A multinational company is one that delivers services to more than one country. Multinational companies play an important role in globalization and international relations. Nokia is one of the U.S multinational companies that operate in several countries in the world. Nokia manufactures and distributes mobile phones to different countries in the world.
Pricing Costs and Revenue
The economic growth in U.S is slowing and the dollar is becoming weaker and weaker. To take the advantage of the situation, Nokia makes its investment in other denominations whose prices are stable. This way, exchange of the dollars available to other denominations helps in increasing the total amount obtained. If the money had been changed at a time when the dollar was stable. Free cash flows resulting from sale of Nokia’s commodities are most of the times used to pay the debts maturities as they continue being eliminated. This will result to lower debt levels that will eventually lead to strengthening the company (McCray, 1). In pricing its costs and revenue, Nokia comes with different classes of products that will meet the different demands of the consumers. If a commodity that has been manufactured lately do well in the market, the new products will be very important because the company will have some means of taking care of economic slowdown in the future (Michael, 482). Products that fit particular markets are developed so that the company can increase its sales. Investigation done shows that particular sets of headsets are used in certain regions and rarely in some other regions.
Foreign Operations and the Parent Firm’s Profit
The multinational enterprises affect the way the parent multinational companies plans its
activities and how it will initialize these activities. These branches help in maximizing profit of the mother company in that these entities act as independent companies in their activities. The entities determine how to deal with cases of losses in the business (Michael, 482). For operations that emerge in completely new environments, they tend to act as marketers of the product that belongs to then Mother Company. This way, the mother multinational enterprise expands its market to new places.
To hedge against exchange rate risks, the multinational company here uses the currency that is in more stable. Since the MNEs exists in several different markets, in different parts of the world, the currency to be used should be more stable so that the clients will not see as if they are being denied due to the changing prices. The MNEs get a chance to explore more markets and determine the places where more investments need to be made for maximization of profit (McCray, 1).
Effect of Changing Dollar’s Exchange Value
If the value of the dollar was increased in a market that the company happens to be operating, it means that the dollar is growing weaker in this market. Since the number of dollars that the company posses is constant that is if it was previously operating using the dollar, the company will end up losing. On the other hand, if the value of the dollar decreases in a certain market, it means that the dollar has gained value and the number of dollars in anybody’s account is the same. This way, the individual gets more money.
Any multinational company that is operating in different parts of the world need to come up with a means of pricing costs and revenue. Nokia uses the currencies that are stable on the market so that it can maximize its profit. The operations of the MSEs which act as subsidiaries help the mother company in that they operate as independent bodies and take care of their losses.
McCray, F. (2009). Nokia Takes Knocks as Weak Dollar Erodes Market. Retrieved on 26-Sep 2009. from http://www.google.co.ke/search?hl=en&client=firefox-a&channel=s& rls=org.mozilla%3Aen-US%3Aofficial&q=definition+of++%3A+hedge&btnG=Search& amp;meta=.
Michael, R. K. (2008). Cost Accounting: Foundations and Evolutions. New York: Oxford University Press, 481-483.
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