If an MNC exports to a country, then establishes a subsidiary to produce and sell the same product in the country, then cash flows from prevailing operations would likely be ____ affected by the project. If an MNC establishes a foreign manufacturing subsidiary that buys components from the parent, the cash flows from prevailing operations would likely be ____ affected by the project.

Question

Quizplus · Accepted Answer

If an MNC exports to a country, then establishes a subsidiary to produce and sell the same product in the country, cash flows from prevailing operations would likely be adversely affected by the project since the subsidiary will be a competitor to the export operations, and there will be additional costs associated with establishing and running the subsidiary.

On the other hand, if an MNC establishes a foreign manufacturing subsidiary that buys components from the parent, the cash flows from prevailing operations would likely be favorably affected by the project since the manufacturing subsidiary will be a customer of the parent and will increase the demand for the parent's products or components.

If an MNC Exports to a Country, Then Establishes a Subsidiary