CHAPTER 1
Introduction: Multinational
Enterprise and Multinational
Financial Management
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PART 1 THE RISE OF THE
MULTINATIONAL CORPORATION
I. The MNC: A Definition
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a company with production and distribution
facilities in more than one country.
with a parent company located in the home country
at least five or six foreign subsidiaries
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THE RISE OF THE
MULTINATIONAL CORPORATION
The MNC’s Evolution
Reasons to Go Global:
1. More raw materials
2. New markets
3. Minimize costs of
production
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THE RISE OF THE
MULTINATIONAL CORPORATION
RAW MATERIAL SEEKERS
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exploit markets in other countries
historically first to appear
modern-day counterparts
 British Petroleum
 Exxon
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THE RISE OF THE
MULTINATIONAL CORPORATION
MARKET SEEKERS
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Produce and sell in foreign markets
Have heavy foreign direct investors
Represented today by firms such as:
 IBM
 MacDonald’s
 Nestle
 Levi Strauss
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THE RISE OF THE
MULTINATIONAL CORPORATION
COST MINIMIZERS
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seek lower-cost production abroad
Their motive: to remain cost competitive
Represented today by firms such as:
 Texas Instruments
 Intel
 Seagate Technology
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THE PROCESS OF OVERSEAS
EXPANSION
I. OVERVIEW:
A. Informal Exporting
B. Sales Subsidiary
C. Creation of Distribution System
B. Overseas Production
C. Licensing
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THE PROCESS OF OVERSEAS
EXPANSION
A. Exporting
1. Minimal cost and risks
2. Low profits
3. Get to know the market
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THE PROCESS OF OVERSEAS
EXPANSION
B. Sales Subsidiary
1. local office
2. greater customer service
3. increased communication
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THE PROCESS OF OVERSEAS
EXPANSION
C. Creation of a Distribution System
1. new service facilities set up
2. create a warehouse system
3. marketing activities within a company’s own
distribution system
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THE PROCESS OF OVERSEAS
EXPANSION
D. Overseas Production
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realize full sales potential
keep abreast of market developments
fill orders faster
greatest risk to the company with greatest
potential for profit
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THE PROCESS OF OVERSEAS
EXPANSION
D. Licensing
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Alternative to setting up local production
Less risk than setting up local production
Relatively lower cash flow
Faster market entry time
Maintaining quality standards may be a problem
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