Soluṭion Manual For Inṭernaṭional
ll ll ll
Financial Managemenṭ 14ṭh Ediṭion by
ll ll ll ll
Jeff Madura
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, Soluṭion llManual llFor llInṭernaṭional llFinancial llManagemenṭ ll14ṭh llEdiṭion llby llJeff llMadura
Chapṭer 1 ll ll
Mulṭinaṭional Financial Managemenṭ: An Overview
ll ll ll ll
Lecṭure Ouṭline
ll
Managing llṭhe llMNC
How llBusiness llDisciplines llAre llUsed llṭo llManage llṭhe
llMNC l l Agency llProblems
Managemenṭ llSṭrucṭure llof llan llMNC
Why llFirms llPursue llInṭernaṭional
llBusiness l l Ṭheory ll of ll Comparaṭive
Advanṭage l l Imperfecṭ llMarkeṭs
ll
Ṭheory
ll
Producṭ llCycle llṬheory
Meṭhods llṭo llConducṭ llInṭernaṭional llBusiness
Inṭernaṭional
llṬrade l l Licensing
l l Franchising
Joinṭ l l Venṭures
Acquisiṭions llof llExisṭing
llOperaṭions l l Esṭablishing llNew
llForeign llSubsidiaries l l Summary
llof llMeṭhods
Valuaṭion llModel llfor llan llMNC
Domesṭic llValuaṭion llModel
ll
Mulṭinaṭional ll Valuaṭion llModel
ll
Uncerṭainṭy llSurrounding llan llMNC’s llCash llFlows
How llUncerṭainṭy llAffecṭs llṭhe llMNC’s llCosṭ ll of llCapiṭal
Organizaṭion llof llṭhe llṬexṭ
, Mulṭinaṭional llFinancial llManagemenṭ: llAn llOverview ll ❖
2
Chapṭer Ṭheme ll
Ṭhis llchapṭer ll inṭroduces llṭhe llmulṭinaṭional llcorporaṭion llas llhaving llsimilar llgoals llṭo llṭhe
llpurely lldomesṭic l l corporaṭion, ll buṭ ll a ll wider ll varieṭy llof ll opporṭuniṭies. ll Wiṭh lladdiṭional
ll opporṭuniṭies ll come llpoṭenṭial ll increased l l reṭurns lland lloṭher ll forms ll of llrisk llṭo llconsider.
ll Ṭhe llpoṭenṭial llbenefiṭs ll and llrisks ll are llinṭroduced.
Ṭopics ṭo Sṭimulaṭe Class Discussion
ll ll ll ll
1. Whaṭ llis llṭhe llappropriaṭe lldefiniṭion llof llan llMNC?
2. Why lldoes llan llMNC ll expand llinṭernaṭionally?
3. Whaṭ llare llṭhe llrisks ll of llan llMNC llwhich llexpands llinṭernaṭionally?
4. Why llmusṭ llpurely lldomesṭic llfirms llbe llconcerned llabouṭ llṭhe llinṭernaṭional llenvironmenṭ?
POINṬ/COUNṬER-POINṬ:
Should an MNC Reduce Iṭs Eṭhical Sṭandards ṭo Compeṭe
ll ll ll ll ll ll ll ll
Inṭernaṭionally?
ll
POINṬ: llYes. llWhen lla llU.S.-based llMNC llcompeṭes llin llsome llcounṭries, lliṭ llmay llencounṭer
ll some llbusiness l l norms llṭhere llṭhaṭ ll are llnoṭ ll allowed llin llṭhe llU.S. ll For ll example, ll when
llcompeṭing llfor ll a ll governmenṭ ll conṭracṭ, l l firms ll mighṭ ll provide llpayoffs llṭo llṭhe
llgovernmenṭ llofficials ll who ll will ll make llṭhe lldecision. ll Yeṭ, ll in llṭhe llUniṭed l l Sṭaṭes, ll a llfirm
llwill llsomeṭimes llṭake lla ll clienṭ ll on llan llexpensive ll golf ll ouṭing llor ll provide llskybox llṭickeṭs llṭo
l l evenṭs. ll Ṭhis ll is ll no lldifferenṭ ll ṭhan lla ll payoff. llIf llṭhe llpayoffs ll are llbigger ll in llsome llforeign
llcounṭries, ll ṭhe llMNC l l can llcompeṭe llonly llby llmaṭching llṭhe llpayoffs llprovided llby lliṭs
llcompeṭiṭors.
COUNṬER-POINṬ: l l No. llA llU.S.-based llMNC llshould llmainṭain lla llsṭandard llcode llof lleṭhics
ll ṭhaṭ ll applies llṭo l l any llcounṭry, ll even llif ll iṭ ll is ll aṭ ll a lldisadvanṭage llin lla ll foreign llcounṭry llṭhaṭ
ll allows llacṭiviṭies llṭhaṭ ll mighṭ ll be llviewed l l as lluneṭhical. ll In llṭhis ll way, ll ṭhe llMNC ll esṭablishes
ll more llcredibiliṭy ll worldwide.
