UNIVERSITY OF MYSORE Presentation On International Financial Management
PRESENTED TOProf.B.NagrajuProfessor In Department Of Studies In CommerceManasagangothriMysore
INTRODUCTION Every country is not gifted with all the resources , so there is need of International Business in order to export the resources or any goods/service which is abundant in our country & to import the resources which is not abundant our country,
THE INTERNATIONAL FINANCIALENVIRONMENT Multinational Corporation (MNC) Foreign Exchange Markets Dividend Remittance Exporting & Financing Investing & Importing & Financing Product Markets Subsidiaries International Financial Markets
WHAT ARE MNC’S? MNC’s are huge industrial organizations which extend their industrial and marketing operations through a network of their branches or their Majority Owned Foreign Affiliates. MNC’s are also know as Transnational Corporation (TNC’s).
DEFINITION According to Franklin Root (1994), an MNC is a parent company that: engages in foreign production through its affiliates located in several countries, exercises direct control over the policies of its affiliates, implements business strategies in production, marketing, finance and staffing that transcend national boundaries.
OBJECTIVES To expand the business beyond the boundaries of the home country. Minimize cost of production, especially labour cost. Avail of competitive advantage internationally. Establish an international corporate image.
OBJECTIVES Achieve greater efficiency by producing in local market and then exporting the products. Make best use of technological advantages by setting up production facilities abroad.
MNC IN INDIA MNC in India are attracted to: India’s large market potential Labor competiveness FDI attractiveness
MNC IN INDIA(CONTD…) India’s vast population is increasing its purchasing power India is also emerging as the manufacturing and sourcing location of choice for various industries
TRENDS OF MNC’S IN INDIA… First MNC in INDIA was DUTCH EAST INDIA Co. in 1600. American companies accounts for around 37% of the turnover of the top 20 firms operating in India. The scenario for MNC in India has changed a lot in recent years, since more and more firms from European Union like Britain, Italy, France, Germany, Netherlands, Finland, Belgium etc have outsourced their work to India. Finnish mobile handset manufacturing giant Nokia is the largest Multinational Corporation In India.
TRENDS OF MNC’S IN INDIA…(CONTD..) A host of automobile companies like Fiat Motors, from Italy have opened shop in India with R&D wing attached. Oil companies, Infrastructure builders from Middle East are also flocking in India to catch the boom. South Korean electronics giants Samsung and LG Electronics and small and mid-segment car major Hyundai Motors are doing excellent business and using India as a hub for global delivery.
TRENDS OF MNC’S IN INDIA…(CONTD..) Also insurance companies like AIG and Max New York Life Insurance doing business in India.
MNC IN INDIA… MNC in India represent a diversified portfolio of companies representing different nations.
THE INDIAN MNCS……………… Paints – Asian Paints Auto & Components – Tata Motors, Bharat Forge Chemicals – Tata Chemicals, United Phosphorus Metals – Sterlite Industries, TISCO Packaging – Essel Pharmaceuticals – Ranbaxy, Wockhardt, Sun, DRL Oil & Gas – ONGC
MULTINATIONAL CORPORATESTRUCTURE Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. (example: McDonalds) Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas) Diversified multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically. (example: Microsoft or Siemens )
ADVANTAGES OF MNC’S MNC’s have become vehicles of technology to the developing countries Greater employment and career opportunities are provided by these MNC’s. MNC’s make commendable contribution to inventions and innovations in the host country. Practice of MNC’s bring to the host country, the latest technique in the field of management. Varity of goods and services produced for local customers.
DISADVANTAGES OFMNC’S MNC’s create monopolies in the market and eliminate local competitors. MNC’s may create depletion of resources due to its continues use by these overseas companies. MNC’s generally carry out their R&D in their home country and supply to the host country. Slow down in the growth of employment in the home country.
CONSTRAINTSINTERFERING WITH THE MNC’SGOAL As MNC managers attempt to maximize their firm’s value, they may be confronted with various constraints. Environmental constraints. Regulatory constraints. Ethical constraints.
THEORIES OFINTERNATIONAL BUSINESSWhy are firms motivated to expandtheir business internationally? Theory of Comparative Advantage Specialization by countries can increase production efficiency. Imperfect Markets Theory The markets for the various resources used in production are “imperfect.” Product Cycle Theory As a firm matures, it may recognize additional opportunities outside its home country.
INTERNATIONALBUSINESS METHODSThere are several methods by which firms canconduct international business. International trade is a relatively conservative approach involving exporting and/or importing. The internet facilitates international trade by enabling firms to advertise and manage orders through their websites. Licensing allows a firm to provide its technology in exchange for fees or some other benefits. Franchising obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
INTERNATIONAL BUSINESS METHODS Firms may also penetrate foreign markets by engaging in a joint venture (joint ownership and operation) with firms that reside in those markets. Acquisitions of existing operations in foreign countries allow firms to quickly gain control over foreign operations as well as a share of the foreign market. Firms can also penetrate foreign markets by establishing new foreign subsidiaries. In general, any method of conducting business that requires a direct investment in foreign operations is referred to as a direct foreign investment (DFI). The optimal international business method may depend on the characteristics of the MNC.
VALUATION MODEL FOR AN MNC An MNC’s financial decisions include how much business to conduct in each country and how much financing to obtain in each currency. Its financial decisions determine its exposure to the international environment.
VALUATION MODEL FOR ANMNCDomestic Model n E ( CF$, t ) Value = ∑ t =1 (1 + k ) t E (CF$,t ) = expected cash flows to be received at the end of period t n = the number of periods into the future in which cash flows are received k = the required rate of return by investors
VALUATION MODEL FOR ANMNC Valuing International Cash Flows m n ∑ [E (CFj , t ) ×E (ER j , t )] Value = ∑ j =1 t =1 (1 + k ) t E (CFj,t ) = expected cash flows denominated in currency j to be received by the U.S. parent at the end of period t E (ERj,t ) = expected exchange rate at which currency j can be converted to dollars at the end of period t
EXPOSURE TO INTERNATIONALRISKInternational business usuallyincreases an MNC’s exposure to: exchange rate movements Exchange rate fluctuations affect cash flows and foreign demand. foreign economies Economic conditions affect demand. political risk Political actions affect cash flows.
VALUATION MODEL FOR AN MNCImpact of New International Opportunitieson an MNC’s Value Exposure to Foreign Exchange Rate Economies Risk m n ∑ [E ( CFj , t ) × E (ER j , t ) ] j =1 Value = ∑ t =1 (1 + k ) t Political Risk
CONCLUSION MNCs are beneficial for India and its also give disadvantages to India. They give us employment, growth, development etc. but they also creates monopoly in market thus small sectors which exists in market getting closed.
THANK YOU FROM Raghunath.D 4thSemester M.F.A.M Manasagangothri Mysore