UNIVERSITY OF MYSORE

Presentation On International Financial Management

PRESENTED TO
Prof.B.Nagraju
Professor In Department Of
Studies In Commerce
Manasagangothri
Mysore

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 FINANCIAL

ENVIRONMENT
Multinational Corporation (MNC)

Foreign Exchange Markets

Exporting
& Importing

Product Markets

Dividend
Remittance
& Financing

Subsidiaries

Investing
& Financing

International
Financial
Markets

WHAT ARE MNCS?

MNCs are huge industrial organizations which extend their

industrial and marketing operations through a network of their
branches or their Majority Owned Foreign Affiliates.
MNCs are also know as Transnational Corporation (TNCs).

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:
Indias large market potential
Labor competiveness
FDI attractiveness

MNC IN INDIA(CONTD)

Indias vast population is

increasing its purchasing
power

India is also emerging as the

manufacturing and sourcing
location of choice for various
industries

TRENDS OF MNCS 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 MNCS 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 MNCS 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 CORPORATE
STRUCTURE

Horizontally integrated multinational corporations

manage production establishments located in different
countries to produce the same or similar products.
(example: McDonald's)
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 MNCS

MNCs have become vehicles of technology to the developing

countries
Greater employment and career opportunities are provided by
these MNCs.
MNCs make commendable contribution to inventions and
innovations in the host country.
Practice of MNCs bring to the host country, the latest
technique in the field of management.
Varity of goods and services produced for

local customers.

DISADVANTAGES OF MNCS

MNCs create monopolies in the market and eliminate local

competitors.
MNCs may create depletion of resources due to its continues use
by these overseas companies.
MNCs 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

CONSTRAINTS
INTERFERING WITH THE MNCS
GOAL

As MNC managers attempt to maximize their

firms value, they may be confronted with various
constraints.
Environmental

constraints.
Regulatory constraints.
Ethical constraints.

THEORIES OF
INTERNATIONAL BUSINESS
Why are firms motivated to expand
their 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.

INTERNATIONAL
BUSINESS METHODS
There are several methods by which firms can
conduct 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 MNCs 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 AN

MNC
Domestic Model
n

Value =
t =1

E CF$, t

1 k

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 AN

MNC

Valuing International Cash Flows

E CF E ER

Value =
t =1

j 1

j, t

1 k

j, 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 INTERNATIONAL
RISK
International business usually
increases an MNCs 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

MNC

Impact of New International Opportunities

on an MNCs Value
Exposure to
Foreign
Economies

Exchange Rate
Risk

E CF E ER

Value =
t =1

j 1

j, t

1 k

j, 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