Maximize Profit

Posted on December 20, 2011 by Admin
Maximize Profit

Maximize Profit

When McDonald's sponsor Canadian community soccer clubs and General Motors goes green it may appear as if supporting community projects and saving mother earth is a central goal of the two multinational corporations (MNCs). However, it is more likely, that helping Markham Soccer Club win the Boys U9 Division and developing cars that can drive “the extra mile” are merely intermediate targets that end up increasing share value.

Any corporation that is quoted on the world's many stock exchanges or seek to become publicly held need investors to buy their shares. In addition, investors only seek to hand over their money to firms that can help the money grow. Thus, the main purpose of MNC executives and board members is to figure out how they can maximize the wealth of their shareholders. There are numerous constraints to maximizing share value. However, this article will primarily focus on those constraints that are indigenous to multinational corporations.

Constraints to Maximizing Share Value

According to Deardorff's Glossary of International Economics, a multinational corporation is a firm “that operates in two or more contries... [and] headquartered in only one country but has production or marketing in others.” The first constraint to maximizing shareholder's wealth already appears when deciding where to open that foreign production sight or marketing office. There is a good chance that the responsible executive may be swayed by other things than the company's shareholders: e.g. the executive may end up choosing a country that represents more prestige, a seemingly more ethical choice or even just a more exotic destination for future business travels.