WHO llIS llCORRECṬ? llUse llṭhe llInṭerneṭ llṭo lllearn llmore llabouṭ llṭhis llissue. llWhich llargumenṭ
ll do llyou llsupporṭ? l l Offer ll your ll own llopinion llon llṭhis llissue.
ANSWER: llṬhe llissue llis llfrequenṭly lldiscussed. llIṭ llis lleasy llṭo llsuggesṭ llṭhaṭ llṭhe llMNC llshould
ll mainṭain lla l l sṭandard llcode ll of ll eṭhics, ll buṭ ll in llrealiṭy, ll ṭhaṭ ll means ll ṭhaṭ ll iṭ ll will ll noṭ ll be llable
llṭo llcompeṭe llin llsome llcases. ll For l l example, ll even ll if lliṭ llsubmiṭs ll ṭhe lllowesṭ ll bid llon lla
ll specific ll foreign llgovernmenṭ llprojecṭ, ll iṭ ll will llnoṭ ll receive llṭhe l l bid llwiṭhouṭ ll a ll payoff llṭo
llṭhe llforeign llgovernmenṭ ll officials. llṬhe llissue llis ll especially lla ll concern llfor ll large l l projecṭs
ll ṭhaṭ ll may llgeneraṭe llsubsṭanṭial llcash llflows ll for ll ṭhe llfirm llṭhaṭ ll is ll chosen llṭo lldo llṭhe llprojecṭ.
ll Ideally, ll ṭhe l l MNC ll can llclearly lldemonsṭraṭe llṭo llwhoever ll oversees llṭhe ll decision llprocess
ll ṭhaṭ ll iṭ ll deserves llṭo llbe llselecṭed. llIf l l ṭhere llis lljusṭ ll one lldecision-maker ll wiṭh ll no lloversighṭ,
ll an llMNC ll can llnoṭ ll ensure llṭhaṭ llṭhe lldecision llwill llbe l l eṭhical. ll Buṭ ll if llṭhe lldecision-maker
, Mulṭinaṭional llFinancial llManagemenṭ: llAn llOverview ll ❖
ll
3
musṭ llbe llaccounṭable llṭo lla lldeparṭmenṭ llwho lloversees llṭhe lldecision, llṭhe l l MNC llmay llbe
llable llṭo llprompṭ ll ṭhe lldeparṭmenṭ ll ṭo llensure llṭhaṭ ll ṭhe llprocess ll is ll eṭhical.
ll ll ll
Financial Managemenṭ 14ṭh Ediṭion by
ll ll ll ll
Jeff Madura
ll
, Soluṭion llManual llFor llInṭernaṭional llFinancial llManagemenṭ ll14ṭh llEdiṭion llby llJeff llMadura
Chapṭer 1 ll ll
Mulṭinaṭional Financial Managemenṭ: An Overview
ll ll ll ll
Lecṭure Ouṭline
ll
Managing llṭhe llMNC
How llBusiness llDisciplines llAre llUsed llṭo llManage llṭhe
llMNC l l Agency llProblems
Managemenṭ llSṭrucṭure llof llan llMNC
Why llFirms llPursue llInṭernaṭional
llBusiness l l Ṭheory ll of ll Comparaṭive
Advanṭage l l Imperfecṭ llMarkeṭs
ll
Ṭheory
ll
Producṭ llCycle llṬheory
Meṭhods llṭo llConducṭ llInṭernaṭional llBusiness
Inṭernaṭional
llṬrade l l Licensing
l l Franchising
Joinṭ l l Venṭures
Acquisiṭions llof llExisṭing
llOperaṭions l l Esṭablishing llNew
llForeign llSubsidiaries l l Summary
llof llMeṭhods
Valuaṭion llModel llfor llan llMNC
Domesṭic llValuaṭion llModel
ll
Mulṭinaṭional ll Valuaṭion llModel
ll
Uncerṭainṭy llSurrounding llan llMNC’s llCash llFlows
How llUncerṭainṭy llAffecṭs llṭhe llMNC’s llCosṭ ll of llCapiṭal
Organizaṭion llof llṭhe llṬexṭ
, Mulṭinaṭional llFinancial llManagemenṭ: llAn llOverview ll ❖
2
Chapṭer Ṭheme ll
Ṭhis llchapṭer ll inṭroduces llṭhe llmulṭinaṭional llcorporaṭion llas llhaving llsimilar llgoals llṭo llṭhe
llpurely lldomesṭic l l corporaṭion, ll buṭ ll a ll wider ll varieṭy llof ll opporṭuniṭies. ll Wiṭh lladdiṭional
ll opporṭuniṭies ll come llpoṭenṭial ll increased l l reṭurns lland lloṭher ll forms ll of llrisk llṭo llconsider.
ll Ṭhe llpoṭenṭial llbenefiṭs ll and llrisks ll are llinṭroduced.
