gray, salter & radebaugh chapter 1 global accounting and control: a managerial emphasis sidney...

Gray, Salter & Radebaugh Chapter 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

Slides Prepared by: Jennifer Anne Salter

CHAPTER ONE

GLOBAL BUSINESS: ACCOUNTING

AND CONTROL ISSUES


INTRODUCTION

Doing business in the global economy

takes place through:tradestrategic alliancesforeign direct investment (FDI)portfolio investment


DOING BUSINESS IN THE GLOBAL ECONOMY - Trade

The most important of all international business activities

World trade has grown 34.3 times from 1970 to 2005


World Trade: 1970 and 2005

600

20.602

0

5.000

10.000

15.000

20.000

25.000

1970 2005

Trade in $Billions


DOING BUSINESS IN THE GLOBAL ECONOMY - Trade

Many major companies earn a major

portion of their income outside their

home country, e.g., Procter and

Gamble


Procter & Gamble2005-2006 Segment Analysis

Billions of U. S. dollars

$-

$10

$20

$30

$40

$50

$60

$70

Sales

Total

North America

Western Europe

Northeast Asia

DevelopingGeographies

47%

23%

4%

26%


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


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.


Foreign Direct InvestmentInflows and Outflows

1990 to 2000

0

200

400

600

800

1000

1200

1400

1600

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

US

Do

llars

(b

illio

ns)

World Inflow

World Outflow


DOING BUSINESS IN THE GLOBAL ECONOMY FDI continued

Many countries are recipients ofinward investment as well as investors inother countries.


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


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


CHOOSING A METHOD OF BUSINESS INVOLVEMENT IN GLOBAL ECONOMY

TRADE STRATEGIC

ALLIANCES & COLLABORATION

FOREIGN DIRECT INVESTMENT


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 ofparticular countries, e.g.:Dominican Republic - laborIndia - computer skillsUSA - venture capitalAustralia - raw materials (aluminum,

wool, gold, electric power)


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.


Choosing a Method of Business Involvement FDI

Why FDI? Because you are:following a customerseeking raw materialscircumventing trade barrierstaking advantage of patents and

technology


MULTINATIONAL ENTERPRISES

What are they?

Multinational enterprises (MNE’s) are

entities that do a significant portion of

their business in more than one country.


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.


MNEs - Bigger than some countries, when comparing annual sales and GDP

$280.000

$290.000

$300.000

$310.000

$320.000

$330.000

$340.000

$350.000

Revenues/GDP for 2005 in billions

Royal Dutch ShellAustriaSaudi ArabiaWal MartExxon MobilTaiwan


Home Country of World’s Largest Multinationals Ranked by Sales

Country/Block

Number of MNEs in 2004


United States 176 170 European Union 159 160 Japan 81 70 China 16 20 Canada 13 14 South Korea 11 12 Switzerland 11 12 Australia 9 8 India 5 6 Others (<5 or 6) 19 28 Total 500 500

Source: Adapted from Fortune, “The Fortune Global 500”, July 2005 and July 2006


The World’s Largest Multinationals - EU

Country



France 39 38 UK 35 38 Germany 37 35 Netherlands 14 14 Italy 8 10 Spain 8 9 Sweden 7 6 Belgium 3 4 Finland 3 2 UK/Netherlands 2 1 Ireland 1 1 Belgium/Netherlands 1 1 Luxembourg 1 1 Total 159 160

Source: Adapted from Fortune, “The Fortune Global 500”, July 2005 and July 2006


The World’s Largest Multinationals - Other

Country



Mexico 2 5 Russia 3 5 Brazil 4 4 Taiwan 2 3 Denmark 2 2 Norway 2 2 Malaysia 1 1 Singapore 1 1 Thailand 1 1 Turkey 1 1 Austria 0 1 Saudi Arabia 0 1 Venezuela 0 1 Total 19 28

Source: Adapted from Fortune, “The Fortune Global 500”, July 2005 and July 2006.


The World’s Most Multinational Enterprises

Rank

Company Name

Home Country

Index of Transnationality

1 Thompson Corporation Canada 98.0 2 CRH plc Ireland 95.2 3 News Corporation Australia 92.5 4 Roche Group Switzerland 91.8 5 Cadbury Schweppes UK 87.0 6 Philips Electronics Netherlands 85.8 7 Vodafone Group UK 85.1 8 Alcan Inc. Canada 84.4 9 Publicis Groupe SA France 82.3

10 British Petroleum UK 82.1 11 Lafarge SA France 80.6 12 Rio Tinto plc UK 78.0 13 Holcim AG Switzerland 75.3 14 Suez France 74.7 15 Nestlé SA Switzerland 74.1 16 Total France 74.1 17 BAE Systems plc UK 73.8 18 Volvo AB Sweden 73.5 19 Koninklijke Ahold Nertherlands 73.3 20 AES Corporation US 72.1

Source: Adapted from United Nations. World Investment Report. 2005. Data are for 2003.


Index of Transnationality (TNI)

Foreign Sales +

Foreign Assets +

Foreign Employees

= TNI

Total Sales

Total Assets

Total Employees

3


ACCOUNTING AND CONTROL IN GLOBAL BUSINESS

There are two types of issues:Those affecting day to day

management of the firmThose 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 tradeEnter into a strategic allianceEnter into FDIGlobal listing of sharesGlobal structure of production.


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.



What is the impact of foreign exchangeon 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.



Corporate strategies and controlsystems have to adjust to operatingglobally 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 global accounting and control: a managerial emphasis sidney...

Documents

salter radebaugh chapter

global business

investment portfolio

gamble slide

jennifer anne salter

global economy fdi

global accounting

major companies