International Accounting and Multinational Enterprises 5e By Lee
International Accounting and Multinational Enterprises 5/e By Lee H. Radebaugh and Sidney J. Gray 3/10/2021 Power. Point Presentation by Kent W. Meyer, Ph. D
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Management Organization and Control of Global Operations Chapter Thirteen
Management Organization and Control of Global Operations Inflation u This chapter outlines how strategic change is reflected in changes to a firm’s organizational structure and control system. Accounting and information systems are seen as a part of the firm’s control system. 1
Organizational Structure u u Two major classifications exist for coordinating MNE activities: u Structural and Formal u Informal and Subtle A firm’s organization must constantly evolve to adjust to numerous external and internal factors. u Failure to evolve may result in internal conflict and poor performance. 2
Domestic Structure u Multinational firms normally progress through a series of stages: u The first stage normally involves order taking from foreign buyers and exporting. u Outside experts are initially utilized then new company experts may be hired. u A second stage may involve foreign sales representatives and sale offices. u Several strains may begin to develop. 3
International Division Structure u At a later stage, the MNE may establish foreign production facilities. u Old strains abate while other may arise. u In particular, new problems of responsibility and control may be an issue. International facilities will initially be given substantial autonomy. u The international itself will add staff and complexity. u Foreign operations may begin to conflict with domestic operations for resources. u 4
Global Structure u To minimize conflict and suboptimization, the firm must go through a major reorganization. u Often, the MNE adopts a global product structure or global geographic structure; u The choice of structure depends upon a number of criteria related to a firm’s products and markets; u Narrow, simple product lines adopt geographic structures u Wide, complex and rapidly evolving products lines adopt a global structure. 5
Global Structure (Cont. ) u u A third organizational structure - the Global Grid/ Matrix structure also has been tried. u This structure was designed to re-unite the product line and geographic dimensions of the organization. u It has not been successful and has been proven unmanageable. Organizational issues strongly influence a firm’s managerial accounting system. 6
Centralized vs. Decentralized u Firms in a global environment are often neither strictly centralized or decentralized, but are also multi-domestic or global in their approach. u u u A multi-domestic strategy is used by MNE’s whose products differ greatly from country to country, A global strategy is adopted by MNE’s when its can benefit from world wide volume in terms of reduced unit costs or superior reputation; and The term Global can occur in various contexts. u Global Competition u Global Business, and u Global Companies Hamel and Prahalad, (1992). 7
Comparative National Regulation and Practice u National practice relate to degree of inflation in the economy. u South American nations - Well developed system exists for inflation adjusted financial statements. u U. K. - Provided for adjustments: u Depreciation; u Costs of Saves; u Monetary Working Capital; and u Gearing. 8
Comparative National Regulation and Practice (cont. ) u u U. S. - Did use inflation adjusted statements; does not now provide for inflation adjusted statements; Australia, Canada, New Zealand - Adopted U. S. and U. K. current value systems with some local variations; Continental Europe - Generally little enthusiasm for inflation adjusted financial statements; Worldwide - Corporations have little regard for the value of inflation adjusted statements. 9
Comparative National Regulation and Practice (cont. ) South America: u Brazil: u Inflation adjusted statements since 1950’s; u National law required adjusted financial statements; and u Low inflation resulted in withdrawal of requirements to adjust for inflation. u Argentina: u Adjusted statements were recommended but currently low inflation has diminished their use. 10
Comparative National Regulation and Practice (cont. ) Netherlands: u Current value statements are not required but many firms use current cost statements as their primary statements. 11
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