Apresentacao SAI - 2010

Seminário Avançado Internacional Ambiente Internacional de Negócios em 2010-12 Prof. Dr. Ervin L. Black São Paulo – SP Abril de 2010

THE GLOBAL FINANCIAL CRISIS

CREDIT CRUNCH to DOWNTURN
Defined as "a severe shortage of money or credit", the start of the phenomenon has been pinpointed as 9 August 2007 when bad news from French bank BNP Paribas triggered sharp rise in the cost of credit, and made the financial world realize how serious the situation was. (BBC, 7 August 2009)

The roots of the credit crunch, however, started earlier.

Between 2004 and 2006 US interest rates rose from 1% to 5.35%, triggering a slowdown in the US housing market.
Homeowners, many of whom could only barely afford their mortgage payments when interest rates were low, began to default on their mortgages.

Global Financial Crisis
Collapse in the housing market and general confidence
Lehman Brothers bankruptcy on 15 Sept 2008
Collapse in equity markets, commodities prices, and exchange rates
Safe haven vs. flight to risk
Concern about massive government budget deficits, especially as a percentage of GDP

Global Financial Crisis
US Federal Reserve slashes its key interest rate from 1% to a range of 0 to 0.25 % - the lowest since records began
The European Central Bank, as well as UK, Sweden and Denmark slash interest rates again
President Bush says will use $17.4 billion to help US auto makers and bailout for GMAC
The FTSE closes down 31.3% (lowest in 24 years)
The DAX loses 40.4% and CAC 40 drops 42.7%
Japan’s economy contracted at an annualized rate of 14.2% in first three months of 2009, a record!

Global Financial Crisis Recent Headlines
“ Financial crisis has set up investment opportunities in Asia” Singapore News , April 1, 2010
“the global financial crisis may have been the best thing that has happened to Asia.”
“the crisis has helped the region move away from being too export-dependent and develop its own economic drivers

“China central bank warns of risks to global recovery” Malaysian Mirror , April 2, 2010
“China’s central bank warned that the global economic recovery could falter this year as developed countries exited their pro-growth policies adopted during the financial crisis.”
“The central bank report was released as China comes under growing international pressure to let its currency appreciate”

“ China, Wall Street, and the financial crisis: Francis Fukuyama talks with Henry Paulson, ” The Christian Science Monitor , March 30, 2010
“ many observers expressed concern about the implications of large structural imbalances in the global economy: so much savings being accumulated in China, so much debt being racked up in the United States, and so much foreign money flowing back into the US banking and financial system in ways that may have encouraged excessive risk-taking and contributed to the real-estate bubble. ”

“ Consensus on Finance Rules Fading, I.M.F. Says, ” The New York Times , March 31, 2010
“An international drive to impose new regulations in the wake of the financial crisis is fading and global cooperation is diminishing, the managing director of the International Monetary Fund said Tuesday. ”

“ G20 must recommit to financial reforms: leaders, ” Reuters , March 30, 2010
“Progress has been made toward stabilizing the global financial system but G20 countries must recommit to deliver on reforms that led to the crisis, G20 steering group leaders said”

The Global Financial Crisis and Exchange Rates

Impact of the Global Financial Crisis on Sony
In 2008, Sony generated 23.2% of its revenues in Japan, 25.1% of its revenues in the U.S., 26.2% in Europe, and 25.5% elsewhere
Slowdown in the global economy affected demand
Strong yen made exports more expensive, reducing demand
Earnings from the U.S. and Europe in weaker currencies hurt earnings and net assets

How Does Foreign Exchange Affect You?
Travel and tourism – a rising dollar (cheaper trips) vs. a falling dollar (more expensive trips)
Buying products made abroad
Buying products that have foreign components
Impact of currency changes on our spending patterns – price elasticity of demand (a responsiveness in demand to a change in price)

How Does Foreign Exchange Affect Business?
Transaction exposure
Impact on receivables and payables
A cash flow effect
Translation exposure
Impact on balance sheet an income statement
Not a direct cash flow effect (Centigrade vs. Fahrenheit)
Economic exposure – long-term business decisions such as where to source and where to invest

What Drives the Value of Currencies?
Freely floating vs. managed float vs. fixed
Role of government intervention
Benign neglect – interest rate policies are not based on exchange rate targets
Inflation is the key long-term fundamental
Short-term values are dependent on other issues, such as relative interest rates, other economic news, confidence, etc.

WHAT WILL THE FUTURE BRING?

