Multinational Financial
Management
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From the end of World War II until the 1970s, the United States dominated the world
economy. However, that situation no longer exists. Raw materials, finished goods, ser-
vices, and money flow freely across most national boundaries, as do innovative ideas
and new technologies. World-class U.S. companies are making breakthroughs in for-
eign labs, obtaining capital from foreign investors, and putting foreign employees on
the fast track to the top. Dozens of top U.S. manufacturers, including Dow Chemical,
Colgate-Palmolive, Gillette, Hewlett-Packard, and Xerox, sell more of their products
outside the United States than they do at home. Service firms are not far behind, as
Citigroup, Disney, McDonald’s, and AOL Time Warner all receive more than 20 per-
cent of their revenues from foreign sales.
The trend is even more pronounced in profits. In recent years, Coca-Cola and
many other companies have made more money in the Pacific Rim and Western Eu-
rope than in the United States. However, like other companies, Coke has found that
global investing also presents unique challenges and risks. Recent weakness in the
Asian economy, along with a contamination scare in Belgium, have hurt the bottom
line and put Coke on the defensive. Still, most analysts believe that these are only
temporary setbacks and that Coke will continue to generate huge profits from its
overseas operations in the years ahead.
Successful global companies must conduct business in different economies,
and they must be sensitive to the many subtleties of different cultures and political
systems. Accordingly, they find it useful to blend into the foreign landscape to win
product acceptance and avoid political problems.
At the same time, foreign-based multinationals are arriving on American shores
in ever greater numbers. Sweden’s ABB, the Netherlands’ Philips, France’s Thomson,
and Japan’s Fujitsu and Honda are all waging campaigns to be identified as American
companies that employ Americans, transfer technology to America, and help the U.S.
trade balance. Few Americans know or care that Thomson owns the RCA and General
Electric names in consumer electronics, or that Philips owns Magnavox.
The emergence of “world companies” raises a host of questions for govern-
ments. For example, should domestic firms be favored, or does it make no difference
what a company’s nationality is as long as it provides domestic jobs? Should a com-
pany make an effort to keep jobs in its home country, or should it produce where total
production costs are lowest? What nation controls the technology developed by a
multinational corporation, particularly if the technology can be used in military appli-
cations? Must a multinational company adhere to rules imposed in its home country
with respect to its operations outside the home country? Keep these questions in
mind as you read this chapter. When you finish it, you should have a better apprecia-
tion of both the problems facing governments and the difficult but profitable oppor-
tunities facing managers of multinational companies.(^1) This chapter was coauthored with Professor Roy Crum of the University of Florida and Subu Venkatara-
man with Morgan Stanley.