56.7 63%
4 British Petroleum Co. PLC United Kingdom Ford 51.2 30% -0.6 NA 19.9 43%
IBM 51.2 58% 3.9 48% 14.3 40%
5 General Motors United States
General Motor 48.2 26% 2.9 61% 12.6 36%
6 Royal Dutch/Shell Group UK/Netherlands Chevron 31.4 45% 2.7 52% 27.1 53%
7 Toyota Motor Corporation Japan Hewlett-Packard 27.2 56% 2.2 61% 2.2 50%
Procter & Gamble 19.9 50% 1.5 42% 17.0 50%
8 Total Fina Elf France
Intel 19.8 59% 3.6 34% 3.9 26%
9 France Telecom France Motorola 19.7 53% 1.6 74% 16.8 40%
10 ExxonMobile Corporation United States

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International sales statistics Formation of multinational corporation

Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance
Foreign Foreign Net Net Foreign Foreign
Revenue Revenue Profit Profit Assets Assets
($ billions) (% of total ) ($ billions) (% of total ) ($ billions) (% of total )  Import & export of products, components and services
Dow Chemical 14.1 62% 1.1 73% 4.2 46%
 Licensing of foreign firms to conduct their foreign business
Coca-cola 12.4 61% 0.8 36% 5.5 37%
Pfizer 11.6 39% 3.9 106% 5.7 47%  Exposure to foreign competition in the domestic market
McDonald’s 9.0 63% 1.2 62% 12.8 59%
 Indirect exposure to international risks through relationships with
3M 8.8 53% 0.9 47% 2.1 37%
Colgate – 6.6 71% 0.7 69% 3.2 67% customers and suppliers
Palmolive
Gillette 5.5 60% 0.5 56% 1.8 52%
HJ Heinz 4.6 49% 0.5 58% 2.1 43%
Nike 4.0 44% 0.3 55% 0.7 43%
Apple Computer 3.8 48% 1.0 93% 0.6 13%
Avon Products 3.8 67% 0.3 69% 1.6 56%

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Differences between domestic and international Goal of multinational corporation

corporation in finance managment
Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance

 The goal of their managers is to maximize the value of the firm,

 Cultural issues
which is similar to the goal of managers employed by domestic
 Corporate governance issues
companies.
 Foreign exchange risks
 In a Shareholder Wealth Maximization model (SWM), a firm
 Political Risk
should strive to maximize the return to shareholders, as measured
 Modification of domestic finance theories
by the sum of capital gains and dividends, for a given level of
 Modification of domestic financial instruments
risk.
 Alternatively, the firm should minimize the level of risk to
shareholders for a given rate of return.

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 Agency Problems Agency Problems
Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance

 Managers of an MNC may make decisions that conflict with the firm’s  Long-term value maximization can conflict with short-term value
goal to maximize shareholder wealth. maximization as a result of compensation systems focused on
 Agency theory is the study of how shareholders can motivate quarterly or near-term results.
management to to think more like shareholders.  Short-term actions taken by management that are destructive over
 If management deviates too extensively from objectives, the board of
the long-term have been labeled impatient capitalism.
directors should replace them.
 This point of debate is often referred to a firm’s investment
 If the board of directors is too weak (or not at “arms-length”) the
horizon (how long it takes for a firm’s actions, investments and
discipline of the capital markets could effect the same outcome through
operations to result in earnings).
a takeover.

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Cost of Agency Problems Management Structure of an MNC

Nguyen Thi Dieu Chi – Multinational Business Finance TS. Nguyễn Thị Diệu Chi – Bài giảng môn Tài chính công ty đa quốc gia

 The cost of monitoring by the owner to supervise the representative to ensure

that the representative is associated with the interests of the owner.
 The cost of binding the representative so that the representative must commit
that they themselves do the same with the interests of the owner.
 The loss or cost of the owner is lost to have a connection between the
management of the representative and the results of business activities or the
interests of shareholders.

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Management Structure of an MNC Cash Flow Diagrams for MNCs

TS. Nguyễn Thị Diệu Chi – Bài giảng môn Tài chính công ty đa quốc gia TS. Nguyễn Thị Diệu Chi – Bài giảng môn Tài chính công ty đa quốc gia

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 Theories of International Trade International Product Life Cycle
Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance

 Theory of Comparative Advantage: When a country specializes in

some products, it may not produce other products, so trade between
countries is essential.
 Imperfect Markets Theory: Markets for the various resources used
in production are “imperfect”.
 Product Cycle Theory: The competition in the foreign markets
may increase as other producers become more familiar with the firm’s
product. The firm may develop strategies to prolong the foreign
demand for its product.

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International Business of MNC

Nguyen Thi Dieu Chi – Multinational Business Finance Nguyen Thi Dieu Chi – Multinational Business Finance

 International trade
 Licensing
 Franchising
 Joint Ventures
 Acquisitions of existing operations
 Establishing new foreign subsidiaries

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