单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,*,Part IVLong-Term Asset and Liability Management,Existing,Host Country,Tax Laws,Exchange,Rate,Projections,Country Risk,Analysis,Risk Unique to,Multinational,Project,MNCs Cost,of Capital,International,Interest Rates,on Long-Term Funds,MNCs Access to Foreign Financing,Potential Revision in Host Country Tax Laws or Other Provisions,Estimated Cash Flows of Multinational Project,Required Return on Multinational Project,Multinational Capital Budgeting Decisions,Direct Foreign Investment,13,Chapter,South-Western/Thomson Learning 2003,13,Direct Foreign Investment,Chapter Objectives,To describe common motives for initiating direct foreign investment(DFI);and,To illustrate the benefits of international diversification.,Motives for DFI,DFI can improve profitability and enhance shareholder wealth,either by boosting revenues or reducing costs.,Revenue-Related Motives,Attract new sources of demand,especially when the potential for growth in the home country is limited.,Motives for DFI,Exploit monopolistic advantages,especially for firms that possess resources or skills not available to competing firms.,React to trade restrictions.,Revenue-Related Motives,Enter profitable markets.,Cost-Related Motives,Fully benefit from economies of scale,especially for firms that utilize much machinery.,Use cheaper foreign factors of production.,Use foreign raw materials,especially if the MNC plans to sell the finished product back to the consumers in that country.,Motives for DFI,Motives for DFI,React to exchange rate movements,such as when the foreign currency appears to be undervalued.DFI can also help reduce the,MNCs,exposure to exchange rate fluctuations.,Diversify sales/production internationally.,Cost-Related Motives,Use foreign technology.,The optimal method for a firm to penetrate a foreign market is partially dependent on the characteristics of the market.,For example,if the consumers are used to buying domestic products,then licensing arrangements or joint ventures may be more appropriate.,Motives for DFI,Before investing in a foreign country,the potential benefits must be weighed against the costs and risks.,As conditions change over time,some countries may become more attractive targets for DFI,while other countries become less attractive.,Motives for DFI,Change in Distribution of DFI,By U.S.Firms Over Time,DFI Distribution in 2000,DFI Distribution in 1982,Africa,1%,Canada,10%,Other,Western,He,misphere,19%,Europe,52%,Asia&Pacific,16%,Middle East,1%,Africa,3%,Canada,21%,Other,Western,He,misphere,14%,Europe,45%,Asia&Pacific,15%,Middle East,2%,Which countries should you invest in?,Online Application,Consult the Country Commercial Guides prepared by embassy staff at :/usatrade.gov/website/ccg.nsf/ccghomepage?openform.,Visit the Library of Congress at.,Refer to the CIAs World Factbook at :/.,Consult :/and :/.,Visit the Yahoo!International Finance Center at :/biz.yahoo /ifc/.,Online Application,Which countries should you invest in?,Check out :/ciber.bus.msu.edu.,Benefits of International Diversification,The key to international diversification is to select foreign projects whose performance levels are not highly correlated over time.,Diversification Benefits for Merrimack Co.,Merrimack Co.is a U.S.firm that is considering,the location of a new investment project.,Characteristics of Proposed Project If Located in,the U.S.the U.K.,Projects mean expected annual after-tax return,Standard deviation of projects return,Correlation of projects return with return on existing U.S.business,25%,.09,.80,25%,.11,.02,In terms of return,neither new project has an advantage.,With regard to risk,the new project is expected to exhibit slightly less variability in returns if located in the U.S.,Diversification Benefits for Merrimack Co.,Suppose that the project constitutes 30%of Merrimacks total funds,and that the standard deviation of Merrimacks return on existing U.S.business is.10.,If the new project is located in the U.S.,the portfolio variance for the overall firm,Diversification Benefits for Merrimack Co.,If the new project is located in the U.K.,the portfolio variance for the overall firm,Diversification Benefits for Merrimack Co.,Thus,as a whole,Merrimack will generate more stable returns if the new project is located in the U.K.,An MNC may not be insulated from a global crisis,since many countries will be adversely affected.,However,as can be seen from the 1997-98 Asian crisis,an MNC that had diversified among the Asian countries might have fared better than if it had focused on one country.Even better would be diversification among the continents.,Benefits of International Diversification,Real Growth in GDP,Annual%,D,in GDP(constant prices),For Selected Asian Economies,Real Growth in GDP,Annual%,D,in GDP(constant prices),For Selected Non-Asian Economies,As more projects are added to a portfolio,the portfolio variance should decrease on average,up to a certain point.,However,the degree of risk reduc