Important Meta-Competencies – Research on High Potential Executives
Learning to learn quickly
Technology skills
Flexibility
Learning to work across boundaries
(global competency)
Team skills
Learning to add value to customers

Learning Outcomes
Recognize how cultural, administrative, geographic and economic distance (CAGE) affect international business
Identify the characteristics of a global industry and how firms must develop their strategy in the context of the industry in which they operate
Assess different methods of entering foreign markets
Examine how MNEs select, prepare, compensate and retain managers

Good Resources
http:// www.lib.byu.edu /business/
Go to Business Management
International/countries
GlobalEdge at Michigan State University
http://globaledge.msu.edu/

BRICs – Jim O’Neill of Goldman Sachs
http://www2.goldmansachs.com/ideas/brics/index.html

Key BRIC Ideas
The BRICs are large and growing quickly in terms of GDP but not per capita GDP
The next decade is likely to be the peak for global growth but will decline due to aging populations in Europe, Japan, and some of the BRICs – notably China
The middle class in the BRICs could grow fourfold in the next decade

BRIC Ideas cont.
Global demand for oil and other commodities will stay strong throughout the next two decades and prices will remain high
BRICs’ weight in global market capitalization is set to rise significantly
BRICs’ exchange rates could appreciate by close to 300% by 2050
How are the BRIC ideas under assault since the global financial meltdown and recession?

The World is Flat by Thomas L. Friedman – Release 3.0
Chapter 1 – While I Was Sleeping
Chapter 2 – The Ten Forces that Flattened the World
Chapter 3 – The Triple Convergence
Chapter 4- The Great Sorting Out
Chapter 5 – American and Free Trade
Chapter 10 – Culture Matters – Glocalization (pp. 420-426)
Chapter 11 – How Companies Cope
Chapter 12 – Globalization of the Local

The Ten Forces That Flattened the World
11/9/89 – The New Age of Creativity: When the Walls Came Down and the Windows Went Up
8/9/95 – The New Age of Connectivity: When the Web Went Around and Netscape Went Public
Work Flow Software
Uploading: Harnessing the Power of Communities
Outsourcing: Y2K
Offshoring
Supply-Chaining
Insourcing
In-forming: Google, Yahoo!, MSN Web Search
The Steroids: Digital, Mobile, Personal, and Virtual

“ The World is Spiky” The Atlantic Monthly , Richard Florida, October 2005
Globalization has changed the economic playing field, but hasn’t leveled it.
Population: urban areas house half of the world’s people, and continue to grow in both rich and poor countries
Light Emissions: Economic activity – roughly estimated using light-emissions data – is remarkably concentrated. Many cities, despite large populations, barely register.

“ The World is Spiky” The Atlantic Monthly , Richard Florida, October 2005
Globalization has changed the economic playing field, but hasn’t leveled it.
Patents: Just a few places produce most of the world’s innovations. Innovation remains difficult without a critical mass of financiers, entrepreneurs, and scientists, often nourished by world-class universities.
Scientific Citations: The world’s most prolific and influential scientific researchers overwhelmingly reside in U.S. and European cities.

Distance Matters Cultural Distance Administrative Distance Geographic Distance Economic Distance - Languages -Ethnicity -Religions -Social norms
Colonial ties
Regional groups
Political hostility
Gvt. Policies
Institutional weakness
Barriers
- Protection
Consumer incomes
Cost and quality of resources
Disparities in supply chain
Physical remoteness
Lack of a common border
Lack of sea or river access
Size of country
Transport/comm. Links
Climates

Distance Attribute Change in International Trade % Income level: GDP per capita (1% increase) +0.7 Economic size: GDP (1% increase) +0.8 Physical distance (1% increase) -1.1 Physical size (1% increase)* -0.2 Access to ocean* +50 Common border +80 Common language +200 Common regional trading bloc +330 Colony-colonizer relationship +900 Common colonizer +190 Common polity +300 Common currency +340

U.S. EXPORTS TO
Canada 22.2%
European Union 20.6%
Mexico 12.9%
Japan 5.8%
China 5.3%
UK** 4.4%
Germany** 4.3%
South Korea 3.0%
Netherlands** 2.8%
France** 2.4%

U.S. IMPORTS FROM
European Union 17.7%
Canada 16.0%
China 15.9%
Mexico 10.4%
Japan 7.9%
Germany** 4.8%
UK** 2.9%
South Korea 2.5%
France** 2.2%
Taiwan 2.0%