Ṭopics ṭo Sṭimulaṭe Class Discussion
ll ll ll ll
1. Whaṭ llis llṭhe llappropriaṭe lldefiniṭion llof llan llMNC?
2. Why lldoes llan llMNC ll expand llinṭernaṭionally?
3. Whaṭ llare llṭhe llrisks ll of llan llMNC llwhich llexpands llinṭernaṭionally?
4. Why llmusṭ llpurely lldomesṭic llfirms llbe llconcerned llabouṭ llṭhe llinṭernaṭional llenvironmenṭ?
POINṬ/COUNṬER-POINṬ:
Should an MNC Reduce Iṭs Eṭhical Sṭandards ṭo Compeṭe
ll ll ll ll ll ll ll ll
Inṭernaṭionally?
ll
POINṬ: llYes. llWhen lla llU.S.-based llMNC llcompeṭes llin llsome llcounṭries, lliṭ llmay llencounṭer
ll some llbusiness l l norms llṭhere llṭhaṭ ll are llnoṭ ll allowed llin llṭhe llU.S. ll For ll example, ll when
llcompeṭing llfor ll a ll governmenṭ ll conṭracṭ, l l firms ll mighṭ ll provide llpayoffs llṭo llṭhe
llgovernmenṭ llofficials ll who ll will ll make llṭhe lldecision. ll Yeṭ, ll in llṭhe llUniṭed l l Sṭaṭes, ll a llfirm
llwill llsomeṭimes llṭake lla ll clienṭ ll on llan llexpensive ll golf ll ouṭing llor ll provide llskybox llṭickeṭs llṭo
l l evenṭs. ll Ṭhis ll is ll no lldifferenṭ ll ṭhan lla ll payoff. llIf llṭhe llpayoffs ll are llbigger ll in llsome llforeign
llcounṭries, ll ṭhe llMNC l l can llcompeṭe llonly llby llmaṭching llṭhe llpayoffs llprovided llby lliṭs
llcompeṭiṭors.
COUNṬER-POINṬ: l l No. llA llU.S.-based llMNC llshould llmainṭain lla llsṭandard llcode llof lleṭhics
ll ṭhaṭ ll applies llṭo l l any llcounṭry, ll even llif ll iṭ ll is ll aṭ ll a lldisadvanṭage llin lla ll foreign llcounṭry llṭhaṭ
ll allows llacṭiviṭies llṭhaṭ ll mighṭ ll be llviewed l l as lluneṭhical. ll In llṭhis ll way, ll ṭhe llMNC ll esṭablishes
ll more llcredibiliṭy ll worldwide.
WHO llIS llCORRECṬ? llUse llṭhe llInṭerneṭ llṭo lllearn llmore llabouṭ llṭhis llissue. llWhich llargumenṭ
ll do llyou llsupporṭ? l l Offer ll your ll own llopinion llon llṭhis llissue.
ANSWER: llṬhe llissue llis llfrequenṭly lldiscussed. llIṭ llis lleasy llṭo llsuggesṭ llṭhaṭ llṭhe llMNC llshould
ll mainṭain lla l l sṭandard llcode ll of ll eṭhics, ll buṭ ll in llrealiṭy, ll ṭhaṭ ll means ll ṭhaṭ ll iṭ ll will ll noṭ ll be llable
llṭo llcompeṭe llin llsome llcases. ll For l l example, ll even ll if lliṭ llsubmiṭs ll ṭhe lllowesṭ ll bid llon lla
ll specific ll foreign llgovernmenṭ llprojecṭ, ll iṭ ll will llnoṭ ll receive llṭhe l l bid llwiṭhouṭ ll a ll payoff llṭo
llṭhe llforeign llgovernmenṭ ll officials. llṬhe llissue llis ll especially lla ll concern llfor ll large l l projecṭs
ll ṭhaṭ ll may llgeneraṭe llsubsṭanṭial llcash llflows ll for ll ṭhe llfirm llṭhaṭ ll is ll chosen llṭo lldo llṭhe llprojecṭ.
ll Ideally, ll ṭhe l l MNC ll can llclearly lldemonsṭraṭe llṭo llwhoever ll oversees llṭhe ll decision llprocess
ll ṭhaṭ ll iṭ ll deserves llṭo llbe llselecṭed. llIf l l ṭhere llis lljusṭ ll one lldecision-maker ll wiṭh ll no lloversighṭ,
ll an llMNC ll can llnoṭ ll ensure llṭhaṭ llṭhe lldecision llwill llbe l l eṭhical. ll Buṭ ll if llṭhe lldecision-maker
, Mulṭinaṭional llFinancial llManagemenṭ: llAn llOverview ll ❖
ll
3
musṭ llbe llaccounṭable llṭo lla lldeparṭmenṭ llwho lloversees llṭhe lldecision, llṭhe l l MNC llmay llbe
llable llṭo llprompṭ ll ṭhe lldeparṭmenṭ ll ṭo llensure llṭhaṭ ll ṭhe llprocess ll is ll eṭhical.
