An MNC is an abbreviation for Multinational Corporations. Basically, these are corporations that have facilities and other assets in different countries other than their home countries. They as well have offices and factories in those countries however with a centralized head office where all branches are coordinated and managed. Ethical standards are paramount for MNCs because they tend to operate in different countries where beliefs and cultures differ largely. Through ethical standards, these corporations stand a chance of operating in different environments.
Although it’s very easy to conclude that code of ethics is paramount for any kind of business and that MNC’s should as well strive to maintain the standards as stipulated in their host countries, the reality has always disadvantaged their operations in most cases by rendering them uncompetitive. A good example can be seen in the bids made to win government tenders. Some countries have made it a routine for corporates to bribe government officials in order to win tenders and that makes most of the MNC’s which are keen on observing the code of ethics fail to win those tenders even if they submit the lowest bids for such tenders. This does not imply that they should act unethically but rather should be keen on the way things are done on the foreign countries and adhere to that lest they risk being out of the market due to stiff competition from the unethical firms.
Contrary, some countries have strict regulations as far as unethical deeds are concerned. MNCs caught acting in an unethical manner, therefore, risks on their permit termination and which may be highly costly for the corporation. MNCs should, therefore, adhere to the ethical standards fully to reduce the risks of permit termination which might be highly costly.
Explain how the joint venture enabled Anheuser-Busch to achieve its objective of maximizing shareholder wealth.
ANSWER: In its basic definition, a joint venture has been defined as a commercial enterprise which is geared by either two or more firms together and to whom retain their individual identities (Larimo, Nguyen and Ali, 2016, p.877). The main reasons behind joint ventures are to combine resources of the involved parties, combine their expertise and to save money. The main advantages of joint ventures are to enable small firms to access new markets and other distribution networks, increase the capacity of partners and share risks/costs.
From the above case study of Anheuser-Busch engaging into a joint venture with Kirin in the textile industry, Anheuser-Busch will be propelled to achieve its objective and maximize the shareholder wealth by first reducing the risks involved in entering a new market and secondly by creating a way for the firm to access the new market (Japan) easily. In regard to reducing the risks (Larimo, Nguyen and Ali, 2016, p.879), Anheuser-Busch won’t be required to make any kind of capital investments in Japan and which could expose the firm into risks. On the other hand, the company will easily escape all the costs incurred by the firms in their initial stages of penetrating into new markets through its Joint-venture with Kirin as it will have created an opportunity for it to enter into the Japanese market when distributing Budweiser across Japan.
Explain how the joint venture limited the risk of international business.
ANSWER: first of all, its wort to note that Anheuser-Busch will not be required to establish its own network of distribution in Japan which otherwise will have been the first thing to do in order to venture into the Japanese market. For that matter the joint venture can be seen as a risk-limiting agent as far as the entrance of the company into the Japanese market is concerned because Anheuser-Busch will require a considerably smaller investment for its international business (Japanese market), and also the probability of its success is very high because it will highly rely on the reputation of Karin in the market (Larimo, Nguyen and Ali, 2016, p.880).
What barrier in Japan did Anheuser-Busch circumvent as a result of the joint venture?
ANSWER: Through an established distribution system of Kirin in Japan, Anheuser-Busch will be able to access the Japanese market which would have not been possible otherwise. On the other hand, through the joint venture Kirin Company will be able to get tips on how Anheuser-Busch has been able to expand its operations across various countries including the United States in order to break through an “information” barrier (Beamish, and Lupton, 2016, p.163)
Explain why the Greece credit crisis can cause contagion effects throughout Europe.
Credit is important for a country’s economy because it increases its spending and thus promoting its income level and which in turn raises its GDP to facilitate productivity.
The credit crisis in Greece will see the country enter into a liquidity deficit and which is a cash crunch on its currency as well as its reserves.
Because most of the European countries were creditors for Greece before entering into a credit crisis, the country would not be able to settle its debts. As a result of its inability to pay back its loans from the European countries, then that will be a default risk to those governments and ultimately rendering them unable to settle their own debts as well.
Also, in consideration to the European country MNC’s operating within Greece, they will be on the receiving end since they must have had sold products and services to the Greece government. This is in consideration of the fact that if the Greece government can default on loans, it will definitely not be unable to pay those MNC’s.
