Global Accounting and Control: A Managerial Emphasis: Sidney J. Gray Stephen B. Salter Lee H. Radebaugh

GLOBAL ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS
Sidney J. Gray, University of New South
Wales Stephen B. Salter, University of Cincinnati Lee H. Radebaugh, Brigham Young University
Slides Prepared by: Jennifer Anne Salter
Gray, Salter & Radebaugh Chapter 1
CHAPTER ONE
GLOBAL BUSINESS: ACCOUNTING AND CONTROL ISSUES
INTRODUCTION
Doing business in the global economy
takes place through:

trade; strategic alliances; foreign direct investment (FDI); portfolio investment
Gray, Salter & Radebaugh
Chapter 1
DOING BUSINESS IN THE GLOBAL ECONOMY - Trade

The most important of all international
business activities Many major companies earn a major portion of income outside their home country, e.g., Procter and Gamble
Chapter 1
Trade continued
World trade has grown:
12000 10000 8000 6000 4000 2000 0 1970 1998
Trade in $ Billions
DOING BUSINESS IN THE GLOBAL ECONOMY
- Strategic Alliances
Companies grow by several types of alliances

cross-shareholder deals licensing franchising joint ventures informal cooperative agreements
Chapter 1
- Foreign Direct Investment (FDI)

is the direct investment by a company from
one country, in another country.

emerged from the 1980s as a major
component of international business.

can include mergers and acquisitions
- FDI continued
constitutes a major portion of capital flows
around the globe.

At the end of 1999 - total stock of FDI by
companies in locations outside their home base was US$9,860 billion.
Chapter 1
- FDI continued
Many countries are recipients of inward
investment as well as investors in other countries.
Chapter 1
- Portfolio Investment
What is Portfolio Investment?
Its the flow of capital between countries
for the purpose of investing in the shares of a company

- Portfolio Investment Continued

How is this done?
It is usually carried out by a private
investor who purchases a mutual fund or unit trust specializing in a particular.

- Portfolio Investment Continued

Country
or Region
or
Investment portfolio
Chapter 1
Now its on to .
CHOOSING A METHOD OF
BUSINESS INVOLVEMENT IN THE GLOBAL ECONOMY
Chapter 1
CHOOSING A METHOD OF BUSINESS INVOLVEMENT

Our choices are: TRADE STRATEGIC ALLIANCES & COLLABORATION FDI
Chapter 1
Choosing a Method of Business Involvement - Trade

Why Trade?
Companies need a larger market; Companies need to use up excess
production capacity; Companies may have a comparative advantage in terms of the price or availability of raw materials and labor...
Choosing a Method of Business Involvement - Trade

Consider the natural advantages of
particular countries, e.g.:

Dominican Republic - labor; India - computer skills; USA - venture capital; Australia - raw materials (aluminum, wool, gold, power) Can you suggest another?
Choosing a Method of Business Involvement - Strategic Alliances

Why a Strategic Alliance?
It facilitates entry into foreign markets. It allows for sharing or costs and risks. It brings together complimentary skills.
Chapter 1
Choosing a Method of Business Involvement - FDI

Why FDI?
Because you are:

following a customer;
seeking raw materials; circumventing trade barriers; taking advantage of patents and
technology.
MULTINATIONAL ENTERPRISES (MNEs)

What are they and how important are they? MNEs are entities that do a significant
portion of their business in more than one country. Globally, in the 1990s, more than 37,000 MNEs controlled 200,000 affiliates.
Chapter 1
MNEs continued
Some MNEs have annual revenues of more
than a medium sized country.

The USA, European Union, and Japan are
home to most of the worlds largest MNEs.
Chapter 1
MNEs - Bigger than some countries, when comparing annual sales and GDP
200 180 160 140 120 100 80 60 40 20 0
Mitsui Thailand Daimler Sweden General Motors Chile
Revenues 1999
Chapter 1
The Worlds Largest Multinationals

Number of MNEs in 1998 United States 185 European Union 156 Japan 100 Canada 12 Switzerland 11 South Korea 9 Australia 7 China 6 Brazil 4 Others 10 Total 500 Source: Adapted from Fortune, 'The Fortune Global 500', August 1999.
Country/Block
The Worlds Most Multinational Enterprises

