12.10 Financial management in MNEs
In Part A of this chapter, we discussed the differences in accounting systems and standards and the reasons for them. In Part B we revisit those differences in the context of financial management of the international firm. We are again concerned with different currencies, different tax regimes, different regulations, different levels of economic and political risk, different norms and traditions, and so on. Just as important as these topics is the fact that good financial management can be a source of competitive advantage.
Basic financial management is concerned with two major issues: the sources and the uses of funds. At the international level, exchange risk management must be added. Figure 12.2 is a reminder of the substance of financial management. It is not a template for all of our subsequent discussion, but we will refer to it later in the section on 'Financial decisions'. Our discussion now follows the sequence of topics in your textbook.
Figure 12.2 Financial management in the MNE
*Exchange risk management is a company-wide concern that relates to all of the issues shown above.
Source: Grosse and Kujawa 1995, p. 393.
In his introduction to Chapter 20 in your textbook, Hill (2005) gives a deceptively simple sequence of 'three sets of related decisions' that are included within the scope of financial management: investment decisions, financing decisions and money management decisions (Hill 2005, p. 668). These are the three basic areas of financial decision-making, but Chapter 20 has more to offer and if you are used to thinking systematically you will recognise that Hill (2005) has a number of major topics within each of these three areas. As you read on from here you will meet these major headings.
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