The Globalization Process

Fundamentals of Multinational Finance (Fifth Edition), Moffett

Case Study: Trident!
• Trident is a hypothetical US based firm that is used to illustrate the
Globalization process. Trident is a young firm that manufactures and
distributes telecom products domestically.
• The family-owned business that was founded in 1948 by James
Winston in LA, CA, USA. The business was expanded slowly but
steadily over the following 40 years.
• Due to the technological advancement in the 80’s, the company was
forced to undergo stock trading and announce the initial public
offering IPO in 1988 as a US-based publicly traded company on the
New York Stock Exchange.
Phase-1, Domestic
• During the domestic phase (Phase 1) all procedures and practices are
performed under the US laws and regulations.

US Suppliers, provide Raw US Customers, buy Products

materials/Services in US Dollars TRIDENT in US Dollars
Phase-2, Globalization (International Trade)
• After being a viable competitor in the US Market, Trident started
exporting its products to Foreign Markets. The North American Free
Trade Area (NAFTA) treaty with members USA, Canada and Mexico,
facilitated the globalization phase.

Mexican Suppliers, provide Raw Canadian Customers buy

materials/Services TRIDENT Products
Phase 2 Risks
As a result of going international, financial management requirements
are more complicated than the national business handling in the
following two ways:
• Foreign exchange Risks: This is due to the fact that Mexico and
Canada have different currencies than the US dollars. The risk is
borne as a result of the currencies change w.r.t the US dollars.

• Credit Worthiness Risks: This is due to the fact that Mexico and
Canada not necessarily subject to the same regulations and laws
applied within the US, which could cause an additional source of risk.
Phase-3, Globalization (Multinational)
• Going multinational is different from trading internationally, in terms
of having the operations abroad and/or by licensing other companies
abroad to produce/provide the products/services of Trident (other
market penetration techniques could apply), whereas international
trade doesn’t mandate to have affiliates and operations across
boarders.
• As per the textbook, Trident should keep its quality as the main
differentiator and competitive edge across boarders in order to
sustain its globalization expansion.
Strategic Penetration Alternatives
Limitations of Financial Globalization
Limitations of Financial Globalization
(Conclusion)

If influential insiders in corporations and sovereign states pursue their

own personal agendas, which may increase their personal power,
influence, or wealth, then capital will not flow into these sovereign
states and corporations. This will, in turn, create limitations to
globalization in finance.
 Agencies That Facilitate
International Flows
International Financial Management ( 9 th Edition), Jeff Madura
Agencies That Facilitate International Flows
• International Monetary Fund (IMF)
• World Bank
• World Trade Organization (WTO)
• International Financial Corporation (IFC)
• International Development Association (IDA)
• Bank for International Settlements (BIS)
• Organization for Economic Cooperation and Development (OECD)
• Regional Development Agencies
1- International Monetary Fund (IMF)
The major objectives of the IMF, as set by its charter, are to
(1) promote cooperation among countries on international monetary
issues.
(2) promote stability in exchange rates.
(3) provide temporary funds to member countries attempting to
correct imbalances of international payments.
(4) promote free mobility of capital funds across countries.
(5) promote free trade.
It is clear from these objectives that the IMF’s goals encourage
increased internationalization of business.
2- World Bank
• The International Bank for Reconstruction and Development (IBRD), also
referred to as the World Bank, was established in 1944.
• Its primary objective is to make loans to countries to enhance economic
development.
• Co-financing is performed in the following ways:
1- Official aid agencies. Development agencies may join the World Bank in
financing development projects in low-income countries.
2- Export credit agencies. The World Bank cofinances some capital-intensive
projects that are also financed through export credit agencies.
3- Commercial banks. The World Bank has joined with commercial banks to
provide financing for private-sector development.
3- World Trade Organization (WTO)
This organization was established to provide a forum for multilateral
trade negotiations and to settle trade disputes related to the GATT
accord.
It began its operations in 1995 with 81 member countries, and more
countries have joined since then. Member countries are given voting
rights that are used to make judgments about trade disputes and other
issues.
4- International Financial Corporation (IFC)
• In 1956 the International Financial Corporation (IFC) was established
to promote private enterprise within countries.
• The IFC works to promote economic development through the private
rather than the government sector.
• It not only provides loans to corporations but also purchases stock,
thereby becoming part owner in some cases rather than just a
creditor.
5- International Development Association
(IDA)

The International Development Association (IDA) was created in

1960 with country development objectives somewhat similar to
those of the World Bank. Its loan policy is more appropriate for
less prosperous nations, however. The IDA extends loans at low
interest rates to poor nations that cannot qualify for loans from
the World Bank.
6- Bank for International Settlements (BIS)
The Bank for International Settlements (BIS) attempts to facilitate
cooperation among countries with regard to international transactions.
The BIS is sometimes referred to as the “central banks’ central bank” or
the “lender of last resort.” It played an important role in supporting
some of the less developed countries during the international debt
crisis in the early and mid-1980s.
7- Organization for Economic Cooperation
and Development (OECD)

The Organization for Economic Cooperation and Development (OECD)

facilitates governance in governments and corporations of countries
with market economics. It has 38 member countries and has
relationships with numerous countries. The OECD promotes
international country relationships that lead to globalization.
8- Regional Development Agencies
Several other agencies have more regional (as opposed to global)
objectives relating to economic development. These include, for
example, the Inter-American Development Bank (focusing on the needs
of Latin America), the Asian Development Bank (established to enhance
social and economic development in Asia), and the African
Development Bank (focusing on development in African countries).