Chapter 21, Problem 1DQ

Summary Introduction

To explain: The risks faced by a foreign affiliate of an MNC in today’s business world.

Introduction:

Multinational firm:

It is a business organization that operates in at least more than one country other than the one in which it has been incorporated.

Answer to Problem 1DQ

The common risks being faced by multinational corporation’s foreign affiliates are risks of finance as well as those associated with generating sales and maintaining market share. Apart from these risks, political and foreign exchange risks are also faced.

Explanation of Solution

A foreign affiliate of multinational corporations has to face several risks, such as that associated with sales generation, which refers to generating revenue at par with its competitors in the domestic market. The other common risk faced by foreign affiliates is to maintain market share, which refers to capturing a share in the targeted market through various marketing campaigns. The financial risk of raising funds for its operations is also faced by such affiliates. These are some risks that are also faced by a domestic firm as well.

In addition to these common risks, certain specific risks, such as the political instability of a country and frequently-renewed foreign policies, are also faced by such affiliates. Also, foreign affiliates are exposed to the risk of unstable and highly-volatile foreign exchange risks.