GERMAN EXPORTS TO
EU 62.3%
France* 9.5%
U.S. 8.7%
U.K.* 7.3%
Italy* 6.7%
Netherlands* 6.3%
Austria* 5.6%
Belgium* 5.2%
Spain* 4.7%

GERMAN IMPORTS FROM
EU 57.6%
Netherlands 11.8%
France 8.5%
Belgium 7.2%
China 5.9%
UK 5.7%
Italy 5.6%
US 5.3%
Austria 4.3%

BRAZIL EXPORTS TO
US 17.8%
Argentina 8.5%
China 6.1%
Netherlands 4.2%
Germany 4.1%

BRAZIL IMPORTS FROM
US 16.2%
Argentina 8.8%
China 8.7%
Germany 7.1%
Nigeria 4.3%
Japan 4.2%

INDIA EXPORTS TO
US 17.0%
UAE 8.3%
China 7.7%
UK 4.3%

INDIA IMPORTS FROM
China 8.7%
US 6.0%
Germany 4.7%
Singapore 4.6%

RUSSIA EXPORTS T0
Netherlands 12.3%
Italy 8.6%
Germany 8.4%
China 5.4%
Ukraine 5.1%
Turkey 4.9%
Switzerland 4.1%

RUSSIA IMPORTS FROM
Germany 13.9%
China 9.7%
Ukraine 7.0%
Japan 5.9%
South Korea 5.1%
US 4.8%
France 4.4%
Italy 4.3%

CHINA EXPORTS TO
US 21.0%
Hong Kong 16.0%
Japan 9.5%
South Korea 4.6%
Germany 4.2%

CHINA IMPORTS FROM
Japan 14.6%
South Korea 11.3%
Taiwan 10.9%
US 7.5%
Germany 4.8%

TOP 10 in GDP MILLIONS OF USD
U.S. 13,201,819
JAPAN 4,340,133
GERMANY 2,906,681
CHINA 2,668,071
UK 2,345,015
FRANCE 2,230,721
ITALY 1,844,749
CANADA 1,251,463
SPAIN 1,223,988
BRAZIL 1,067,962

PPP GDP
U.S. 13,201,819
CHINA 10,048,026
INDIA 4,247,361
JAPAN 4,131,195
GERMANY 2,616,044
UK 2,111,581
FRANCE 2,039,171
ITALY 1,795,437
BRAZIL 1,708,434
RUSSIA 1,704,756

GNI PER CAPITA
LUXEMBOURG 76,040
BERMUDA N/A
NORWAY 66,530
LIECHTENSTEIN N/A
CHANNEL ISLANDS N/A
SWITZERLAND 57,230
DENMARK 51,700
ICELAND 50,580
IRELAND 45,580
UNITED STATES 44,970

Patterns of Internationalization Figure 1.7 1-16

Culture in International Business

Tell me… So, what is culture, anyway?

The things people say and do

Environment (Geographic & Technological) Cultural Values Institutions (Family, Church, School, Media, Government) Peers Person (individual values and behaviors)

Types of Behavior UNIVERSAL Eating CULTURAL Eating from your own plate PERSONAL Eating in front of the television

SO…Culture is…
Attitudes
Behaviors
Expectations
Values
Composed of:
Learned
Shared
Transmitted
That are: By a group of people

Cultural Assumptions
The Locus of Control – external vs. internal
Concept of Self – individualistic vs. collectivist
Concepts of Right and Fairness – universalist (normative) vs. particularist (relative)
Management Style – decentralized vs. centralized
Communication Style – direct vs. indirect

Key Concepts from Hall & Hall
Fast and Slow Messages & Information Flow
Time: Polychronic vs. Monochronic
Space: Territoriality & Personal Space
Context: “The information that surrounds an event”

Issues Hierarchy
Verbal Communication
Non-verbal Communication
Values
Thinking Process

Why Does Culture Matter? “ Although misunderstandings are blameless artifacts of the way two very different systems work, accidents of culture are seldom understood for what they really are.” --Edward Hall

Hall’s “Context” Content (implicit) Information (explicit) Meaning High Context (Japan) Low Context (U.S.)

