ABSTRACT
Regardless of where you live, chances are you have come across the names of numerous multinational corporations (MNCs) such as those listed in Table 17.1. These mammoth organizations, which measure sales by the tens of billions of dollars and employment by the tens or even hundreds of thousands, have evaluated expected cash flows and risks and decided that foreign direct investment (FDI) is worthwhile. But what makes expected cash flows and risks what they are? Furthermore, can anything he done to influence them? For example, can transfer prices of goods and services moving within an MNC be used to reduce taxes or otherwise increase net cash flows from a given project? Can financial structure – the mix between debt and equity for financing activities – be used to reduce political risk? Indeed, can an MNC correctly measure the cash flows and political risks of foreign investments? Furthermore, do the matters relating to MNCs apply also to members of transnational alliances – firms in different countries working in cooperation – or are transnational alliances a means of avoiding problems faced by MNCs? These questions, which are central to the emergence and management of MNCs and transnational alliances, are addressed in this chapter. In addition, we look at
the problems and benefits that have accompanied the growth of multinational and transnational forms of corporate organization.
