chapter 11

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Management

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Jun 11, 2024

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3. How does the evaluation of a potential foreign capital investment differ under the parent company perspective versus under the project perspective? The evaluation of a potential foreign capital investment depends on whether it's seen from the parent company or project perspective. From the parent company's view, it relies on the cash flows reported by the parent company, assuming they're equivalent to those of the foreign investment project. This results in a valuation based on the overall parent company's value. In contrast, the project perspective assumes the cash flows may differ, leading to an independent evaluation for the specific project. Factors like taxes, foreign exchange rates, and restrictions influence the project's unique cash flows. Disparities prompt the parent company to consider these factors, resulting in variations in the foreign investment project's valuation compared to the parent company's overall value, causing reported cash flows to differ between the two perspectives. 5. How does an ethnocentric organizational structure of a MNC differ from a polycentric organizational structure? Multinational Corporations (MNCs) structure their cross-border activities based on their primary objectives, leading to distinct organizational approaches. In an ethnocentric structure, where the focus is on producing products for the parent company market, there's an assumption that the cultural background of the parent company is universally applicable. Conversely, a polycentric structure emerges when MNCs concentrate on providing products tailored to each host country market, with foreign subsidiaries operating as strategic business units. Here, the adoption of the host country's culture becomes crucial. On the other hand, MNCs with a geocentric structure embrace a global networked approach, balancing product line and geographic divisions to meet diverse market demands. This structure reflects a belief in synergies derived from different countries. The choice of organizational structure influences the degree of delegation to individual foreign operations. In a polycentric structure, where the focus is on the host country, more delegation to foreign subsidiaries occurs compared to a geocentric structure that prioritizes synergies across different countries. The level of delegation also hinges on the strategic role assigned to each foreign subsidiary, such as local innovator versus integrated player, considering the varying degrees of interdependence.

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