Why do interest rates vary among countries? Why are interest rates normally similar for those European countries that use the euro as their currency?
Interest rates are the amounts charged by the lenders to the borrowers for the use of assets and expressed as percentages of principal. Interest rates are computed using the formula: A = P (1 + rt) where P stands for Principal amount invested at an Interest rate basis. And r which is in a decimal form simple is simply the interest rate expressed as a percentage while t is the time to pay back the principal amount. Basically, interest rates vary among countries because of the demand and supply factor of funds for a given currency.
However, in Europe, demand and supply conditions for euros are determined by the participating countries together and don’t vary among the involved countries. Yet, different countries using the euro as their currency have varying interest rates which could be somewhat higher than the others using euro if subject to default risk. Higher interest rates reflect the risk premium.
Chapman Co. is a privately owned MNC in the U.S. that plans to engage in an initial public offering (IPO) of stock so that it can finance its international expansion. At the present time, world stock market conditions are very weak but are expected to improve. The U.S. market tends to be weak in periods when the other stock markets around the world are weak. A financial manager of Chapman Co. recommends that it wait until the world stock markets recover before it issues stock. Another manager believes that Chapman Co. could issue its stock now even if the price would be low since its stock price should rise later once world stock markets recover. Who is correct? Explain.
International expansion is applied when a multinational corporation wants to establish itself and its operations on a different country away from its home country.
The movement of stock markets has an impact in issuing the stocks because they affect the net value of company shares as currency.
In the case study, the financial manager is correct: Chapman Co. must be patient to make sure world stock markets have begun to recover and that the conditions of U.S markets have improved. If it declares its stock at the moment when the price is too low, it will definitely receive a lower dollar amount proceeds to utilize for its growth. If the stock prices increase later, it won’t realize any benefits because it would have sold the shares already (under the condition that shareholders who acquired the shares originally will benefit if the stock price went up).
Cornell Co. purchases computer chips denominated in euros on a monthly basis from a Dutch supplier. To hedge its exchange rate risk, this U.S. firm negotiates a three-month forward contract three months before the next order will arrive. In other words, Cornell is always covered for the next three monthly shipments. Because Cornell consistently hedges in this manner, it is not concerned with exchange rate movements. Is Cornell insulated from exchange rate movements? Explain.
When exchange rates change, the common terms which come into limelight include depreciation, devaluation, appreciation, and revaluation.
Appreciation describes the upward movement of the freely floating rate of exchange while revaluation describes the upward movement of the exchange rate mainly when the exchange rate system is fixed. On the other hand, depreciation describes the downward movement when the exchange rate is floating while devaluation describes the situation where the government changes the fixed rate of a fixed rate of exchange downwards.
These movements have varied impacts on the economy. For instance, depreciation reduces the overseas prices of a country’s exports leading to an increased demand for the exports. Depreciation on the other side increases the prices for imports leading to a decline in the demand for the imports.
No! Cornell is subjected to the risks of exchange rates over time considering the fact that the forward rate fluctuates over time. Whenever the euro appreciates, its forward rate is definitely expected to rise over time and which upsurges the compulsory payments by Cornell.
Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.
Exchange rate- this is the value given to one currency for the purposes of converting it into a different one. The continuous changes in a country’s exchange rates are a major source of foreign investment risks because they add volatility to the currency converted returns just as the local market returns are done by the induced exchange rates effects. The latter impact is a covariance that has positive effects in most cases (i.e., the local market returns being positively linked with an increase in the country‘s currency external value) and which implies that the covariance effects increases the exchange risks rather than offsetting them. Exchange risks are more significant in the bond investment sector than they are in the stock investments.
What is meant by the statement that ownership is separated from managerial control in the corporation? Why does this separation exist?
Separation of corporate ownership from managerial control- Separation of corporation ownership from managerial control is a situation where management of a corporation is done independently by a different team rather than its owners or stakeholders. The growth of modern public corporations depends primarily on the efficient split-up of corporate ownership and managerial control. This is in consideration to the fact that shareholders invest in those corporations by acquiring stock (to represent ownership) and which gives them the right to get a share of the company’s residual income ( profits) remaining after the company expenses are fully paid. Being able to share the residual incomes also implies that the shareholders must accept the risks that no residual profits remain if the expenses are more than the income. Shareholders also manage the company investment risks by investing in a diversified firm portfolio. In small firms, therefore, the owners and managers of the firm are one and the same people hence there is less separation of firm control and ownership.
