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Going Global (% of Sales Outside Home Market)

Going Global (% of Sales Outside Home Market). Chapter 1: Introduction International Finance. Changes in the Global Competitive Environment. Massive deregulation Collapse of Communism Large scale privatization Revolution in information technology Corporate control: mergers, takeovers, etc.

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Going Global (% of Sales Outside Home Market)

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  1. Going Global(% of Sales Outside Home Market)

  2. Chapter 1: IntroductionInternational Finance

  3. Changes in the Global Competitive Environment • Massive deregulation • Collapse of Communism • Large scale privatization • Revolution in information technology • Corporate control: mergers, takeovers, etc. • Rise of free-market policies in 3rd world • Discipline of the global marketplace

  4. Debate Over Globalization • Who benefits? • Who suffers? • Pros vs. Cons

  5. Foreign Direct Investment What is it?

  6. Foreign Direct Investment • Portfolio investment – foreign investor purchases securities without exercising control • Direct investment – construction of new facilities (“green-field operation”), or acquire control of an existing local firm

  7. Foreign Direct Investment[Source: CIA World Fact Book; 2010]

  8. Foreign Direct Investment Outflows1997 – 2006, $Trillions

  9. Foreign Direct Investmentby the U. S., 1980-2011

  10. Foreign Direct Investmentinto the U. S., 1980-2008

  11. The Rise of China • GDP1978-2006 +9.67% annually • #1 in FDI since 2002 • 400 of 500 largest companies invest in China • In 2005, 58% of China’s exports produced by non-Chinese companies

  12. Multinational Corporation (MNC) • “… a company engaged in producing and selling goods or services in more than one country.” • “… a parent company located in the home country… five or six foreign subsidiaries, typically with a high degree of strategic interaction…”

  13. 1.D Multinational Corporations MNC Home Country . . . Foreign Subsidiary 1 Foreign Subsidiary 2 Foreign Subsidiary 3 Foreign Subsidiary 4 Foreign Subsidiary 5 High degree of strategic interaction

  14. Multinational Corporation (MNC) • “…globally coordinated allocation of resources by a single centralized management.”

  15. Multinational Corporation (MNC) • Unanticipated by classical economic theory (comparative advantage), … • which said that goods and services can move, … • but not factors of production (capital, labor, and land)

  16. Reasons for “Going International” • Raw-Material Seekers • Market Seekers • Cost Minimizers • Knowledge Seekers • Keeping Domestic Customers • Exploiting Financial Markets

  17. Process of Overseas Expansion Exporting Foreign Sales Subsidiary Licensing Foreign Production

  18. Multinational Financial Differences • Different Currencies • Economic/Legal Ramifications • Language Differences • Cultural Differences • Role of Governments • Political Risk

  19. 1.G Appendix (9) • Effects of free trade • Increased competition among businesses • Increased innovation • Higher productivity • Lower prices and greater choice for consumers • Rising wages for workers • Higher living standards

  20. Other Concerns • Wages • Employment (“outsourcing”) • Environment • Regulation

  21. Multinational Finance • Portfolio Diversification • global efficient frontier • Capital Budgeting • cash flow estimation • repatriation risk • higher cost of capital

  22. The Value of Multinationality

  23. Multinational Financial Management • Financing decision • Raising capital • Paying dividends • Investment Decision • Where to invest • Capital budgeting

  24. Multinational Finance[Working Capital Management] • Cash management • Credit management • Inventory management

  25. Video: #575 • “Managing the Overseas Assignment,” Part 2

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