Lecture 7:

Video 14:

Foreign exchange rate exposure:

1. Transaction exposure, exposure is the risk that currency exchange rates will change after the companies have already entered into financial obligations. (for an example see the slides)
2. Translation exposure, the risk that a company’s equities, assets. Liabilities or income will change in value as a result of exchange rate changes (for example see slides).
3. Economic exposure, risk of net present value reductions of the firm’s future income streams.

Effects of economic exposure:

1. May result in negative effects on MNE income compared to rivals
2. Adds uncertainty to value of a firm’s location adavantages
3. MNEs are active in multiple countries, so need to look at the overall economic exposure (country diversification).
4. It affects the strategic decision to locate in a certain country. HOWEVER economic exposure should never determine a strategy

Not all MNEs suffer to the same extent, because they are exposed to different risks and use different strategies. Technical solution: Hedging. But Verbeke argues that there is more to international financial management then hedging because It is difficult to establish a model that would remove all the risks (means that there are also strategic solutions)

Examples of those solutions:

1. MNEs should develop a flexible sourcing strategy, and being able to shift production efficiently from one country to another. Is difficult, because MNEs work with local partners.
2. MNEs should be able to conclude the possible cost increase, because of exchange-rate exposure into price increases.

Non-financial strategies:

1. Separate business unit model, subsidiary configures its own operations to reduce its specific operating exposure
2. Company wide portfolio model, use country diversification
3. Flexible operational model, production transfer, if the rate in one country goes up, you move to another country. Problem: you need to excess capacity.

Video 15:

Key issue in international marketing:

Should firms adapt their marketing strategy to local markets or is a global and uniform marketing strategy the best approach.

According to Levitt, there is no need to locally adapt, but  increased criticized, because cultural differences exist.

But not all companies can follow the same strategy. Because FSA’s still matter. Market-seeking firms especially are busy with to what extent they want to adapt or standerdize.

Pros and cons of standardization and adaption:

Video 16:

Corporate social responsibility, emphasizes obligation and accountability to society.

Corporate social responsiveness, emphasizes action and activity.

Corporate social performance, emphasizes outcomes and results

Corporate sustainability, those firm activities that seek to meet the needs of the present generation without compromising the ability of future generations to meet their needs.

Two views:

1. There is no such thing as business ethics, There’s just ethics and we all have to practices them every day in everything we do
2. Other view, only going for maximizing the profits

From the 1950s CSR started to evolve and include:

1. The impact of the companies actions on society
2. Actions that protect and improve the welfare of society as a whole along with a firm’s own interests
3. The corporation has not only economic and legal obligations, but also certain responsibility to society that extend beyond these obligations

But the law is not good enough for to establish this, because the law is to reactive and too slow to respond on the this. The most pressure for doing CSR comes from the consumers.

Multinationals tend to do business in countries where the law is not always well functioning. These are called institutional voids. But companies are held accountable for their suppliers (difficult to control those, you could train those suppliers) in that country.

Lack of macro-level institutions, comes along with uncertainty.

Why do MNEs go to emerging markets (have low level of development, high growth, associated with high volatility and have a high level of corruption, but managers do not really rake these institutional aspects into account) ?

Efficiency seeking: these markets may be developing rapidly, but still relatively cheap to produce locally.

Market seeking: new home markets to sell products to

Which factors should be taken into account related to a institutional context:

1. Macro level political and social context
2. Macro level openness of the economy
3. Product markets
4. Labour markets
5. Capital markets.