Factors Distinguishing Multinational Finance: SMP20403 Report

This report, prepared for the SMP20403 International Finance course, examines the key factors that differentiate multinational financial management from domestic financial management. It highlights crucial aspects such as currency exchange risk, capital risk, legal and tax environments, and foreign political risks. The report also identifies the reasons why corporations choose to build manufacturing plants abroad, including looser regulations and proximity to raw materials, using examples like Apple, IBM, Nike, and Wal-Mart. It provides an overview of the financial reporting differences that international businesses face, emphasizing the need for a nuanced understanding of global financial landscapes. The report offers valuable insights into the complexities and strategic considerations of international finance.

Faculty of Business and Communication
SMP20403 INTERNATIONAL FINANCE
SEMESTER 1, 2022/2023
INDIVIDUAL ASSIGNMENT
Prepared for:
DR HUSSEN BIN NASIR
Prepared by:
LOONG YEE WEN
(201240311)

1. FACTORS THAT DISTINGUISH MULTINATIONAL FINANCIAL
MANAGEMENT FROM FINANCIAL MANAGEMENT AS PRACTICED BY
A PURELY DOMESTIC FIRM.
Financial management assists in determining a firm's funding commitments,
which aids in the development and execution of wealth management alternatives.
Budgeting assists businesses in acquiring finances and improving their operations.
High currency exchange risk. The handling of exchange rates is the top of the
priority list. A local corporation simply needs to be concerned with US currency. If
you operate a foreign operation, outflows and inflows of cash are frequently
managed with in domestic exchange rate. Regrettably, exchange rates fluctuate all
the time. If running operations in Japan, for example, the yen is the currencies.
Raising capital risk. If a domestic business owner requires more outside
equity money, he could approach existing shareholders or submit the proper legal
procedures and make an offer to other possible investors. It might not be so simple
in a different place. The rules will be changed. Shareholders' rights could be
strengthened. The cost of capital may rise. All of these obstacles complicate doing
business in other countries.
Legal and tax environment. Following the resolution of currency difficulties,
legal and tax disparities must be resolved. Each nation has its own set of corporate
tax regulations. Previously, a local management accountant only had to master one
set of financial rules; now, he must comprehend the taxation laws of multiple
nations.
Foreign political risks. A local firm owner does not need to be concerned
about the state taking his property if he fails to pay his taxes. In some rest of the
world, the government may determine that you are producing too much income and
seize your property as well as take over your business. Growing a popular and
profitable corporation into a worldwide enterprise necessitates an entirely new
finance managerial style. International businesses must begin with typical money
management techniques and then add additional tax rules, financial restrictions, and
currencies volatility hazards.

Financial Reporting differences.Corporations in the United States adhere to
Accounting Standards, although corporations in other nations might or might not.
This can imply that a similar type of analysis could've been produced separately and
easily misinterpreted. A local accounting leader must know where the report came
about and how to evaluate it.

2. IDENTIFY FOR CORPORATIONS TO BUILD MANUFACTURING PLANTS
ABROAD WHEN THEY CAN BUILD THEM AT HOME COUNTRY.
There are few corporations that are build manufacturing plants abroad when
they can build them at home country. The corporations such as Apple, IBM, and
Cisco Systems which involving in overseas manufacturing and electronic, while Nike
is involving in overseas manufacturing and sports apparel, and Wal-Mart that is
involving in manufacturing and shopping.
The brand Apple origin from Los Altos, California, United States and
it’smanufacturing locations in China, Czech Republic, Malaysia, Thailand, and South
Korea. Despite their location in several nations, each one of these production plants
are owned just by two firms: Foxconn and Pegatron. The brand IBM origin from
Endicott, New York, United States, and it’s manufacturing location in Singapore.
While the brand Cisco System origin from San Jose, California, United States, and it’s
manufacturing locations in Korea, China, Malaysia, Taiwan, and Singapore.
The brand Nike origin from Beaverton, Oregon and its manufacturing
locations in China, Indonesia and Vietnam. Last but not least, the brand Wal-Mart is
origin from Rogers, Arkansas. But supplier for Wal-Mart is in the United Kingdom,
Canada, China, Mexico, Taiwan, Hong Kong, France, and other countries.
One of the reasons that corporations build manufacturing plants abroad rather
than in their home country because they can take advantage of looser regulation. Most
advanced countries have extensive regulations governing safe operation, ecological
safeguards, labour regulations, and other issues that can add considerable unnecessary
costs toward doing businesses there. Firms relocate production to countries with laxer
standards could save time, expense, and legal responsibility as these expenses rise.
The next one is moving closer to raw materials. In certain circumstances,
instead of transporting raw resources to be handled abroad, it may make logical sense
to situate a production facility that uses a significant amount of large, expensive raw
resources close where they have been accessible. This might be to reduce expense or
to prevent disruptions in supply chains by locating the plant nearby to the distributors
and not relying on things going smoothly with climate, borders, and so on.