In recent times it is becoming important also to have a physical presence on the market to discourage potential competitors from occupying that market.
Efficiency seeking: Multinational companies may also seek to reorganize their overseas holdings in response to broader economic changes. For example, the creation of a new free trade agreement among a group of countries may suddenly make a facility located in one of those countries more competitive, because of access for the facility to lower tariff rates within the group. Fluctuations in exchange rates may also change the profit calculations of a firm, leading the firm to shift the allocation of its resources.
Strategic asset seeking: Firms may seek to invest in other companies abroad to help build strategic assets, such as distribution networks or new technology. This may involve the establishment of partnerships with other existing foreign firms that specialize in certain aspects of production.
B. What are the five major factors that distinguish multinational financial management from financial management as practiced by a purely domestic firm?.
I. Foreign Exchange Risk:.
When firms and individuals are engaged in cross-border transaction, they are potentially exposed to foreign exchange rate they would not normally facing it at in purely domestic transaction. This risk would come from value changing in currency changing rate. Exchange rate has influence in all major economics functions like consumption, production and investment. For example, suppose UK Company its export market is Mexico and the Mexican Peso depreciates drastically against the British pound, that mean company's products can be priced out of the Mexico market, as the peso price of British imports will rise following the peso's fall. "Sabherwal, Eun, 2012. International Finance. global ed".
II. Political risk:.
Ranges from unexpected changes in tax rules to outright expropriation of assets hold by foreigners.