Tristan Pans Finance Minor 3.3 Pagina 1 van 13
Finance Minor Business Aboard 3.3
Agency Problems
- The Conflict of goals between managers and shareholders
Agency costs: (Definition) cost of ensuring that mangers maximize shareholder wealth.
The costs are normally higher for MNC’s than for purely domestic firms for several
reasons:
- Monitoring managers of distant subsidiaries in foreign countries is a lot harder.
- Foreign subsidiary managers raised in different cultures may not follow uniform goals.
- Sheer size of a MNC can create large agency problems.
How to control?
- Share options: Managers profit form meeting organizational goals.
- Hostile takeover treat: If the market value is smaller then the value in the books.
- Investor monitoring
2 different management structures of MNC
Centralized - Allows managers of the parent to control foreign subsidiaries and therefor
reduce the power of subsidiary managers.
Decentralized - Gives more control to subsidiary managers who are closer to the
subsidiary’s operation and environment.
, Tristan Pans Finance Minor 3.3 Pagina 2 van 13
Constrains
Governmental and public interest groups might interfere in maximizing shareholder value:
- Environmental constrains
- Regulatory constrains
- Ethical constrains
Firms Pursue International Business
Theory of competitive advantage: Specialization increases production efficiency.
Imperfect markets theory: Factors of production are somewhat immobile providing
incentive to seek out foreign opportunities.
Product cycle theory: As a firm matures, it recognizes opportunities outside its domestic
markets.
How firms engage in International Business
- International trade
- Licensing
- Franchising
- Joint ventures
- Acquisitions of exiting operations
- Establishing new foreign subsidiaries
International Trade
Relatively conservative approach that can be used by the firm to
- penetrate markets(by export)
- Obtain supplies at a low cost(by importing)
- Minimal risk- no capital at risk
Licensing
- Obligates a from to provide its technology( coprights and patents) in exchange for fees
or some other specified benefit
- Allows firms to use their technology in foreign markets without a major investment and
without transporting costs that result from exporting.
- Major disadvantage: difficult to ensure quality control in foreign production process.
Franchising
- obligates firms to provide a specialized sales or service strategy, support assistance
and possibly and initial investment in the franchise in exchange for periodic fees.
- Allows penetration into foreign markets without a major investment in foreign countries.
Joint Ventures
- A venture that is jointly owned and operated by two or more firms. A firm may enter the
foreign market by engaging in a joint venture with firms that reside in those markets
- Allows two firms to apply their respective cooperative advantages in a given project.
Acquisitions of existing operations
Finance Minor Business Aboard 3.3
Agency Problems
- The Conflict of goals between managers and shareholders
Agency costs: (Definition) cost of ensuring that mangers maximize shareholder wealth.
The costs are normally higher for MNC’s than for purely domestic firms for several
reasons:
- Monitoring managers of distant subsidiaries in foreign countries is a lot harder.
- Foreign subsidiary managers raised in different cultures may not follow uniform goals.
- Sheer size of a MNC can create large agency problems.
How to control?
- Share options: Managers profit form meeting organizational goals.
- Hostile takeover treat: If the market value is smaller then the value in the books.
- Investor monitoring
2 different management structures of MNC
Centralized - Allows managers of the parent to control foreign subsidiaries and therefor
reduce the power of subsidiary managers.
Decentralized - Gives more control to subsidiary managers who are closer to the
subsidiary’s operation and environment.
, Tristan Pans Finance Minor 3.3 Pagina 2 van 13
Constrains
Governmental and public interest groups might interfere in maximizing shareholder value:
- Environmental constrains
- Regulatory constrains
- Ethical constrains
Firms Pursue International Business
Theory of competitive advantage: Specialization increases production efficiency.
Imperfect markets theory: Factors of production are somewhat immobile providing
incentive to seek out foreign opportunities.
Product cycle theory: As a firm matures, it recognizes opportunities outside its domestic
markets.
How firms engage in International Business
- International trade
- Licensing
- Franchising
- Joint ventures
- Acquisitions of exiting operations
- Establishing new foreign subsidiaries
International Trade
Relatively conservative approach that can be used by the firm to
- penetrate markets(by export)
- Obtain supplies at a low cost(by importing)
- Minimal risk- no capital at risk
Licensing
- Obligates a from to provide its technology( coprights and patents) in exchange for fees
or some other specified benefit
- Allows firms to use their technology in foreign markets without a major investment and
without transporting costs that result from exporting.
- Major disadvantage: difficult to ensure quality control in foreign production process.
Franchising
- obligates firms to provide a specialized sales or service strategy, support assistance
and possibly and initial investment in the franchise in exchange for periodic fees.
- Allows penetration into foreign markets without a major investment in foreign countries.
Joint Ventures
- A venture that is jointly owned and operated by two or more firms. A firm may enter the
foreign market by engaging in a joint venture with firms that reside in those markets
- Allows two firms to apply their respective cooperative advantages in a given project.
Acquisitions of existing operations
