International FinancialManagement 10國際財務(wù)管理課件

PartIV

Long-TermAssetandLiabilityManagementExistingHostCountryTaxLawsExchangeRateProjectionsCountryRiskAnalysisRiskUniquetoMultinationalProjectMNC’sCostofCapitalInternationalInterestRatesonLong-TermFundsMNC’sAccesstoForeignFinancingPotentialRevisioninHostCountryTaxLawsorOtherProvisionsEstimatedCashFlowsofMultinationalProjectRequiredReturnonMultinationalProjectMultinationalCapitalBudgetingDecisions2Chapter10DirectForeignInvestment3Objectives

ThemainpurposeofthischapteristoillustratewhyMNCsoftenuseDFIandtosuggestvariousfactorsinvolvedintheDFIdecision.ThischaptercoversingeneraltermsastothecostsandbenefitsofDFI,(thespecificsinvolvedinquantifyingcostsandbenefitswillbediscussedinthefollowingchapter).ThischapterimplicitlysuggeststhateachfirmmaybenefitfromDFIbycapitalizingonsomeuniqueperceivedadvantagesoftheforeignmarket.Yet,allDFIdecisionsrelatetotheMNC’soverallriskandreturnobjectives.Thespecificobjectivesare:4Objectivestodescribecommonmotivesforinitiatingdirectforeigninvestment(DFI);andtoillustratethebenefitsofinternationaldiversification.5TopicsforPre-classDiscussionWhywouldalargeadvancedMNCconsiderDFIinsomelessdevelopedcountry?Assumethatyouproduceplasticcomputerpiecesforcomputercompanies.Thepiecesrequireverylittletechnology.WherewouldyouliketoestablishDFI?Whatfactorswouldbeconsideredwhendecidingwhetherasubsidiaryshouldreinvestearningsorremitthemtotheparent?TheDFIdecisionisrelatedtomarketing,finance,andmanagement.WhatistheroleofeachareaintheDFIdecision?Doyouthinkforeigninvestmentsareprimarilyintendedtoreduceproductioncostsorincreasesales?Discuss.6MotivesforDFIDFIcanimproveprofitabilityandenhanceshareholderwealth,eitherbyboostingrevenuesorreducingcosts.Revenue-RelatedMotives*Attractnewsourcesofdemand,especiallywhenthepotentialforgrowthinthehomecountryislimited.7MotivesforDFIRevenue-RelatedMotives*Enterprofitablemarkets.*Exploitmonopolisticadvantages,especiallyforfirmsthatpossessresourcesorskillsnotavailabletocompetingfirms.*Reacttotraderestrictions.*Diversifyinternationally.8MotivesforDFICost-RelatedMotives*Fullybenefitfromeconomiesofscale,especiallyforfirmsthatutilizemuchmachinery.*Usecheaperforeignfactorsofproduction.*Useforeignrawmaterials,especiallyiftheMNCplanstosellthefinishedproductbacktotheconsumersinthatcountry.9MotivesforDFICost-RelatedMotives*Useforeigntechnology.*Reacttoexchangeratemovements,suchaswhentheforeigncurrencyappearstodepreciate.DFIcanalsohelpreducetheMNC’sexposuretoexchangeratefluctuations.10MotivesforDFITheoptimalmethodforafirmtopenetrateaforeignmarketispartiallydependentonthecharacteristicsofthemarket.Forexample,iftheconsumersareusedtobuyingdomesticproducts,thenlicensingarrangementsorjointventuresmaybemoreappropriate.11MotivesforDFIBeforeinvestinginaforeigncountry,thepotentialbenefitsmustbeweighedagainstthecostsandrisks.FinancialmarketconditionsshouldbeconsideredalongwithproductmarketswhenmakingDFIdecisions.Asconditionschangeovertime,somecountriesmaybecomemoreattractivetargetsforDFI,whileothercountriesbecomelessattractive.12BenefitsofInternationalDiversificationThekeytointernationaldiversificationistoselectforeignprojectswhoseperformancelevelsarenothighlycorrelatedovertime.Example:P324-32513DiversificationBenefitsfor

MerrimackCo.MerrimackCo.isaU.S.firmthatisconsideringthelocationofanewinvestmentproject.

