Mktg.26 Mr. Poblete

1. MKTG 26 : International Marketing
Chapter 4 :International Finance andAccounting
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PASIG CATHOLIC COLLGE

2. Objective of this session
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Explain the implication of financial decisions on
international strategy
Describe the perspectives of international money
management
Discuss how international investment decisions
are made.
Compare U.S. accounting practices with those
followed in other nations.

3. Introduction
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The financial objective of a corporation typically
constrain the latitude of a marketing manager.
Marketers are affected by their companies’
money management - the raising of money, the
investing of money, the maintenance of liquidity,
even lesser factors like the repatriation of funds
from subsidiaries to parent corporations.
The decision of marketing managers also are
affected by accounting consideration.

4. Implication of Financial Decision on
Marketing
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Marketing is affected both directly and
indirectly by the international financial
policies of the parent corporation.
A good classic example is transfer pricing
which means setting of prices for the
transfer of goods, services and technology
between related affiliates in different
countries. Question: What is the good classic example
of international financial policies of the parent corporation?

5. Affected by Intrafirm Transfer Pricing
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Fund positioning
income taxes
tariffs
quotas
managerial incentives
evaluations
the interest of joint venture partners
corporate bargaining power with suppliers
and/or financial institutions.

6. Multinational Financial Management
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The financial function has two principal aspects:
1. To provide the monetary to do business.
2. To ensure an adequate financial return on the
assets of the company commensurate with its
objectives.

7. Problems related to management funds
and investment
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What financial return is adequate ?
How should the return be defined?
What sources of funds should be tapped?
Where should funds be used?
Note: Finance management must not only
deal with different currencies and their
fluctuating rates, but also allow for the
vagaries of the economic and political
environment of the nations with varying
perspective.

8. Financial Objectives
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Consider the financial objectives of a MNC that
manufactures different types of parts and accessories
for the automobile industry and related markets.
Target profit performance shall consist of:
1. A competitive return on capital employed with a
basic minimum pretax return of 15%, which shall be
inflation adjusted from time to time.
2. An annual growth rate of pretax of at least 12%

9. Financial Limitations
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Investment in net working capital of less
than 35% of annual sales; investment in net
fixed assets of less than 25% of annual sales.
Dividend payments of approximately 40%
of earnings.
No significant dilution of shareholders
ownership.

10. Money Management
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Money management deals with sources and uses
of funds.
Money management involves such consideration
as how funds should be obtained ( equity vs debt);
in which currency a corporate or subsidiary should
be responsible for raising funds.
Prudent international money management require
the formulation and revision of capital structure
decisions for different entities, and budgets for
intercompany funds transfer.

11. The three risks related to money
management
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The political risk of assets being taken over by
the host country.
The exchange risk whereby the value of the U.S.
dollar changes with reference to the host-country
currency.
The translation risk whereby the corporate
financial statements are required by SEC
regulations to be based on historical costs rather
than current value.

12. Repatriation of Funds
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In domestic business, an important financial decision made
by a corporation is the establishment of dividend policy;
Likewise, a multinational firm needs to formulates a
strategy on remission of dividends from overseas affiliates
to headquarters.
The international dividend policy is determined by the
following six factors:
1. Tax implications 4. Age and size of affiliate
2. Political risk 5. Availability of funds
3. Foreign exchange risk 6. Presence of joint venture.

13. Making International Investments
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Successful international companies continue to
be interested in growth prospects.
Different sources for investment
1. Company employees
2. Unknown host country firms
3. Licensees
4. Distributors
5. Joint-venture partners

14. Making International Investments
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Essentially, two processes of an investment proposal
determine its fate: the selling of the proposal and its
review.
Proposal selling and reviewing go through a variety of
formal and informal human interactions.
The process are significantly affected by the firm’s internal
and politics-that is, factors such as who is backing the
proposal, what the company’s organization is, how
company personalities interact - and by factors outside the
firm.
Ultimately, the winning strength of a proposal depends on
the diligent work of those who prepare it.

15. Selling an Investment Proposal
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The selling job begins at the middle-management
level in the international division or department.
When opportunity arises the manager of
international development, begins checking with
colleagues (manufacturing, marketing, and legal
departments)
the following:
1. Sales projection
2. Manufacturing estimates
3. Patents
4. Taxes

16. Selling an Investment Proposal
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It is important to concentrate on the really critical
matters involved during investigatory period prior
formal presentation of the proposal to an international
executive.
Once the investigation has been completed, a formal
proposal is developed and submitted to the head of the
international section.

17. Selling an Investment Proposal
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The international head will make a more detailed study of the
proposed project with the objective of strengthening the proposal.
The location of the investment, market estimates and sales forecasts,
equipment costs, total capital required, sources of funding, raw
materials availability, and human resources will be examined.
On the basis of this examination, the proposal is completed for
submission to the corporate headquarters.
Accompanied by a letter, the final proposal will include an
appropriation request, an engineering report, the project proposal, and
financial analysis.
The letter activates the formal review procedure, first through
committee, and then through the board of directors.

18. Reviewing the Investment Proposal
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While the review procedure may vary, all
corporations strive to determine whether the
investment will be sound and provide a long-
term, lasting benefit for the owners.
 It is important that the chief executive or
another top officer participate actively in the
review process of individual major investment
decision from the viewpoint of the long-term
strategic posture of the company.

19. International Accounting
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An international accounting system serves the
same two basic purposes as domestic accounting.
It provide information on the business conducted
during a certain period and the results obtained.
The first purpose is achieved through the income
statement.
The second purpose is accomplished through the
balance sheet, which shows the position of the
business, its assets, and its liabilities at a
particular time.

20. International Accounting Report
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The income statement and the balance sheet mainly
constitute accounting reports all over the world.
In the U.S.A. the income statement is of primary
interest because most large corporations are publicly
owned.
While in Europe, Latin America and Asia, the major
concern are the ownership of wealth ( than the
generation of income) and the position of the firm vis-
à-vis its assets and the claims against them. Its means
that Europeans, Latin Americans, and Asians give
primary importance on the balance sheet.

21. Harmonization of International
Accounting
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It is argued that harmonization of accounting would permit
better communication of information in a form that could be
interpreted and understood internationally.
Multinational firms raised capital in different countries. It is
desirable, therefore, that investors and creditors be provided
common information in order to shaper their investment
decisions.
ICA ( International Congress of Accountants ) established
ICCAP ( International Coordination Committee for the
Accounting Profession) to provide leadership in the
harmonization effort.

22. Harmonization of International
Accounting
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One of the outcomes of ICCAP’s efforts was the 1973 formation of the
International Accounting Standards Committee(IASC), which was
formed to;
(1) Develop basic standards to be observed in
presenting audited financial statements and
(2) promote worldwide acceptance and observance
of these standards.
As expected IASC must issue statements that either develop broad
accounting principles acceptable to most countries or require
disclosures that would enable users to compare more easily
multinational enterprises

23. Consolidation of Accounts
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Most MNC’s consolidate the accounting information
from their different entities to present a single income
statement and balance sheet for both parent and affiliates.
The consolidation process is based on legal requirements
of the parent company, information available from
subsidiaries, and the practice established over time within
the corporation.
Most corporations have standard procedures for the
subsidiaries to report their accounting information. Thus,
the management of subsidiaries not only have to satisfy
the host country requirement but also the required
format demanded by their corporate headquarter.

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END OF CHAPTER 4