1. Multinational corporations

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:

RTE Telecom Inc. is an American company that produces high-tech electronics. Its managers have decided to move some of its production facilities to Japan in an attempt to circumvent certain governmental regulations.

Which of the following best describes the reason RTE Telecom Inc. has decided to go global?

A. To seek production efficiency.

B. To avoid political, trade, and regulatory hurdles.

C. To broaden its markets.

Now consider the case of Northern Rubber Company. Many of Northern Rubber Companys customers have expanded to India. Consequently, Northern Rubber Company has decided to expand its operations to India to better serve its customers. Northern Rubber Company has decided to go global in order to diversify .

A. Retain Customers

B. Protect Processed

C. Diversify

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 higher or lower exposure to risks that arise from complex tax laws and multiple money markets.

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.

A. Cultural diversity that affects the code of conduct of businesses.

B. Universal business language used in all subsidiaries.

C. Different currency denominations and exchange rates that affect the value of transactions.

D. Language differences that make communication challenging among employees and managers.