International

Financial
Management
Alan Shapiro & Peter Moles
Adapted by Dr. Jayanta Kumar Seal

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
 CHAPTER 1

Introduction to International
Financial Management

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
 PART 1 THE GLOBAL FINANCIAL
MANAGEMENT ENVIRONMENT

THE MNC OR TNC: A DEFINITION

• A company with production and distribution

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
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THE RISE OF THE
INTERNATIONAL COMPANY

The MNC’s evolution

Reasons to go global:
1. More raw materials.
2. New markets.
3. Minimize costs of
production.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE RISE OF THE
INTERNATIONAL COMPANY
RAW MATERIAL SEEKERS
• Exploit markets in other countries.
• Historically first to appear.
• Modern-day counterparts:
• British Petroleum.
• Rio-Tinto.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE RISE OF THE
INTERNATIONAL COMPANY
MARKET SEEKERS
• Produce and sell in foreign markets.
• Have heavy foreign direct investors.
• Represented today by firms such as:
• IBM.

• Louis Vuitton.

• Nestlé.

• Dior.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE RISE OF THE
INTERNATIONAL COMPANY

COST MINIMIZERS
• Seek lower-cost production abroad.
• Their motive: to remain cost competitive.
• Represented today by firms such as:
• Texas Instruments.

• Intel.

• Volkswagen.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE PROCESS OF OVERSEAS
EXPANSION

OVERVIEW

A. Informal exporting.
B. Sales subsidiary.
C. Creation of distribution system.
B. Overseas production.
C. Licensing.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE PROCESS OF OVERSEAS
EXPANSION
A. Exporting

1. Minimal cost and risks.

2. Low profits.

3. Get to know the market.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE PROCESS OF OVERSEAS
EXPANSION
B. Sales subsidiary

1. Local office.

2. Greater customer service.

3. Increased communication.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE PROCESS OF OVERSEAS
EXPANSION
C. Creation of a distribution system

1. New service facilities set up.

2. Create a warehouse system.

3. Marketing activities within a company’s own

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE PROCESS OF OVERSEAS
EXPANSION
D. Overseas production
1. Realize full sales potential.

2. Keep abreast of market developments.

3. Fill orders faster.

4. Greatest risk to the company with greatest

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE PROCESS OF OVERSEAS
EXPANSION
D. Licensing
1. Alternative to setting up local production.

2. Less risk than setting up local production.

3. Relatively lower cash flow.

4. Faster market entry time.

5. Maintaining quality standards may be a problem.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
THE GLOBAL MANAGER
• Ability to adjust to change and volatility in the
domestic and international business
environment.

• Thinks and acts “globally” in making decisions.

• Decisions enhance firm’s prospects for survival,

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
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INTERNATIONALIZATION OF
BUSINESS AND FINANCE
• Current reality is global competition in goods,
services, and capital.
• Affects all business, whether small, purely
domestic or the largest of firms, operating
globally.
• Firms need to adopt an “international
perspective” on production, marketing,
technological, and financial decisions.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
ARGUMENTS AGAINST
INTERNATIONALIZATION
• Loss of domestic jobs to cheaper locations.
• Lack of commitment by international businesses
to a particular country.
• Adds to income inequality between emerging
countries and developed countries.
• “Race to the bottom” for environmental and
labor standards.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal
INTERNATIONAL FINANCIAL
MANAGEMENT: THEORY AND PRACTICE
• Focus on shareholder value.
• Favours strategies that enhance a company’s
cash-flow generating ability.
• Arbitrage.
• Market efficiency.
• Capital asset pricing.
• Importance of total risk.
• Global financial marketplace.

“International Financial Management” by Alan Shapiro and Peter Moles adapted by Jayanta
Seal