Contextual Background of Various Countries Swiss North American (US) French English (UK) Italian Latin American Arabian Spanish Japanese German Scandinavian Low Context Explicit High Context Explicit

Hofstede Power Distance
Relationship preference
The extent to which the less powerful accept and expect that power will be distributed unevenly
Individualism vs. Collectivism
Relationship preference
The degree to which individuals are integrated into groups

Hofstede Uncertainty Avoidance
Risk-taking Behavior
Tolerance for uncertainty & ambiguity (low UA)
Degree of comfort in unstructured situations (low UA)
Need rules (high)
Future Orientation
LT—Thrift and perseverance
ST—tradition, fulfilling social obligations, protection of “face”
Masculinity/Femininity
Work Motivation
Gender role separation
Assertiveness & competitiveness vs. modest and caring

Hofstede’s Dimensions of National Culture Rank (out of 60) U.S. Germany Japan
Individualism-Collectivism
1 15 22
Power Distance
38 42 33
Uncertainty Avoidance
42 29 7
Masculinity
15 9 1
Long-Term Orientation
Low Mid High

Structural Aspects of Language & Nonverbal Behaviors (“How” things are said) Cultures Bargaining Behaviors(per 30 minutes) USA JPN BRZ KOR GEP UK SPN MEX FCAN ECAN Structure Aspects “ No’s” 4.5 1.9 41.9 7.4 6.7 5.4 23.2 4.5 7.0 10.1 “ You’s” 54.1 31.5 90.4 34.2 39.7 54.8 73.3 56.3 72.4 64.4 Nonverbal Behaviors Silent Periods 1.7 2.5 0 0 0 2.5 0 1.1 0.2 2.9 Conversation-al Overl 5.1 6.2 14.3 22.0 20.8 5.3 28.0 10.6 24.0 17.0 Facial Gazing 10.0 3.9 15.6 9.9 10.2 9.0 13.7 14.7 18.8 10.4 Touching 0 0 4.7 0 0 0 0 0 0 0

The “What” of Communication Bargaining Behaviors USA JPN BRZ KOR GER UK SPN MEX FCAN ECAN Promise 8 7 3 4 7 11 11 7 8 6 Threat 4 4 2 2 3 3 2 1 3 0 Recommendation 4 7 5 1 5 6 4 8 5 4 Warning 1 2 1 0 1 1 1 2 5 0 Reward 2 1 2 3 4 5 3 1 1 3 Punishment 3 1 3 5 2 0 2 0 2 1 Normative appeals 2 4 1 3 1 1 1 1 3 1 Commitment 13 15 8 13 9 13 9 9 8 14 Self-disclosure 36 34 39 36 47 39 34 38 42 34 Question 20 20 22 21 11 15 17 27 19 26 Command 6 8 8 13 12 9 17 7 5 10

Culture and Negotiation Strategies High Low High Low Integrate “ Scripts” Induce to Follow Your “Script” Involve Mediator Follow Counterpart “ Script” Your Familiarity with Their Culture Their Familiarity with Your Culture

Why does culture matter in marketing? The marketing mix
Promotion
Product
Place (channels)
Price
People (who will buy)
How to approach marketing (strategy) Influences macro environment for marketers (trade policy)

Hall’s Silent Languages
Language of Time
Language of Space
Language of Things
Language of Friendship
Language of Agreements

Nine Nations of North America
The industrial Foundry (Philadelphia)
New England and the Maritime Provinces of Canada (Boston)
Dixie, The Southern States (Atlanta)
The Intermountain West or Empty Quarter (Denver)
Hispanic Southwest and Mexico or Mexamerica (Los Angeles)
Pacific Northwest or Ectopia (San Francisco)
Great Plains or Breadbasket (Kansas City)
Latin American Rim or Islands (Miami)
Quebec

CROSS-CULTURAL SENSITIVITIES
“ What America does best is understand itself. What it does worst is understand others.”
- Carlos Fuentes, prominent Mexican novelist
“ Most people in the U.S. tend to view foreigners as underdeveloped Americans.”
- Edward Hall

Industry Effect
Industry structure directly influences a company’s performance
A company can convert an innovative strategy into superior competitivness
The five forces model forces management to focus on forces driving change and that will be important in the future

The Five Forces Model of Industry Structure 11-

Definitions
Firm: Domestic, international/multinational
Industry: global, local
Strategy: multi-domestic or multi-local, global, transnational

Definition of a Global Industry
An industry in which firms must compete in virtually all world markets where the product/service is used in order to be successful and/or survive. In such an industry, a firm’s competitive position is significantly affected by its competitive position in other national markets (due to scale benefits or sharing of resources across markets).

