Multinational versus Domestic Financial Management

Kazi Moonmoon
Finance 620
October 17, 2012
When it comes to compan policies an! management techni"ues, multinational
companies !o not !i##er much #rom !omestic companies$ Multinational companies are those that
are operational in multiple !i##erent countries %hereas !omestic companies onl operate in one
countr$ &here are !i##erent a!vantages to choosing to operate in man !i##erent countries$
'ompanies usuall choose to be #ull #unctional in !i##erent countries primaril to e(pan! their
customer base$ )ltimatel, more countries mean more customers #or companies$ *nother
a!vantage o# operating in multiple countries is that companies can ta+e a!vantage o# lo% cost
pro!uction an! o##er lo%er %ages to emploees$ ,n a!!ition, one o# the most important reasons
#or going global is that companies can overcome an political or regulator barriers -.righam /
0hrhar!t, 20012$$ 3ome e(ample o# multinational companies are &he 'oca4'ola compan, Mars,
,ntel, *merican 0(press, Marriott, 'isco, 5oogle, Microso#t, an! o# course the ever so popular,
Mc!onal!6s -7ogers, 20112$ 3ome e(amples o# !omestic companies are 8o%e6s, &oll .rothers,
Dollar 5eneral, 8umber li"ui!ators, an! '.78 group -9uba+, 20122$
&here are various several !i##erences bet%een management stles o# multinational
companies an! !omestic companies that e(ist$ First, one o# the most obvious !i##erent is the
availabilit o# #oreign e(change$ .usiness is ultimatel all about mone an! sub:ection to
currenc e##ects ever aspect o# multinational corporation$ .uing #rom suppliers, selling to
customers, investments an! charit are all aspects %here mone is involve! in a corporation$
.ecause mone is involve! in so man areas o# a corporation, !i##erent currenc options are
%hat !istinguishes a multinational compan #rom a !omestic one -;,nternational #inance vs$,; 2$
For e(ample, i# buing an! selling is ta+en into consi!eration, a compan such as McDonal!6s
%ho operates in man !i##erent companies %ill have !i##erent currenc option as oppose! to a
local #amil4o%ne! restaurant$ Furthermore, another !i##erence bet%een a multinational
compan an! a !omestic compan is #oreign e(change !erivatives$ .ecause a multinational
compan is e(pose! to !i##erent currencies, the compan has to be a%are o# #or%ar!s, #utures,
an! options$ * #inancial manager o# a multinational compan has to emplo !i##erent he!ging
techni"ues in or!er to substantiall re!uce the inherent ris+ that are o#ten relate! in #inancial
!ecision ma+ing$ For instance, oil companies that operate in !i##erent countries that has an
enormous ris+ o# price o# oil going up, a #inancial manager can o#ten emplo !i##erent #uture
contracts %ith !i##erent e(piration !ates in or!er to re!uce the ris+$
*nother contrasting component is that a multinational compan is obviousl e(pose! to
!i##erent policies an! regulations regar!ing tra!ing than a !omestic compan$ * multinational
compan has to be +no%le!gable about the rules an! regulations o# the !i##erent countries it
operates in$ .ecause each countr6s la%s are !i##erent %hen it comes to small an! large
corporations, companies have to be ver care#ul an! have to operate ver meticulousl in or!er
to ensure optimal pro#itabilit$ Furthermore, %hen tal+ing about rules an! regulations, one o# the
most important aspect a compan shoul! pa attention to is rules an! regulations about ta(es an!
