Report: Finance and Value Article Critique and Global Corporations

This report presents a critical analysis of the article "The finance function in a global corporation" by Mihir A. Desai. The report examines the financial functions of companies operating globally, focusing on value creation and financial activities. It explores traditional and current financing practices, including internal capital markets, risk management, and global capital budgeting. The analysis evaluates the ethical considerations of these practices, particularly concerning tax evasion, and discusses the arguments presented by the author, including the use of examples and the importance of strategic decision-making. The report also considers the challenges companies face when expanding internationally and the impact of financial strategies on organizational goals. It concludes that while the article provides valuable insights, the author could have strengthened the analysis with more specific data and a clearer course of action.

FINANCE AND VALUE
ARTICLE CRITIQUE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
ANALYSIS .....................................................................................................................................1
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
The article “The finance function in a global corporation” which is written by Mihir A.
Desai have focussed on value creation and financial activities of the companies who work
globally or are planning to expand globally. The content of the article will help the reader to
understand the financial functions in global market. The article starts with the traditional
practices being adopted by the companies to operate in other countries. The report provides an
insight on critical evaluation of various aspects of the article.
ANALYSIS
The article named “The finance function in a global corporation.” written by Mihir A.
Desai is an insightful view of different opportunities that arises for the companies on the global
platform with respect to financial gain, protection from tax because of changes in market
involved in the transaction while dealing across the boundaries (Desai, 2008). Market value can
be created by the CFOs of the company with the help of exploitation of different conditions in
several markets. CFOs are responsible to take all the strategic decisions on behalf of the
enterprise. They are also responsible to assess that whether adequate finance is available with the
organization to meet its needs. They need to handle the issues including, tax credits, Double
Taxation Avoidance Agreements (DTAAs) between the countries, global assets, investment of
capital, etc (Ameer and Othman, 2012). These companies adopt this practice of exploitation in
three main ways:
 Financing in internal capital market
 Managing the risk globally
 Global capital budgeting
Each country has its own rules and regulations when a company is allowed to conduct its
business in the specified country. The entity setting up in other country need to regulation of
conducting business there. According to Brigham and Ehrhardt (2013), the methods followed by
the companies are unethical as it leads to tax evasion and loss of income for the countries who
are having higher tax rate. The traditionally financing practices are discussed by the author
comparing them with the current practices generally adopted by the organizations. But the
companies have switched to the new and innovative practices that are best suited to the market
and fulfilling the objectives of the entity as well.
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The facts that have been provided in the article are authentic and useful. However, certain
argument made by the author will not be treated as ethical. A coarse conclusion of the article has
not been provided by the author. It shows that the practices adopted by the companies may be
right to some extent as well. The author has supported his argument with well-placed examples
of different multinational companies who have been able to establish economic value added
system successfully while establishing their subsidies across the geographical borders. On the
contrary relevant data could have been used by the author to back the examples being provided
in the article. It could have made the argument more authentic and relevant for the other readers.
Generalised facts were included by the author rather than the specific content.
These functions adopted by the companies are backed by the ethics which encourage
managers and CFOs to adopt these policies in order to set up their businesses in other countries.
Meeting the demands and requirement of finance have become an important aspect of carrying
out any business. The author has enlightened the area in impacting manner (Liu, 2007).
Author have argued that company try to ascertain the financing methods with the view to
improve their capital investment methods. They need to face problems while moving from
domestic market to international market. In order to solve these issues AES have asked to
discover sovereign spreads which helps in measuring the difference between the currency rates
of two countries. It helps in adjusting the risk that can be faced by the entity. Further, it helps in
adjusting the country's risk as well. In contrary to this, as per the views of Čihák and et.al.
(2012), Undermining the complexities of the process, company opt to take finances from the
country where the interest rate is low and invest it in the other country. It helps in reducing the
tax rate and the interest rate as well. The method is proved to be unethical as it affects the income
of the country. They tend to exploit their internal market with the aim to draw competitive
advantage when financing from own country become expensive.
The Author has commendably put the argument of creation of global finance functions
where he has discussed 3 approaches which can help in assessing the financial capabilities that
are directly linked to organizational goals. It includes, Establishment of appropriate geographical
area through which decision making can be made. Further, appointing the competent
professional finance staff that can take the financial decision of the company fulfilling the global
perspective. Moreover, he also suggested implementing the strategies at the local level as well.
However, in contrast to this, Brigham and Houston, (2012) suggested that, the argument
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suggested by the author may not prove to helpful for the companies as the situation of the market
keeps changing and keeping an eye on the trend of global market is difficult. The process may
prove to be time consuming as well.
In the end, the conclusion drawn by the author may not prove be helpful as no course of
action has been discussed by him. The practices adopted by the CFOs may prove to be beneficial
for the company but it is important for them to take strategic decisions considering adequate
arguments.
The article will prove to be useful for the one who are planning to expand across the
boundaries as different financing strategies have been discussed by the author in it. The reader
will be able to get the insightful view of financial persuasion that can adopted by them while
expanding. It has been able to give deeper understanding of financial function.
CONCLUSION
Based on the point of view of author, it can be concluded that, traditional methods cannot
be adopted in the current market situation in order to expand in the global market. The author has
diligently penned down important facts on the topic. However, he could have added relevant data
to the examples in order to make it more specific. However, different financial functions that can
be adopted by the companies to expand globally have been discussed appropriately.
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REFERENCES
Books and journals
Ameer, R. & Othman, R., (2012). Sustainability practices and corporate financial performance: A
study based on the top global corporations. Journal of Business Ethics. 108(1). 61-79.
Brigham, E. F. & Ehrhardt, M. C., (2013). Financial management: Theory & practice. Cengage
Learning.
Brigham, E. F. & Houston, J. F., (2012). Fundamentals of financial management. Cengage
Learning.
Čihák, M. & et.al., (2012). Benchmarking financial systems around the world.
Desai, M. A., (2008). The finance function of a global corporation. Harvard Business Review.
86(7/8). 108–112.
Liu, J. (Ed.)., (2007). Corporate Finance: Core Principles and Applications. China Renmin
University Press.
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