CharacteristicsofProposedProjectIfLocatedintheU.S.theU.KProject’smeanexpected25%25%annualafter-taxreturnStandarddeviationof.09.11project’sreturnCorrelationofproject’s.80.02returnwithreturnonexistingU.S.business14DiversificationBenefitsfor

MerrimackCo.Intermsofreturn,neithernewprojecthasanadvantage.Withregardtorisk,thenewprojectisexpectedtoexhibitslightlylessvariabilityinreturnsiflocatedintheU.S.15DiversificationBenefitsfor

MerrimackCo.Supposethattheprojectconstitutes30%ofMerrimack’stotalfunds,andthatthestandarddeviationofMerrimack’sreturnonexistingU.S.businessis.10.IfthenewprojectislocatedintheU.S.,theportfoliovariancefortheoverallfirm=W2Aσ2A+W2Bσ2B+2WAWBσAσBCORRAB=(.70)2(.10)2+(.30)2(.09)2+2(.70)(.30)(.10)(.09)(.80)=.00865316DiversificationBenefitsfor

MerrimackCoIfthenewprojectislocatedintheU.K.,theportfoliovariancefortheoverallfirm=W2Aσ2A+W2Bσ2B+2WAWBσAσBCORRAB=(.70)2(.10)2+(.30)2(.11)2

+2(.70)(.30)(.10)(.11)(.02)=.0060814Thus,asawhole,MerrimackwillgeneratemorestablereturnsifthenewprojectislocatedintheU.K.17BenefitsofInternationalDiversificationAnMNCmaynotbeinsulatedfromaglobalcrisis,sincemanycountrieswillbeadverselyaffected.However,ascanbeseenfromthe1997-98Asiancrisis,anMNCthathaddiversifiedamongtheAsiancountriesmighthavefaredbetterthanifithadfocusedononecountry.Evenbetterwouldbediversificationamongthecontinents.18BenefitsofInternationalDiversificationAsmoreprojectsareaddedtoaportfolio,theportfoliovarianceshoulddecreaseonaverage,uptoacertainpoint.Thedegreeofriskreductionisgreaterforaglobalportfoliothanforadomesticportfolio,duetothelowercorrelationsamongthereturnsofprojectsimplementedindifferenteconomies.19BenefitsofInternationalDiversificationAnMNCwithprojectspositionedaroundtheworldisconcernedabouttheriskandreturncharacteristicsofitsprojects.

Example:Risk-ReturnAnalysisofInternationalProjects

(Exhibit10.1)Virginia,Inc.,considersaglobalstrategyofdevelopingprojectsasshowninExhibit10.1.Eachpointonthegraphreflectsaspecificprojectthateitherhasbeenimplementedorisbeingconsidered.(Thereturnaxismaybemeasuredbypotentialreturnonassetsorreturnonequity.Theriskmaybemeasuredbypotentialfluctuationinthereturnsgeneratedbyeachproject.)20Example:Risk-ReturnAnalysisofInternationalProjects

Exhibit10.1showsthatProjectAhasthehighestexpectedreturnofalltheprojects,yetitsriskisalsotoohigh.Thus,Virginiamaydevelopaportfolioofprojects.BycombiningProjectAwithseveralotherprojects,itmaydecreaseitsexpectedreturn,aswellasrisk.IfVirginiacombinesprojects,itsprojectportfoliomaybeabletoachievearisk-returntradeoffexhibitedbyanyofthepointsonthecurveinExhibit10.1.Thiscurverepresentsafrontierofefficientprojectportfoliosthatexhibitdesirablerisk-returncharacteristics,inthatnosingleprojectcouldoutperformanyoftheseportfolios.Asnewprojectsareproposed,thefrontierofefficientprojectportfoliosavailabletoVirginiamayshift.21Example:Risk-ReturnAnalysisofInternationalProjects

Exhibit10.1Risk-ReturnAnalysisofInternationalProjects.......ABCDEFGRiskExpectedReturnFrontierofEfficientProjectPortfolios22BenefitsofInternationalDiversificationProjectportfoliosalongtheefficientfrontierexhibitminimumriskforagivenexpectedreturn.Oftheseefficientportfolios,anMNCmaychooseonethatcorrespondstowillingnesstoacceptrisk.23BenefitsofInternationalDiversificationThefrontiersofefficientprojectportfoliosofsomeMNCsaremoredesirablethanthefrontiersofotherMNCs.

