Multinational Business Finance 15th Global Edition by David K. Eiteman solution manual

Global is a newer term that essentially means about the same as “multinational,” i.e., operating around the globe. Global has tended to replace other terms because of its use by demonstrators at the international meetings (“global forums?”) of the International Monetary Fund and World Bank that took place in Seattle in 1999 and Rome in 2001. Terrorist attacks on the World Trade Center and the Pentagon in 2001 led politicians to refer to the need to eliminate “global terrorism.”
10. Aidan, the MNE. At what point in the globalization process did Aidan become a multinational enterprise (MNE)?
Aidan became a multinational enterprise (MNE)  when it began to establish foreign sales and service subsidiaries, followed by creation of manufacturing operations abroad or by licensing foreign firms to produce and service Aidan’s products. This multinational phase usually follows the international phase, which involved the import and/or export of goods and/or services.
11. Market Conditions. The decisions of MNEs to move to new markets invariably take advantage of both market imperfections and market efficiencies. Explain.
When they decide to relocate, MNEs first consider market conditions. At one end of the spectrum, if the market conditions are favourable, MNEs would find opportunities in nations that possess cheap inputs, trained or semi-trained affordable labor, large populations with acceptable purchasing power, etc. At the other end of the spectrum, MNEs can also take advantage of market imperfections and loopholes in legislations. For example, MNEs can move into markets where the total absence or weakness of the anti-monopoly law allows MNEs to take up a large market share.
12. Why Go.  Why do firms become multinational?
   Entry into new markets, not currently served by the firm, which in turn allow the firm to grow and possibly to acquire economies of scale.
   Acquisition of raw materials, not available elsewhere.
   Achievement of greater efficiency, by producing in countries where one or more of the factors of production are underpriced relative to other locations.
   Acquisition of knowledge and expertise centered primarily in the foreign location.
   Location of the firms’ foreign operations in countries deemed politically safe.
13. Investment Motives of Firms. What is the difference between proactive and defensive investment motives?
Proactive investments aim at enhancing the growth, productivity, and profitability of the firm. Defensive investments aim at limiting the growth and profitability of competing firms. In this case, the firm would consider investing in a certain sector or nation in order to limit the growth of its competitors.
14. Aidan’s Phases. What are the main phases that Aidan passed through as it evolved into a truly global firm? What are the advantages and disadvantages of each?
a.   International trade. Two advantages are finding out if the firms’ products are desired in the foreign country and learning about the foreign market. Two disadvantages are lack of control over the final sale and service to final customer (many exports are to distributors or other types of firms that in turn resell to the final customer) and the possibility that costs and thus final customer sales prices will be greater than those of competitors that manufacture locally.
b.   Foreign sales and service offices. The greatest advantage is that the firm has a physical presence in the country, allowing it great control over sales and service as well as allowing it to learn more about the local market. The disadvantage is the final local sales prices, based on home country plus transportation costs, may be greater than competitors that manufacture locally.
c.   Licensing a foreign firm to manufacture and sell. The advantages are that product costs are based on local costs and that the local licensed firm has the knowledge and expertise to operate efficiently in the foreign country. The major disadvantages are that the firm might lose control of valuable proprietary technology and that the goals of the foreign partner might differ from those of the home country firm. Two common problems in the latter category are whether the foreign firm (that is manufacturing the product under license) is a shareholder wealth or corporate wealth maximizer, which in turn often leads to disagreements about reinvesting earning to achieve greater future growth versus making larger current dividends to owners and payments to other stakeholders.
d.   Part ownership of a foreign, incorporated, subsidiary; i.e., a joint venture. The advantages and disadvantages are similar to those for licensing: Product costs are based on local costs and that the local joint owner presumably has the knowledge and expertise to operate efficiently in the foreign country. The major disadvantages are that the firm might lose control of valuable proprietary technology to its joint venture partner, and that the goals of the foreign owners might differ from those of the home country firm.