1. Multinational corporations Aa Aa E Why do companies go global? Multinational corporations operate in locations across the world. Each company has its own motive for its presence in different countries. Consider the following case: Smith and Terry Company is located in Germany, a high-cost country, and its managers have decided to shift some of its production facilities to Indonesia, a low-cost country, in an attempt to lower production costs. Which of the following best describes the reason Smith and Terry Company has decided to go global? To broaden its markets To avoid political, trade, and regulatory hurdles To seek production efficiency Now consider the case of Purple Panda Industries, which has decided to establish worldwide production facilities and markets to cushion itself from adverse economic conditions in any particular country. Purple Panda Industries has decided to go global in order to Companies go global for various reasons. Although becoming a multinational corporation provides prospects for high returns and diversification, it makes financial management more complicated for financial executives and managers. Based on your understanding of the factors that complicate financial management in multinational firms, complete the following statement: Compared to domestic corporations, multinational corporations have political risks. Multinational versus domestic financial management According to the Bureau of Economic Analysis, the growth of capital expenses made by U.S. companies internationally was higher than the growth of investments made in domestic U.S. markets ("Summary Estimates for Multinational Companies: Employment, Sales, and Capital Expenditures for 2010," http://www.bea.gov/ newsreleases/international/mnc/2012/mnc2010.htm). While these companies might follow similar processes and concepts, their financial management tactics distinguish firms that operate domestically only and firms that have international operations. Based on your understanding of the how these firms differ, identify which of the following are factors that affect multinational firms. Check all that apply. Different currency denominations and exchange rates that affect the value of transactions Universal business language used in all subsidiaries Cultural diversity that affects the code of conduct of businesses Country governments that comply with international protocols, making it easier for corporations to manage their business in different contexts