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Global Accounting and Control: A Managerial Emphasis

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. CHAPTER ONE. GLOBAL BUSINESS: ACCOUNTING AND CONTROL ISSUES. INTRODUCTION.

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Global Accounting and Control: A Managerial Emphasis

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  1. 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 Gray, Salter & Radebaugh Chapter 1

  2. CHAPTER ONE GLOBAL BUSINESS: ACCOUNTING AND CONTROL ISSUES

  3. INTRODUCTION Doing business in the global economy takes place through: • trade • strategic alliances • foreign direct investment (FDI) • portfolio investment Gray, Salter & Radebaugh Chapter 1

  4. DOING BUSINESS IN THE GLOBAL ECONOMY - Trade • The most important of all international business activities • World trade has grown 38.7 times from 1970 to 2006 Gray, Salter & Radebaugh Chapter 1

  5. World Trade: 1970 and 2006 Gray, Salter & Radebaugh Chapter 1

  6. DOING BUSINESS IN THE GLOBAL ECONOMY - Trade Many major companies earn a major portion of their income outside their home country Gray, Salter & Radebaugh Chapter 1

  7. Vodafone Group2006-07 Segment Analysis 100% 63% 16% 8% 8% 4% Gray, Salter & Radebaugh Chapter 1

  8. Vodafone Group - Western Europe2006-07 Segment Analysis 27% 23% 22% 21% 7% Gray, Salter & Radebaugh Chapter 1

  9. 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 Gray, Salter & Radebaugh Chapter 1

  10. DOING BUSINESS IN THE GLOBAL ECONOMY Foreign Direct Investment (FDI) • 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 • constitutes a major portion of capital flows around the globe. Gray, Salter & Radebaugh Chapter 1

  11. Foreign Direct InvestmentInflows and Outflows1990 to 2000 Gray, Salter & Radebaugh Chapter 1

  12. DOING BUSINESS IN THE GLOBAL ECONOMY FDI continued Many countries are recipients of inward investment as well as investors in other countries. Gray, Salter & Radebaugh Chapter 1

  13. DOING BUSINESS IN THE GLOBAL ECONOMY Portfolio Investment What is Portfolio Investment? • It’s the flow of capital between countries for the purpose of investing in the shares of a company Gray, Salter & Radebaugh Chapter 1

  14. DOING BUSINESS IN THE GLOBAL ECONOMY 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: • Country • Region or • Investment Portfolio Gray, Salter & Radebaugh Chapter 1

  15. CHOOSING A METHOD OF BUSINESS INVOLVEMENT IN GLOBAL ECONOMY • TRADE • STRATEGIC ALLIANCES & COLLABORATION • FOREIGN DIRECT INVESTMENT Gray, Salter & Radebaugh Chapter 1

  16. 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…... Gray, Salter & Radebaugh Chapter 1

  17. 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, electric power) Gray, Salter & Radebaugh Chapter 1

  18. Choosing a Method of Business Involvement Strategic Alliances Why a Strategic Alliance? • It facilitates entry into foreign markets. • It allows for sharing of costs and risks. • It brings together complimentary skills. Gray, Salter & Radebaugh Chapter 1

  19. 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 Gray, Salter & Radebaugh Chapter 1

  20. MULTINATIONAL ENTERPRISES What are they? Multinational enterprises (MNE’s) are entities that do a significant portion of their business in more than one country. Gray, Salter & Radebaugh Chapter 1

  21. MULTINATIONAL ENTERPRISES How Important are they? • Globally, in the 1990s, more than 37,000 MNEs controlled 200,000 affiliates. • Some MNEs have annual revenues of more than a medium sized country. • The USA, European Union, and Japan are home to most of the world’s largest MNEs. Gray, Salter & Radebaugh Chapter 1

  22. MNEs - Bigger than some countries, when comparing annual sales and GDP Gray, Salter & Radebaugh Chapter 1

  23. Home Country of World’s Largest Multinationals Ranked by Sales Gray, Salter & Radebaugh Chapter 1

  24. The World’s Largest Multinationals - EU Gray, Salter & Radebaugh Chapter 1

  25. The World’s Largest Multinationals - Other Gray, Salter & Radebaugh Chapter 1

  26. World’s Most Multinational Non-Financial Enterprises Gray, Salter & Radebaugh Chapter 1

  27. World’s Most Multinational Financial Enterprises Gray, Salter & Radebaugh Chapter 1

  28. Index of Transnationality (TNI) Gray, Salter & Radebaugh Chapter 1

  29. Estimated Foreign Employees Gray, Salter & Radebaugh Chapter 1

  30. 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 Gray, Salter & Radebaugh Chapter 1

  31. 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. Gray, Salter & Radebaugh Chapter 1

  32. Accounting, Control and Corporate Global Investment Cont’d There are accounting issues which result from exposure to international accounting: • problems with the buyer’s financial statements • language and currency problems • differences in terminology • differences in types and amount of information • differences in procedures leading to final figures. Gray, Salter & Radebaugh Chapter 1

  33. Accounting, Control and Corporate Global Investment Cont’d 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. Gray, Salter & Radebaugh Chapter 1

  34. Accounting, Control and Corporate Global Investment Cont’d 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. Gray, Salter & Radebaugh Chapter 1

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