The age of one country dominating the world economy is long gone with globalization. The US, for example, has faced a decline in its raw materials, and the goods and services can now freely flow from one nation to another. Similarly, money freely flows across boundaries, and international trade has flourished as countries expand their operations to foreign markets. Technological development and innovations have also taken an international perspective, and companies are relocating to emerging markets where there are cheap labor and raw materials. Most multinationals have recorded increased global activities and some even record higher sales in the foreign markets than in the home country. Companies like Coca-Cola have recorded more profits in Europe and Pacific countries than in the U.S. Multinationals are finding it necessary to blend into the host country environments so that their products can be accepted and to avoid any clash in their culture or political perspectives. As the physical boundaries between countries diminish due to technology and modern transport, companies are finding themselves in more competitive markets as they try to outperform global businesses in the free markets. The emergence of global enterprises raises a host of issues for the management of the companies as well as governments. Managers must face a host of problems that multinationals are exposed to which are absent in locally operating companies. This essay discusses the factors that distinguish financial management in firms operating in a single country from those that run in several different countries. Similarly, the barriers to entry into foreign markets and the differences in financial management in firms that operate in a single country to those serving in different countries are discussed (Bekaert & Hodrick, 2012; Madura, 2016).
Companies enter into foreign markets for many reasons, and key among them include seeking new markets for their products and services due to the saturation of the local markets. Firms go international in search of raw materials for sustaining their operations. Others are in search of new technologies as some countries are known to hold unique technologies. Others move to the international front in pursuit of production efficiency primarily if they are operating in high-cost states. Such companies will shift their operations to cheaper markets like Brazil and China. Some companies go global to avoid regulatory and political hurdles especially if the host country has import quotas and protectionist policies. Lastly, corporations venture into foreign markets to diversify their operations and cushion themselves from harsh economic conditions that can affect one country (Madura, 2016).
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Six factors distinguish financial management in companies that operate in a single country from those that serve in the global market. Different currency denomination is one of the factors as operations from each nation will denominate their cash flows in the host country currency. The financial analysis, therefore, will have to incorporate exchange rates analysis. Another issue is economical and legal ramification. Different countries have distinct economic and legal systems which can cause significant problems when companies try =to coordinate and manage global operations of the subsidiaries. Tax differences, for instance, can cause differing after-tax consequences for a transaction depending on its origin. The difference in the legal system for each country or a block of nations also complicates the matter. The differences can restrict the deployment of resources by multinationals by reducing their flexibility and therefore they will not maximise their operations. Such restrictions can even make some of the company's procedures illegal in some markets. Executives who are trained in one country find it hard to be useful in another (Bekaert & Hodrick, 2012; Madura, 2016).
A third component is language differences as the inability to communicate affects business transactions. Companies that have diverse employees who can communicate in different languages manage to transact better and can invade into new markets than those that rely on a single language for communication. Cultural differences affect all companies. Different countries have unique cultural practices. Such factors influence the conduct of business and shape its values. Issues like goals, attitudes towards risks, and dealing with employees differ from one country to another. The role of the government also affects financial management in a global environment. Different models assume that the marketplace is competitive in which case market forces determine the business. The reality on the global front is that government's control business operation and does not just set the basic ground rules. Financial models, therefore, have to include political as well as non-economic factors of any decisions made a multinational. The sixth element is the political risk in which case some nations prohibit the transfer of the resources of the multinationals. Some governments can also expropriate without compensating any assets in its territory. Political risks are unique to each country and therefore need to be addressed in any financial analysis (Bekaert & Hodrick, 2012; Madura, 2016).
Firms that desire to venture into international markets face various unique barriers as they try to venture into the new markets. Some of the obstacles are internal to the firm and affect its ability to venture into the global marketplace. Among the domestic factors are resources, the capability of the company, knowledge, intangible resources, and the assets of the company, the competence of the business and its management and expertise. External factors include the target market, current, and prospects of the market, the physical distance, the attractiveness of the target market, legal restrictions in the host country, cultural differences. Other factors include home country barriers that range from economic barriers, social barriers which include attitudes, beliefs, lifestyle, tastes, behavior, social needs, cultural aspects and distance (Bekaert & Hodrick, 2012; Madura, 2016).
There are profound differences in financial management in multinational companies and companies that operate in a single country. Business managers are supposed to be aware of the different practices applicable in each state. They must adhere to the rules and regulations that affect each country. Similarly, there are challenges of foreign currency exposure, political differences, tax laws, cultural issues and knowledge of the financial manager. The international business environment is exposed to different forces that are different from those affecting companies operating in one country. The stakeholders are also different, and the company is exposed to foreign exchange risks. Reporting standards may also be modified for the two markets. The financial manager can easily access financing for a multinationals company compared to a domestic firm with operations in one country (Bekaert & Hodrick, 2012).
Part 2 Improving Ethics
Ethics relate to the moral issues of right or wrong undertakings in a financial environment. It is concerned with the moral obligations so that performed actions in the workplace are just and truthful. Recent financial crisis coupled with the global recession of 2007-2008 have raised interest in ethical and moral issues in economic activities in the current times. A large proportion of the academicians are of the opinion that unethical business practices by the participants substantially contributed to the recession. Such assertions have supported the widely held argument that markets are as good as the participants. Moral and ethical issues in finance need to be re-examined due to the dire consequences that some practices if left unchecked can result in unimaginable conditions (Gupta & Sukumaran, 2013).
