U. S. F i r ms L o o k Ov e r s e a s t o E n h a n c e S h a r e h o l d e r Va l u e

Multinational Financial

Management

1

© MARK

BASSETT/ALAMY

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CHAPTER

534

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, services, and money

flow freely across most national boundaries, as do

innovative ideas and new technologies. World-

class U.S. companies are making breakthroughs

in foreign labs, obtaining capital from foreign

investors, and putting foreign employees on the

fast track to the top. Dozens of top U.S. manufac-

turers, including Dow Chemical, Colgate-

Palmolive, IBM, and Hewlett-Packard, sell more of

their products outside the United States than

they do at home. Likewise, service firms such as

Citigroup, McDonald’s, and AFLAC receive more

than half their revenues from foreign sales.

The trend is even more pronounced in profits.

In recent years, Coca-Cola and many other com-

panies have made more money in the Pacific Rim

and Western Europe than in the United States. All

told, Coca-Cola now reports that more than 75%

of its operating profits come from outside North

America. As a result, economic events around the

globe and changing exchange rates now have a

profound effect on the company’s bottom line. In

particular, profits earned in foreign currencies are

worth more when the U.S. dollar declines. Conse-

quently, the sharp decline in the U.S. dollar in

recent years has helped boost Coca-Cola’s profits

and helps explain why the stock has outper-

formed the overall stock market.

Successful global companies such as Coca-

Cola must conduct business in different econo-

mies, and they must be sensitive to the many

subtleties of different cultures and political sys-

tems. Accordingly, they find it useful to blend

into the foreign landscape to help win product

acceptance and avoid political problems. At the

same time, foreign-based multinationals are

arriving on American shores in ever greater num-

bers. Sweden’s ABB, the Netherlands’s Philips,

France’s Thomson, and Japan’s Fujitsu and

(^1) This chapter was coauthored with Professor Roy Crum of the University of Florida.