Multinational Corporation NNC Familiar 1 Describe Current Essay
- Length: 8 pages
- Sources: 3
- Subject: Economics
- Type: Essay
- Paper: #6375431
Excerpt from Essay :
Multinational Corporation (NNC) familiar. 1. Describe current trends impact globalization international financial management specific MNC choosing. 2. Explain basic functioning current arrangements flexible exchange systems dominate international monetary system affects specific MNC.
Ford Motor Company
The American automobile industry is currently facing the continued threats of the internationalized economic crisis. The demand for automobiles has decreased and this has not only been due to the crisis, but also due to the inability of the American automobile makers to adjust their offer to the emergent demands of the customers. For instance, as the population was facing increasing oil prices and was becoming more environmentally conscious, the automobile industry was demanded to produce small size and fuel efficient vehicles, but it did not tailor its offer to this demand. Gradually then, the American auto industry came to generate decrease revenues, to close its plants and to downsize its employees. And the commencement of the economic crisis aggravated this trend.
Ford Motor Company is one of the American automobile makers who followed this trend. But while it did close down plants and downsized staffs, the company turned the threat of the crisis into an opportunity. Specifically, they used this time to focus on processes of internal restructuring and strengthening. And these efforts are obvious both within the United States as well as globally.
Within the global market however, the automobile manufacturer is impacted by numerous other features as well. The international financial sector is one of the most relevant examples in this sense, and the current project sets out to assess Ford through the lenses of various specific issues.
2. Globalization and Ford's financial management
Globalization is generally understood as the weakening of borders between countries, a process which then allows economic, political or cultural values to transcend the boundaries of one country and impact the corresponding values in another country. Additionally, globalization is mostly obvious at the practical and tangible levels, by liberalizing markets and allowing the free circulation of resources. Due to globalization and market liberalization for instance, people can travel freely, capitals can circulate easier and commodities can also be easily transported from one region to the other.
The current trend of globalization is that of continued developments in the sense of liberalization of circulation. Countries across the globe sign treaties of free trade and these international affairs are mostly supervised by the World Trade Organization. And the TWO is the promoter of free trade and the elimination of trade barriers.
One specific application of globalization is represented by the fact that it creates the suitable context for the application of David Ricardo's theory of the comparative advantage. According to this theory, each country is better able to produce a certain item, for which it possesses a comparative advantage. The countries should as such focus on producing the items for which they possess a comparative advantage and then exchange them within the international market for items which they would produce in more difficult conditions.
Today, as globalization becomes more and more obvious and powerful, the theory of the comparative advantage is more applied. The elements which create comparative advantages for the countries are various and include elements such as an abundance of specific natural resources, technologic development or cost effective labor force.
The managerial team at Ford Motors Company has recognized this opportunity of globalization and has decided to open plants in more cost effective regions. The comparative advantage they sought out was represented by the labor force cost efficiencies. The decision was a financial one and it was based on the supported belief that the plants in the foreign regions would operate at costs inferior to those in the United States, allowing as such Ford to retain more in profits.
This international financial management decision is based on the process of outsourcing, through which companies take work outside the original company and have it completed in a different region, in order to benefit from the comparative advantage of the respective region.
The primary scope of Ford's outsourcing was represented by the desire to generate higher profits, but the financial decision was also characterized by an adjacent impact. Specifically, by outsourcing part of its operations, the company was better able to focus more on its core operations. In other words, the managerial team at Ford became better able to focus on issues such as administration and internal processes, marketing or design, all of which are part of the Ford brand and which also contribute significantly to the sales of the company and its ultimate success.
3. Ford and the flexible exchange systems
As part of the overall process of liberalization, the international community promotes the establishment of the currency exchange rates based on the movements in the market and the realities of the economies. In this effort, the role of the governments and central banks is reduced as they become less involved in the setting of the exchange rate. In a more specific formulation, the flexible exchange system is defined as:
"A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the forex market" (Investopedia, 2011).
The basic functioning of the flexible exchange rate system impacts Ford at multiple levels, some of the more notable ones including the following:
When selling its automobiles in countries with flexible exchange rate systems, the automobile maker protects itself against massive fluctuations
By collaborating with countries that implement the flexible exchange rate system, Ford is able to avoid crisis situations. Specifically, in case major shifts occur in currency values, the flexible system allows these changes to be quickly reflected, avoiding as such the threats of crises
The flexible exchange rate system allows an economy to quickly adjust to crises at both internal as well as external level. One relevant example in this sense is represented by the continually changing price of oil, which impacts prices indexes, as well as the purchase powers of automobile consumers.
The previous three features represent beneficial particularities of the flexible exchange rate system. Nonetheless, due to the same system, Ford also encounters disadvantages, such as the following:
The company can seldom construct strict financial plans as the floating exchange system introduces high levels of uncertainties. This in turn translates into the low levels of discipline regarding financial management
In the countries where the floating systems are present, Ford also faces threats from speculation and inflation. Flexible rates attract speculation, but when the value of the national currency falls, the prices of imports rise and inflation is as such created (Biz/ed, 2011). This could generate two outcomes for Ford: either an increase in revenues, through the sale of the same volume, either a contraction of the demand as a result of contracted purchasing power.
4. Balance of payments and financial planning in the management of Ford
The balance of payments represents a national document which integrates information of all money consumed and produced by the respective country. The analysis of the balance of payments, combined with key financial planning information, impacts tremendously the financial management at Ford. Some of the more notable examples in this sense include:
The final results in the balance of payments accounts reveal whether the country in which Ford is operating functions on a deficit or on a surplus. The ideal situation in a balance of payments accounts is for the liabilities and the incomes to be equal, but this is seldom the case in reality. If the liabilities are higher than the incomes, then the country operates on a deficit and Ford realizes that the respective consumers reveal a decreased or an unstable purchasing power. If, on the other hand, the country reveals incomes higher than the liabilities, it operates on a surplus and Ford would invest more to create demand for its automobiles.
The balance of payments accounts reveal the sources and destinations of the incomes and the debts. If, for instance, in a country, the highest export revenues are generated by the automobile industry, this would mean that the respective state possesses a comparative advantage within the automotive industry, and that Ford would face severe competition within the national market of the respective state.
The balance accounts also reveal the purchasing powers of the consumers and their purchase preferences. These in turn inform Ford of the future strategies it should adopt in order to best adapt to the local market and serve its particular needs. For instance, in a state where the purchase power is decreased, the company would focus on smaller size and fuel efficient vehicles, whereas in a state with high purchase powers, Ford would focus on large size and luxurious vehicles.
5. The case of Ford in Greece
Greece is the state mostly affected by the internationalized economic crisis. Its troubles are intense and risky not only for the state, but also for the very European Union. These threats to…