Goals of the MNC
• Maximize shareholder wealth
– Problems encountered in meeting goals:
1) Agency problems larger for MNCs than purely domestic firms because: a) monitoring more difficult because of geographic distance b) different cultures c) MNC size d) subsidiary managers may maximize the value of their subsidiary but not of the MNC as a whole
2) Centralized vs. decentralized management
a) centralized reduces agency costs because it gives parent more control; downside is that local managers may be better informed
b) decentralized management increases agency costs but may result in better decisions c) Internet may facilitate monitoring of foreign subsidiaries 3) Corporate control used to reduce agency problems
a) executive compensation with stock
b) threat of hostile takeover
c) monitoring by large shareholders
– Constraints encountered in meeting goals
1) Environmental - other countries may be tougher (e.g., pollution controls)
2) Regulatory - e.g., currency convertibility, remittance of profits, etc.
3) Ethical - e.g., bribes may be more acceptable in other countries

Theories of International Business
• Theory of Comparative Advantage
– countries specialize in the production of goods they can produce with relative efficiency and trade for other products
• Imperfect Markets Theory
– factors of production (labor and other resources) are immobile.
• Firms can capitalize on imperfect markets by exploiting foreign opportunities.
• Product Cycle Theory
– firm introduces product in home market, then exports it, then establishes a subsidiary, then differentiates the product (see Exhibit 1.3 on p. 10)
International Business Methods
• International Trade
– export and import
– low risk
– Internet facilitates advertising and sales
• Licensing
– obligates firm to provide its