Global Strategy
Global – does not have to be everywhere, but it has to have the capability to go everywhere, deploy any assets, access any resources; maximizes profits on a global basis
Natural progression
Establish a core strategy
Internationalize
Globalize

General Globalization Forces
Customer/Market Drivers
Per capita income convergence among markets
Convergence of lifestyles and tastes
Increasing travel creating global consumers
Organizations beginning to behave as global customers
Growth of global and regional distribution channels
Establishment of world brands
Push to develop global advertising (emergence of global advertising firms)

Cost Drivers
Continuing push for economies of scale (but offset by flexible manufacturing).
Decreasing communication and transportation costs.
Accelerating technological innovation.
Increasing cost of product development and technology (R&D) relative to market life.
Emergence of newly industrializing countries with productive capability and low labor costs.

Government Drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of new trading blocs: WTO, NAFTA, EU, ASEAN, Mercosur
Decline in the role of governments as producers and consumers
Adoption of global standards
Liberalization of labor laws

Competitive Globalization Drivers
High exports and imports
Competitors from different continents
Interdependence of countries
Competitors globalized

Factors Inhibiting Globalization
Heavy transportation or storage costs (e.g., low value to bulk products).
A lack of economies of scale (flat experience curve)
Strong, established local distribution channels and sales organizations
A complex, segmented local market in which customers demand very different products (more suitable for a local firm more intimately embedded in it).
High cost/difficulty in providing intensive local customer systems, service, or other needed customer interaction.
Government barriers.

A FRAMEWORK FOR ANALYSIS Pressures for Global Integration Low High High
Differences in customer needs
Differences in govt. regulations
Significant economies of scale
- High R&D
Steep X-Curve
Pressures for Local Differentiation

Global Strategy HQ
STRATEGIC INTENT: Gain Global Market Share Leadership
POLICIES:
Specialized Production and R&D Centers
Break Down Value Chain and Exploit Low Cost Locations
World Products to Build Volume and Global Product Roll-out
Price Leadership
Optimize Global Network at Local Expense
International Human Resources

The Extreme Global Value Chain Country Activities A B C D E F G H R & D Design Purch- asing Manu- facturing Marketing Selling Distrib- ution Service Design Purchasing Manu- facturing Etc.

THE GLOBAL STRATEGY
Some Companies Emphasizing this Approach:
Royal Dutch Shell
Caterpillar
Hewlett Packard
Boeing
Intel
Coca Cola
Matsushita
IBM
American Express
LM Ericsson
Toyota
Sony

Multi-Domestic Strategy HOLDING
STRATEGIC INTENT: Gain Key Positions in
Selected Markets
POLICIES:
Tailor Products to National Idiosyncrasies
Differentiated Operations
Sacrifice Efficiency for Market Access
Reach Economies of Scale Upstream
Maximize Local Value Added
Gain Government Support
Use Join Ventures to Preempt Competition and Add Local Value
National Human Resources

The Fully Multi-local Value Chain Country Activities A B C * * * * Z R & D Design Service Distrib- ution Selling Market-ing Manu- facturing Purch- asing R & D R & D R & D Design Design Design Purch- asing Purch- asing Purch- asing Manu- facturing Manu- facturing Manu- facturing Market-ing Market-ing Market-ing Selling Selling Selling Distrib- ution Distrib- ution Distrib- ution Service Service Service

THE MULTI-DOMESTIC APPROACH
Some Companies Emphasizing this Approach:
Unilever
Procter & Gamble
Federal Express
PricewaterhouseCoopers
KPMG
Philips
Nestlé
BASF
General Motors
Carrefour

Global Integration - Local Differentiation High High Low Low Pressures for Global Integration
Pressures for Local
Differentiation
- Differences in needs
Differences in regulations
Global Strategy Multi-domestic Strategy

Pressures for Global Integration
Companies that operate internationally face the asymmetric pressures of global integration versus local responsiveness
Change, whether in managers, competencies, industries, or environments, often spurs companies to rethink and reset their value activities
11-

Integration-Responsiveness (IR) Grid (I): Industry Types

Types Of Strategy
The firm entering and competing in foreign markets can adopt either an:
international
multidomestic
global
transnational strategy
Often, firms use a mix of these four types due to company, industry, and environmental situations
11-

Integration-Responsiveness (IR) Grid (II): Strategy Types

Performance Evaluation and Foreign Exchange Risk in Brazil: The Case of Eastland Electronics

International Accounting Issues
Foreign exchange (FX) concepts and computations
Reported Translation versus Realized Transaction gains/losses
Translation GAAP standards
Translation or Closing/Current Rate method
Independent subsidiary
Remeasurement or Temporal method
Interdependent subsidiary
Managing Transactions, Accounting, and Economic Exposure with Hedging Strategies

Management Accounting Issues
Principal-Agent Model
Principle of Controllability
Control of Variables
Information Content of Variables
Incremental Value of Information
Limits of Management Control Systems
Assessment Formulas and “Gaming”
The Fallacy of Perfect Control

Case Setting
Eastland evaluates P&L performance in US$ and in local currency
Hence, subsidiary must make up translation losses with operating performance when dollar strengthens
AND subsidiary can’t use translation gains (dollar weakens) to cover poor operating performance
Tough Love!