(Exhibit10.2)24BenefitsofInternationalDiversificationExhibit10.2Risk-returnAdvantageofaDiversifiedMNCEfficientfrontierofprojectportfoliosforMNCthatsellssteeltoEuropeannationsEfficientfrontierofprojectportfoliosformultiproductMNCRiskExpectedReturn25DecisionsSubsequenttoDFISomeperiodicdecisionsarenecessary.Shouldfurtherexpansiontakeplace?Shouldtheearningsberemittedtotheparent,orusedbythesubsidiary?Theappropriatedecisionsdependsontheeconomicconditionsinthesubsidiary’scountryandtheparent’scountry,aswellasrestrictionsimposedbythehostcountrygovernment.26HostGovernmentViewofDFIForthegovernment,theidealDFIsolvesproblemssuchasunemploymentandlackoftechnologywithouttakingbusinessawayfromthelocalfirms.ThegovernmentmayprovideincentivestoencouragetheformsofDFIthatitdesires,andimposepreventivebarriersorconditionsontheformsofDFIthatitdoesnotwant.27HostGovernmentViewofDFITheabilityofahostgovernmenttoattractDFIisdependentonthecountry’smarketsandresources,aswellasgovernmentregulationsandincentives.Commonincentivesofferedbythehostgovernmentincludetaxbreaks,discountedrentforlandandbuildings,low-interestloans,subsidizedenergy,andreducedenvironmentalrestrictions.28HostGovernmentViewofDFICommonbarriersimposedbythehostgovernmentincludethepowertoblockamerger/acquisition,foreignmajorityownershiprestrictions,excessiveprocedureanddocumentationrequirements(redtape),andoperationalconditions.29QuestionsandApplications*1.DescribesomepotentialbenefitstoanMNCasaresultofDFI.Elaborateoneachtypeofbenefit.2.BearCo.andViking,Inc.,areautomobilemanufacturersthatdesiretobenefitfromeconomiesofscale.BearCo.hasdecidedtoestablishdistributorshipsubsidiariesinvariouscountries,whileViking,Inc.,hasdecidedtoestablishmanufacturingsubsidiariesinvariouscountries.Whichfirmismorelikelytobenefitfromeconomiesofscale?3.OnceanMNCestablishesasubsidiary,DFIremainsanongoingdecision.Whatdoesthisstatementmean?30QuestionsandApplications

4.Packer,Inc.,aU.S.producerofcomputerdisks,planstoestablishasubsidiaryinMexicoinordertopenetratetheMexicanmarket.Packer’sexecutivesbelievethattheMexicanpeso’svalueisrelativelystrongandwillweakenagainstthedollarovertime.Iftheirexpectationaboutthepesovaluearecorrect,howwillthisaffectthefeasibilityoftheproject?Explain.31QuestionsandApplications

5.OfferyouropiniononwhyeconomiesofsomelessdevelopedcountrieswithstrictrestrictionsoninternationaltradeandDFIaresomewhatindependentfromeconomiesofothercountries.WhywouldMNCsdesiretoentersuchcountries?Ifthesecountriesrelaxedtheirrestrictions,wouldtheireconomiescontinuetobeindependentofothereconomies?Explain.32QuestionsandApplications

6.InAugust2001,Ohio,Inc.,consideredestablishingamanufacturingplantincentralAsia,whichwouldbeusedtocoveritsexportstoJapanandChinaHongKong.Thecostoflaborwasvery