Final answer:
Multinationals conduct international business through direct investment, joint ventures, and mergers and acquisitions. These ventures create risks such as exchange rate fluctuations and political instability, and challenges vary depending on the method, from substantial capital requirements to potential government scrutiny.
Step-by-step explanation:
There are several methods through which multinationals conduct international business. Three common models include:
- Direct investment: establishing operations or acquiring business assets in a foreign country, such as subsidiaries or factories.
- Joint ventures: partnering with foreign companies to share resources, risks, and profits.
- International mergers and acquisitions: combining operations with foreign companies to expand global reach or access to resources.
The cash flows from these business models create risks and uncertainties for multinationals. Such risks include exchange rate fluctuations, political instability, and differing legal environments. For instance, a joint venture may be exposed to the risk of policy changes in the host country, while direct investments may suffer from currency devaluation. Mergers and acquisitions could result in integration issues or confront regulatory hurdles.
Additionally, each method entails unique challenges. Direct investments may require substantial capital and involve complex logistics. Joint ventures could face partnership conflicts or cultural misunderstandings. International mergers and acquisitions might attract scrutiny from governments and can result in negative consequences such as job losses or reduced competition if not carefully managed and regulated.