Company Name Nestle Thomson Corporation Holderbank Financiere Seagram Company Solvay ABB Asea Brown Boveri Electrolux Unilever Philips Electronics Roche Holdings SCA Northern Telecom Glaxo Wellcome Cable and Wireless Volvo Home Country Switzerland Canada Switzerland Canada Belgium Switzerland Sweden UK/Netherlands Netherlands Switzerland Sweden Canada UK UK Sweden Index of Transnationality 94.0 93.3 92.1 89.7 89.6 88.6 88.3 87.1 85.4 85.1 79.7 78.4 76.5 75.6 73.8
Chapter 1
ACCOUNTING AND CONTROL IN GLOBAL BUSINESS

There are two types of issues: Those affecting day to day management of
the firm
Those arising from preparation of external
financial reports or analyses of reports

Accounting, Control and Corporate Global Investment

There is a step by step strategy of
engagement for an MNE:

Foreign trade, Enter into a strategic alliance, Enter into FDI, Global listing of shares, Global structure of production.
Chapter 1
Accounting, Control and Corporate Global Investment Contd
There are accounting issues which result from exposure to international accounting: problems with the buyers financial statements language and currency problems differences in terminology differences in types and amount of information differences in procedures leading to final figures.

What is the impact of foreign exchange on
receivables?
The value in domestic currency of a foreign currency A/R fluctuates as foreign currency rates change; This affects the balance sheet and income statement.
Chapter 1

Corporate strategies and control systems
have to adjust to operating globally because of the need to:

Deal with multiple tax authorities. Develop financial statement using laws of other countries. Adjust to foreign GAAP.
Chapter 1
Copyright
Copyright 2001 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make backup copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Chapter 1
Chapter 1

Global Accounting and Control: A Managerial Emphasis: Sidney J. Gray Stephen B. Salter Lee H. Radebaugh

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GLOBAL ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS

Sidney J. Gray, University of New South

takes place through:

Gray, Salter & Radebaugh

DOING BUSINESS IN THE GLOBAL ECONOMY - Trade

Gray, Salter & Radebaugh

DOING BUSINESS IN THE GLOBAL ECONOMY

Companies grow by several types of alliances

Gray, Salter & Radebaugh

DOING BUSINESS IN THE GLOBAL ECONOMY

- Foreign Direct Investment (FDI)

one country, in another country.

component of international business.

DOING BUSINESS IN THE GLOBAL ECONOMY

around the globe.

companies in locations outside their home base was US$9,860 billion.

Gray, Salter & Radebaugh

DOING BUSINESS IN THE GLOBAL ECONOMY

investment as well as investors in other countries.

Gray, Salter & Radebaugh

DOING BUSINESS IN THE GLOBAL ECONOMY

Its the flow of capital between countries

for the purpose of investing in the shares of a company

DOING BUSINESS IN THE GLOBAL ECONOMY

- Portfolio Investment Continued

It is usually carried out by a private

investor who purchases a mutual fund or unit trust specializing in a particular.

DOING BUSINESS IN THE GLOBAL ECONOMY

- Portfolio Investment Continued

Gray, Salter & Radebaugh

BUSINESS INVOLVEMENT IN THE GLOBAL ECONOMY

Gray, Salter & Radebaugh

CHOOSING A METHOD OF BUSINESS INVOLVEMENT

Gray, Salter & Radebaugh

Choosing a Method of Business Involvement - Trade

Choosing a Method of Business Involvement - Trade

particular countries, e.g.:

Choosing a Method of Business Involvement - Strategic Alliances

Gray, Salter & Radebaugh

Choosing a Method of Business Involvement - FDI

Because you are:

MULTINATIONAL ENTERPRISES (MNEs)

Gray, Salter & Radebaugh

than a medium sized country.

home to most of the worlds largest MNEs.

Gray, Salter & Radebaugh

Mitsui Thailand Daimler Sweden General Motors Chile

Gray, Salter & Radebaugh

The Worlds Largest Multinationals

The Worlds Most Multinational Enterprises

Gray, Salter & Radebaugh

ACCOUNTING AND CONTROL IN GLOBAL BUSINESS

financial reports or analyses of reports

Accounting, Control and Corporate Global Investment

engagement for an MNE:

Gray, Salter & Radebaugh

Accounting, Control and Corporate Global Investment Contd

Accounting, Control and Corporate Global Investment Contd

Gray, Salter & Radebaugh

Accounting, Control and Corporate Global Investment Contd

have to adjust to operating globally because of the need to:

Gray, Salter & Radebaugh