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:

Saltwater Logistics Corp. 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 Saltwater Logistics Corp. has decided to go global?

To avoid political, trade, and regulatory hurdles

To seek production efficiency

To broaden its markets

Now consider the case of Northern Rubber Company, which has decided to establish worldwide production facilities and markets to cushion itself from adverse economic conditions in any particular country. Northern Rubber Company 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 risk from exchange rate fluctuations.