What is an agency relationship? What is managerial opportunism? What assumptions do owners of corporations make about managers as agents?
Definition of terms
An agency relationship is a condition that exists when one person or a group of people owning a firm hires another person or a group of people persons who are specialists in decision making for the purpose of making firm decisions.
Managerial opportunism seeks self-interest with guile which is mainly done in a cunning and deceitful manner.
Agency relationship mainly occurs in a case where one party gives the decision-making responsibility in a firm to another party for on a hired approach. Managerial opportunism, on the other hand, seeks self-interest with guile (in a cunning and deceitful manner). It is opportunism that entails both the attitude and set behaviors. The owners of a company assume on managers as the agents are that they have different goals and interests. Problems can, at last, arise when the principals and the agents pursue different goals and interests, or because the shareholder lacks direct control over large publicly traded corporations. Also, problems may surface when agents make decisions that result in the persuasion of goals conflicting with those of the principals.
When hospital staff failed to speak out about poor care, the challenge began to fall on relatives. Julie Bailey began to take on Stafford General Hospital. Believing that it would never happen to her, it happened at Stafford where she took her mom. Julie Bailey’s mother, Bella, had been taken to Stafford General Hospital in September 2007. But, from her first impressions, she believed something was wrong. She recognized that the patients in her mom’s ward couldn’t speak for themselves and the relative was visiting them oblivious to what was going on. For 8 weeks, Bella’s family members maintained a 24-hour watch at her bedside keeping a record of what they saw. Julie Bailey reads the records made and indicated the fear they had for being branded troublemakers. Bella Bailey died in the hospital in November 2007. Julie Bailey created a determined campaign, in her café, to make people aware of what she had seen but struggled to make her voice heard. In an interview, Julie listed all the people she tried to speak to with the intent to try and tell as many people as possible.
At that time she was unaware that the primary investigator of the Health Care Commission was planning to investigate high death rates at the hospital between 2005 and 2008. The report, when made public, showed managers putting targets ahead of patient care. With the mortality rates being further investigated, the report agreed there were serious concerns about patient care. It appeared that some doctors were even, privately, aware of the problems. The Commission report also said that the majority of doctors interviewed said they would not have been happy for a relative to have been treated there. Julie Bailey expressed her concern that it wasn’t good enough for their relatives but it was good enough for ours. She says if they had known or the doctors had spoken out none of their relatives would have been put there. A Staffordshire MP, Tony Wright—Labour, Cannock Chase, could not believe that doctors would be happy delivering that level of care and that nurses must have been unhappy working in that situation. He had helped introduce legislation to encourage employees to speak up—The Public Interest Disclosure Act of 1998 was intended to give whistleblowers legal protection from dismissal or victimization. Mr. Wright indicates that the whole point of these provisions was so that individuals could raise their concerns properly without threatening their job, without damaging their career, and without having to go to the media. However, in Staffordshire, there was a whole culture that discouraged complaints. The investigation indicated that nurses felt poorly supported as a profession and consultants appeared to have given up expressing their views since managers were said to dislike critical comments and ignored them. Mr. Wright says that the governments should revisit what it said to health organizations in the past—the good things such as the need to get whistleblower protection in place. The new leadership at Mid Staffordshire NHS Foundation Trust has now made it known that quality of care is now its primary concern. To this end, it is investing 12 million pounds in frontline clinical staff, improved training and facilities, and has published a new “no blame whistleblowing policy” aimed to bring poor practice out in the open.
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References
Beamish, P.W. and Lupton, N.C., 2016. Cooperative strategies in international business and management: Reflections on the past 50 years and future directions. Journal of World Business, 51(1), pp.163-175.
Larimo, J., Le Nguyen, H. and Ali, T., 2016. Performance measurement choices in international joint ventures: What factors drive them?. Journal of Business Research, 69(2), pp.877-887.
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