UNIVERSITY OF MYSOREPresentation 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,

DividendRemittance& FinancingExporting& ImportingInvesting& FinancingTHE INTERNATIONAL FINANCIAL ENVIRONMENT

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).

DEFINITIONAccording 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.

OBJECTIVESTo 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.

OBJECTIVESAchieve 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 INDIAMNC in India are attracted to:Indias large market potentialLabor competivenessFDI 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 INDIAFirst 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.

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..)

TRENDS OF MNCS IN INDIA(CONTD..)

Also insurance companies like AIG and Max New York Life Insurance doing business in India.

MNC IN INDIAMNC 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 STRUCTUREHorizontally 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 MNCSMNCs have become vehicles of technology to the developing countriesGreater 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 MNCSMNCs 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.

Why are firms motivated to expand their business internationally?THEORIES OF INTERNATIONAL BUSINESSTheory of Comparative AdvantageSpecialization by countries can increase production efficiency.Imperfect Markets TheoryThe markets for the various resources used in production are imperfect.Product Cycle TheoryAs a firm matures, it may recognize additional opportunities outside its home country.

INTERNATIONALBUSINESS METHODSInternational 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.There are several methods by which firms can conduct international business.

INTERNATIONALBUSINESS METHODSFirms 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 MNCAn 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

VALUATION MODEL FOR AN MNCValuing International Cash Flows

EXPOSURE TO INTERNATIONAL RISKexchange rate movementsExchange rate fluctuations affect cash flows and foreign demand.foreign economiesEconomic conditions affect demand.political riskPolitical actions affect cash flows.International business usually increases an MNCs exposure to:

VALUATION MODEL FOR AN MNC

CONCLUSIONMNCs 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

FDI attractiveness such as:Reduced corporate tax rate for foreign companies from 65 percent to 55 percent. 100 percent foreign investment in the construction of roads/bridges.The peak custom duty rate was reduced to 50 percent from 65 percent in the March 1995 budge

**