896N1 Multinational Financial Management
February 10, 2022
BHO 0202 Managing Organizational Design and Change
February 11, 2022
Abstract
Gaining access to capital continues to be among the most significant barriers and issues for the evolution of growth and survival of multinational enterprises, mostly innovative ones. The issue is very strongly impacted by the global economic and financial crisis as multinational enterprises have suffered a great deal of shock (Borio, 2014). This includes a significant decrease in the demand for services and goods along with a restraining in the credit terms that are severely directed at the cash flows of the companies. The aim of the paper is to focus and elaborate on various aspects of implications on the MNEs financing due to the global financial crisis.
Introduction
Right from the Great Depression of the 1930s, the economical weather of the globe had not counteracted many major setbacks till the huge recession of 2009. This was the second most prominent financial crisis that affected the world economy to a great extent. As per Cavusgil et al (2014), an economic and financial crisis can be regarded as an event wherein the demand for capital or money exceeds the supply and the assets decline at a faster rate (Cavusgil et al., 2014). Hence, the liquidity of capital or money vanishes as the withdrawal of available money is done from the savings accounts and banks so as to avoid a collapse or shortfall for people. It is a true fact that when the financial system faces failure, every individual happens to suffer. There can be undying facts supporting the fact that multinational enterprises are also affected to a prominent extent as they play a very significant role in the economies of any market. For the paper, the intention to study the subject would be by evaluating various aspects of the matter (Christophers, 2015).
Background Literature
Multinational enterprises employ more than half of the human force of the global private sector. Considering the instance of the European Union, multinational enterprises encompass around 99 per cent of the entire enterprise industries. Moreover, 91 per cent of such business organization is considered micro-companies that have 10 or less than 10 numbers of workers. Considering the significance of multinational enterprises in all the markets and economies, multinational enterprises are to be taken into serious account for economic recovery. A multinational enterprise is a kind of business organization that is functional in one or more countries other than its base country (Dunning, 1992). The factories and offices of the company must be located in various places all around the globe. According to Karshenas (2009), a multinational enterprise plays a very significant role in foreign direct investment through buying certain facilities or by initiating expansion on the current or different nation (Karshenas, 2009). In the case of the occurrence of a global crisis, implications of 2009’s global crisis have been very prominent.
The Impacts of the global financial crisis of 2009 on multinational enterprises have been manifold as they exist in all parts of the world. Though there is the absence of any kind of internationally agreed concept of multinational enterprises, there has been research that multinational enterprises had faced a clear downturn in all kinds of demand of services and goods. This was, however, not evident in the fourth quarter of the year 2008. There were two kinds of associated factors that led to implications on the business and the existence of multinational enterprises. One could be regarded to the increased delays in the payments on receivables that as added with an enhancement one the inventories. This further resulted in the wide-scale working capital shortage and a reduction in liquidity. The second element in this regard was observed to be the increase in insolvencies, reported defaults and bankruptcies (Ratiu, 2015). The increased rates of insolvency appeared for confirmation of the increased liability of the multinational enterprises for obtaining finances on a short term basis. This further was followed by the exacerbating attitude of the banks towards multinational enterprises.
Analysis
There were poor economic prospects of multinational enterprises and increased capital costs that led a great deal of impact on the balance sheet of the banks for the multinational enterprises. This was also followed by the decrease in the capital venture capital fundraising was observed in the world market between the years 2008 to 2009. There was the apprehension of the future prospects of the multinational enterprises regarding fund-raising the global market. Institutional investors who happened to provide funding projected to be less interested to supply fresh funds with new capital.
It was observed that the public funds including both indirect and direct investment funds were affected to the same extent as that of the private funds. In markets where multinational enterprises were present with semi-public to public investments funds, that facilitated capital to various activities of funding could witness more constrained possibilities of mutually investing along with the private funds (Schuh, 2009). This can be materialized as the private funds rapidly reduce the activities of investment. This would further result in the fact that public funds will not be expected for providing similar leverage implications as that to the pre-crisis period.
This will not be occurring till the multinational enterprises are supplied with more funding and capital. From personal perception on the subject matter, the governments of all the economies must be urged to conduct reviews and measure the policies that are already set up with the objective of complementing or reinforcing them with new regulations or policies (Turner, 2017). Along with the policy measures, economies may also opt to encourage competition in the banking sector across markets. This has to be done by considering the regulation of t eh multinational enterprise by the financial bodies and banks through the ways of regulating reporting and setting up of an established set of conduct codes for the multinational enterprises’ lending by various banks (Karshenas, 2009).
Conclusions
In this paper, the implications of the major global financial crisis of 2009 on the MNEs were discussed. The paper also elaborated on various impacts that the banks across all these economies have to project in the global market. Further, there has been a strong emphasis on the establishment of a new code of conduct and regulations for the banks as well as financial institutions that offer funding to multinational enterprises as a recommendation.
Statistical Service Do numbers give you shivers, statistical analysis sounds tough?
References
Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, pp.182-198.
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.
Christophers, B., 2015. Geographies of finance II: Crisis, space and political-economic transformation. Progress in Human Geography, 39(2), pp.205-213.
Dunning, J.H., 1992. The competitive advantage of countries and the activities of transnational corporations. Transnational corporations, 1(1), pp.135-168.
Ratiu, R.V., 2015. Financial reporting of European banks during the GFC: a pitch. Accounting & Finance, 55(2), pp.345-352.
Schuh, A. 2009. The impact of the current economic crisis on strategies of multinational corporations in Central and Eastern Europe. Akademija MM (Marketing Magazin), 53-61.
Turner, A., 2017. Between debt and the devil: money, credit, and fixing global finance. Princeton University Press.