Financial activities throughout the world are based on extensive rules and regulations that shape the practice. Participants of the finance market are expected to hold high levels of ethical standards as well as professionalism. Such measures ensure efficiency and transparent performance of the entire system. Finance needs to uphold high standards of ethics despite being segregated from the fields of religion and theology from which ethics emanated from. Some of the finance theories assume that ethics is neutral and therefore cannot be applicable in the analysis of the relationship between financial markets and moral problems. The difficulty in quantifying ethics into the mathematical models used by the discipline makes them less applicable to commercial activities (Gupta & Sukumaran, 2013).
Ethics in finance can be improved by developing models that are based on rational self-interest and offer explanations on the role of moral standards in the evolution of efficient and complete financial markets. The modern commercial, economic theories are inconsistent with the requirements of ethical standards, and the use of principal-agent models complicates the issue. The assumptions of a rational individual who desires to maximize personal interest and the agency principle are inconsistent with each other and are a source of ethical dilemma. One possibility of improving ethics in such a scenario is to incorporate ethical concerns into the economic models by altering self-interest rather than assuming a strong rationality in some degrees. The possibility of moral hazard should be eliminated by ensuring that individuals do not act recklessly because they are aware of external bailouts. Stronger enforcement and regulations should be incorporated rather than subsidizing, capitalizing and bailing out financial institutions (Gupta & Sukumaran, 2013).
Any fraudulent financial dealings, corruption and influence peddling, unauthorized transactions and insider trading should be investigated and dealt with firmly. The regulating codes and conducts of such violations should be adhered to, and if there are inconsistencies or weaknesses, such should be addressed promptly. The measures have not yet succeeded in averting any unethical practices. The social implications of the transaction should be considered in the finance discipline to serve the interest of the more significant community. It is essential to examine ethical and moral standards of the finance executives and the implications of their action in the market. Adhering to ethical standards is gaining its popularity in the finance discipline, and financial executives are called upon to behave in an honorable manner (Gupta & Sukumaran, 2013).
According to Arjoon,(2005) corporate governance covers a broader area with distinct concepts. It includes the relationship with the stakeholders, promotion of fairness, accountability, transparency, and mechanism that are used in governing managers to align the actions taken with the interest of the shareholders. According to the author, most of the abuses take place in a legal framework where companies violate the existing provisions. Executives have exploited the ambiguity in the current laws and the complexity of the financial information to engage in unethical behaviors.
The characteristics of compliance programs do not matter compared to the broader perceptions of the programs that drive values and ethics. Consistency between actions and policies helps to boost ethics in corporate governance. Practices like fair treatment of employees, ethical leadership and open discussions on ethics can be useful in enhancing ethical corporate governance. It is advisable to eliminate a moral culture that focuses on the self-interest and unquestioned obedience to those in authority. Similarly, it is necessary to clarify the perception that legal programs are provided only to protect the management from any blame. According to Arjoon,(2005) executives recognize the importance of trust, fairness, and integrity. Accordingly, the author notes that businesses are all about values. The misuse of accounting rules and ethical standards by companies has led to the global meltdown experienced so far, and markets realize the importance of corporate governance in future enterprises. Executives should be aware that their actions can contribute to the success or downfall of a company. They need to be ethical in all decisions that they make (Ienciu, 2012).
The attitude of the management determines the success of ethical behaviors in an enterprise. Their actions have a direct impact on the operations and performance of a company. Their decisions should not compromise the interest of the company. They should not allow the agency theory to override the overall goal of the firm. Corporate governance should eliminate any conflict of interest between the different stakeholders and ensure that the overall goals of the company are met. The management should, therefore, ensure that they act per the interests of the shareholders. Corporate culture contributes to the unethical practices reported in the form of scandals or economic downturns. Legal compliance alone cannot commit to corporate governance. The Sarbanes-Oxley and other reforms can only go a long way in achieving the desired results if the management is interested in upholding ethical standards. Ethics should be embedded into the practices of the business, and its culture should also consider morals as having priority over the existing legal framework (Arjoon, 2005; Ienciu, 2012).
Organizations should not only re-write their value statements, but such values should be part and parcel of daily operations. The role of culture cannot be overemphasized in an organization as it tries to embrace ethical commitment. The company should stress the importance of compliance with ethical standards. Merely displaying written values and not practicing them will not lead to a change in the moral standing of the employees of a company. There is a need to differentiate whether managers should serve the interest of the shareholders of a company or the stakeholders. The nature and purpose of a firm describe the reasons for the existence of a corporation. Businesses can choose between maximizing shareholders value or social responsibility. From an ethical perspective, the latter argument is more coherent. The natural law perspective gives ethics priority over politics, law, and economics and the two cannot be divorced from ethics. The natural law theory offers a framework that addresses the ethical behavior of human actions and guides the individuals who are responsible for corporate governance. They should be able to determine whether some of the corporate activities are in line with the legal obligations and offer a basis for criticizing the current laws and practices that relate to corporate governance (Arjoon, 2005; Ienciu, 2012).
References
Arjoon, S. (2005). Corporate Governance: An Ethical Perspective. Journal Of Business Ethics , 61 (4), 343-352. http://dx.doi.org/10.1007/s10551-005-7888-5
Bekaert, G., & Hodrick, R. (2012). International financial management . Boston: Pearson.
Gupta, R., & Sukumaran, A. (2013). Ethics and Morality in Finance. Prabandhan: Indian Journal Of Management , 6 (2), 15. http://dx.doi.org/10.17010/pijom/2013/v6i2/59968
Ienciu, I. (2012). Corporate Governance and Ethical Behavior: A National Perspective. The Romanian Economic Journal , XV (45).
Madura, J. (2016). International financial management . Boston: Cengage Learning.
Roy, A., Sekhar, C., & Vyas, V. (2016). Barriers to internationalization: A study of small and medium enterprises in India. Journal Of International Entrepreneurship , 14 (4), 513-538. http://dx.doi.org/10.1007/s10843-016-0187-7