Some “Real” History Daily Exchange Rates: U.S. Dollars per Brazilian Real

Question 1
How would a weakening Brazilian real impact Eastland’s cash flows, translation gains/losses, and asset/liability valuations?
What would be the impact of a strengthening real?
What would be the impact of a weakening US dollar ?  CAREFUL!

Question 2
How does Eastland use FX rates in setting the budgets and evaluating results?

Question 3: Why do you think some of these ten combinations are more widely used than others? Exhibit 2 Exchange Rate Fluctuations and Management Control in UK-based MNCs

Question 4
How well does Eastland’s performance evaluation system motivate good decision making?
How well does the system support principles of controllability and fairness?

The Dilemma
Corporate CFO (Karen) needs to respond to the Brazil Division CFO (Sergio) about the fairness of Eastland’s current performance measurement (PM) system
Karen is concerned about several issues
Equity and motivation
Gaming
Expectations of U.S. Stockholders
Challenges of multiple reporting formats

The Nature of Employment Contracts
Aspects of performance that affect the contracting relationship
Uncertainty
Employee is inherently risk averse
Moral Hazard
Employee exerts less effort than desired by employer because effort cannot be monitored
In designing employment contracts, companies need to consider the trade-off between creating incentives vs. imposing risk.
Range of possible compensation agreements
Flat salary
Pure performance based

Principal-Agent Model Outcome of manager’s decision and effort Risk Aversion Decision Making Effort Receives Pay Uncertainty External Factors Prepare Performance Report Accounting Pay Managers on Basis of Performance Top Management

The Employment Contract should …
Separate the performance of the manager from the performance of the SBU
Include only factors controllable by the manager
Recognize and address a manager’s risk aversion

Sergio’s Stewardship (in a “perfect world?”)
Work closely with Eastland Corporate treasury function to accurately forecast FX rates
Select effective hedge contracts based on FX forecasts (e.g., options and forward contracts)
Work hard subsequently to react to currency revaluations (e.g., price shifts, transaction timing, vendor selection)
**Note: Eastland uses a forecasted exchange rate for budget setting and the actual exchange rate at the end of the period for evaluation

Principal-Agent Model  The Real World Outcome of manager’s decision and effort Risk Aversion Decision Making Effort Receives Pay Uncertainty External Factors Prepare Performance Report Accounting Pay Managers on Basis of Performance Top Management

Question 5
Do you recommend that Eastland continue with its approach of including FX variances in evaluating the performance of international subsidiaries such as its Brazil Division?

The Principle of Controllability
“ True” Controllability
Can the manager affect the distribution by altering his/her inputs?
If not, then performance variable is not useful
Information Content (i.e., conditional controllability)
Can the manager affect the distribution conditioned on whatever other information is present ?
If so, then performance variable has information
Score i = effort/intelligence i + noise i + instrument i
Antel and Demski, 1988, “The Controllability Principle in Responsibility Accounting,” The Accounting Review (October)

Current Practice
No convergence of practice
1/3 of UK firms use “Internal Forward Rates”
Corporate “buys forward” receipts in foreign currencies from the subsidiary at a guaranteed rate
1/10 of UK firms involve local management in FX forecasting
1/3 of UK firms subsequently revise their forecasted rates
Responsibility for translation gains/losses
2/3 to parent company
1/10 to subsidiary
Rest don’t use for performance evaluation?
Responsibility for transaction gains/losses
Nearly 1/2 to subsidiary
US firms are more likely to hold subsidiary managers responsible for both translation and transaction gains/losses
Gaps between theory and practice?
Demirag and De Fuentes, 1999, “Exchange Rate Fluctuations and Management Control in UK-Based MNCs: An Examination of the Theory and Practice,” The European Journal of Finance

Apresentacao SAI - 2010

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Apresentacao SAI - 2010 — Presentation Transcript