Multinational financial management 7th CH16

Multinational Financial
Management
Alan Shapiro
7th Edition
J.Wiley & Sons
Power Points by
Joseph F. Greco, Ph.D.
California State University, Fullerton
1


CHAPTER 16
CORPORATE
STRATEGY AND
FOREIGN DIRECT
INVESTMENT

2


CHAPTER OVERVIEW:
I. THE PROCESS OF OVERSEAS EXPANSION
II. THEORY OF THE
CORPORATION

MULITNATIONAL

II. THE STRATEGY OF

MULTINATIONAL

ENTERPRISE
III. DESIGNING A GLOBAL
STRATEGY

EXPANSION

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I. THE PROCESS OF
OVERSEAS EXPANSION
I. METHODS TO GO GLOBAL

A. Exporting:

preferred market entry strategy

1. Advantages:

low cost
low risk
learning opportunity

4


THE PROCESS OF OVERSEAS
EXPANSION
2. Disadvantages

inability to realize full sales

3. Use

potential

of:

a. Foreign agents
b. Sales subsidiaries
c. Distribution system

5


THE PROCESS OF OVERSEAS
EXPANSION
B. OVERSEAS PRODUCTION
1.
a.
b.
c.
d.

greater commitment to the local
market

Advantages:
Increased sales
Supply stability

Control
Comprehensive service
6


THE PROCESS OF OVERSEAS
EXPANSION
2. Question:
create or acquire

3. Acquisition
allows speedy
transfer of unused
parent skills;
used more by small
firms.
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THE PROCESS OF OVERSEAS
EXPANSION
C. LICENSING
-local firm agrees to
produce for a fee.
1. Advantages:
a. Minimum investment
b. Faster market entry
c. Less risk
8

THE PROCESS OF OVERSEAS
EXPANSION
2.
Disadvantages of
licensing:
a. Low cash flow
b. Quality standards
c. New competitor

9


II. THE THEORY OF THE
MULTINATIONAL CORPORATION
I. THE THEORY OF THE MULTINATIONAL
CORPORATION
A. The MNC as an Oligopolist: Why FDI?
1. When is FDI justified?
2. Internalization
3. Market Integration
a. Vertical
b. Horizontal
10


THE THEORY OF THE
MULTINATIONAL CORPORATION
B. Financial Market Imperfections
1. Hypothesis

2. Diversification Effect of the
MNC

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III. THE STRATEGY OF THE MNC
I. THE STRATEGY OF THE MNC
A. Three strategies:
1.
That of the Innovation-based
MNC

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THE STRATEGY OF THE MNC
Three Strategies (con’t)
2. That of the mature MNC
a. the importance of economies
of
scale and
b. economies of scope

13


THE STRATEGY OF THE MNC
3. The senescent MNC
a. global scanning capability

b. the role of rationalization
and
integration.

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THE STRATEGY OF THE MNC
4. FDI and Survival
a. Cost reduction
b. Economies of scale
c. Multiple sourcing
d. Keeping domestic customers
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IV. DESIGNING A GLOBAL
EXPANSION STRATEGY
I. A GLOBAL EXPANSION
STRATEGY
A. Five Necessary Elements:
1. Awareness of profitable
investments
-building competitive advantage
2. Selecting a mode of entry
-evaluate systematically
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DESIGNING A GLOBAL

EXPANSION STRATEGY
A. Five Necessary Elements (con’t)
3.
Adjusting the Effectiveness of the
Entry Mode
- continual auditing
4.

Using appropriate evaluation criteria

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DESIGNING A GLOBAL
EXPANSION STRATEGY
5.

Estimating the longevity of
competitive advantage:

a. Develop competitive
strength
transferable overseas.
b. Not easily duplicated
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