legalities$ &hose companies that especiall operate in multiple nations shoul! also be a%are o#
ta( regulations an! ma+e sure that the are a!hering to those rules$ &a( la%s have a tremen!ous
e##ect on pro!uction costs an! pro#its an! there#ore shoul! be stu!ie! ver care#ull$ 9ust li+e
previousl mentione! all the rules an! regulations concerning ta(es o# the countr being
operate! in shoul! be +no%n an! #ollo%e! to ensure that ma(imum pro#it can be ma!e
-;,nternational #inance vs$,; 2$ For e(ample, man countries are ta( e(empt in terms o# certain
#inancial transactions %hile there are other countries that has a ver high ta( rate %hen !ealing
%ith an tpe o# business transactions$ One great e(ample o# a countr that implements higher
ta( regulations is 5erman$ Man multinational companies such as Walmart not onl ha! to
ma+e changes in their operational structure but also the ha! to consi!er the government
regulations relate! to ta(ations$
,n a!!ition to the monetar !i##erences, a multinational compan also !i##ers #rom a
!omestic compan because o# the people involve!$ For e(ample, tpes customers, sharehol!ers,
suppliers, an! len!ers %ill o# course !i##er %hen it comes to multinational an! !omestic
companies$ Di##erent countries have !i##erent cultures %hich %ill in#luence people to have
!i##erent values an! %or+ ethics$ When interacting %ith sharehol!ers an! len!er, it is e(tremel
important to +eep in min! the sharehol!er6s an! len!er6s values, customs an! cultures$ <ot onl
that, there also ma be a language barrier %hen !ealing %ith not :ust sharehol!ers an! len!ers,
but also customers an! suppliers$ .ecause it is e(tremel important to +eep sharehol!ers happ,
the speci#ic countr6s values an! cultures %ill come into pla$ For instance, the sharehol!er6s
attitu!e in a countr such as :apan might ver %ell be !i##erent than the investors in the )nite!
3tates$ &he value o# mone, savings, an! investment pre#erences can var among national
bor!ers$ For e(ample, in general, most 9apanese people are big savers %hile people #rom the
)nite! 3tates are #ocuse! more to%ar!s spen!ing$ ,n these cases, investors= ris+ aversion, an!
the %a the perceive time value o# mone has to be consi!ere! b a #inancial manager %hen
operating across national bor!ers$ Furthermore, countries such as 3au!i *rabia that implements
>3haria 8a%? are ver restrictive an! sensitive to%ar!s issues such as interest$ ,n these cultures,
pro#it sharing is value! positivel %hile interest is loo+e! !o%n upon$ * !omestic compan %ill
not have to !eal %ith this component because the are eventuall :ust operating in one countr o#
%hich the probabl have #ull +no%le!ge o# the tra!itions an! cultures -;,nternational #inance
vs$,; 2$
One #inal !istinction bet%een a multinational compan an! a !omestic compan is the
reporting re"uirements in !i##erent countries$ .oo++eeping is con!ucte! in !i##erent %as among
the national bor!ers -;,nternational #inance vs$,; 2$ While the )3 an! 'ana!a has a similar
boo++eeping metho!, countries such as ,n!ia an! 5erman can be ver !i##erent in terms o#
recor!ing #inancial transactions an! preparation o# #inancial statements$ For e(ample, in
5erman !isclosure o# #inancial statements !epen!s on the size o# the corporations$ 8arge an!
me!ium size companies %ill nee! to report balance sheet, income statement an! cash #lo%
statements %hereas small companies are not legall liable to !isclose ever statement an! is onl
legall liable to !isclose the balance sheet -;'ountr gui!e@ 5erman,; 2$ &his o# course !oes not
appl in the )3$
0ven though there are man ris+s involve! %ith operating in multiple countries, companies still
choose to !o business in other countries #or the bene#its associate! %ith, %hich sometimes
out%eigh the ris+s$
7e#erence@
.righam, 0$, / 0hrhar!t, M$ -20012$ 'orporate #inance@ * #ocuse! approach$ -A e!$, pp$ 6124
61A2$ Mason, OB@ cengage 8earning$
'ountr gui!e@ 5erman$ -n$!$2$ 7etrieve! #rom
https@CCglobalconnections$hsbc$comCglobalCenCtools4!ataCcountr4gui!esC!e4march4
201DCau!it4an!4accountanc
,nternational #inance vs$ !omestic #inance$ -n$!$2$ 7etrieve! #rom
http@CC%%%$e#inancemanagement$comCinternational4#inancial4managementC10D4
international4#inance4vs4!omestic4#inance
9uba+, 9$ -2012, 9ul 1E2$ Domestic us stoc+s are a better bu$ 7etrieve! #rom
http@CCmone$msn$comCtop4stoc+sCpost$asp(FpostG6DA7c#114c#0c4A7e14aee64
Aaa7##2110E1
7ogers, *$ -2011, October 2E2$ &he 2H best multinational companies to %or+ #or$ 7etrieve! #rom
http@CC%%%$businessinsi!er$comCthe42H4best4multinational4companies42011410FopG1