Review goals of multinational corporations (MNCs) and conflicts with those goals.
Describe the key theories that justify international business.
To explain the common methods used to conduct international business.
Multinational Corporations
Goal of the MNC – maximize shareholder wealth
Conflicts against this goal
Agency problems – managers act in their own interest to the detriment of the shareholders.
Expansion
Unnecessary perks
Fear of job loss
Philosophy of foreign managers
Subsidiary vs. parent performance
Multinational Corporations
Goal of the MNC – (continued)
Conflicts against this goal
Agency costs – costs incurred as a result of an agency problem. Typically higher for MNCs.
Wealth lost
Monitoring costs
Multinational Corporations
Constraints against shareholder wealth – shareholder wealth is being maximized subject to limiting factors.
Environmental constraints – each country has a different set of environmental rules.
Regulatory constraints – each country has its own set of taxes, currency convertibility rules, and other regulations.
Ethical constraints – ethical practices vary across countries.
International Business Theories
Comparative Advantage Theory – Country specialization can increase overall production efficiency.
Imperfect Markets Theory – factors of production are immobile
Product Cycle Theory – firms become established in their home country and expand overseas when a product matures.
Increasing Globalization, the rise of the MNC, and U.S. Dominance
Evidence
International trade has grown