GLOBAL ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS

1. GLOBAL ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS • Sidney J. Gray, University of New South Wales • Stephen B. Salter, University of Cincinnati • Lee H. Radebaugh, Brigham Young University Gray, Salter & Radebaugh Chapter 3

2. CHAPTER THREE GLOBAL ORGANIZATION, COODINATION, AND CONTROL Gray, Salter & Radebaugh Chapter 3

3. ORGANIZATIONAL STRUCTURE The challenge of this century is to coordinate the growing network of interdependent international activities. Gray, Salter & Radebaugh Chapter 3

4. ORGANIZATIONAL STRUCTURE How a firm’s organizational structure develops as it changes the nature of its global business Gray, Salter & Radebaugh Chapter 3

5. Stages of Development Domestic Group • A MNE begins as a domestic firm involved in export activities. • No one in the domestic firm has much knowledge about exporting. • Experts are brought in to develop an export strategy. This can become expensive and the firms may hire new personnel for the new export department. Gray, Salter & Radebaugh Chapter 3

6. Stages of DevelopmentStructure of a Typical Domestic Group CEO Corporate Staff Domestic Division 1 Domestic Division 2 Marketing Finance Accounting Other Export Group Gray, Salter & Radebaugh Chapter 3

7. Stages of Development Domestic Group As markets and sales increase, the export group grows and several problems occur: • Who is responsible for exports? • Is the function of this group to advise only, or can they make commitments? • Disputes arise over production allocation, scheduling, product adaptations and transfer pricing. Gray, Salter & Radebaugh Chapter 3

8. Stages of Development International Division Structure • As exports grow, it is advisable to establish foreign production facilities. • Previous disputes are no longer important because export markets are now served by foreign rather than domestic production. Gray, Salter & Radebaugh Chapter 3

9. Stages of Development International Division Structure • Problems of responsibility and control: • Who is responsible for foreign operations? • Control is difficult because of changes in the foreign and domestic operating environments. • The new international division replaces the old export division. Gray, Salter & Radebaugh Chapter 3

10. Stages of DevelopmentInternational Division Structure CEO Corporate Staff Domestic Division 1 Domestic Division 2 International Division Gray, Salter & Radebaugh Chapter 3

11. Stages of DevelopmentGlobal Structure There is now a major reorganization as the firm adopts: • a global geographic structure, or • a global product structure Gray, Salter & Radebaugh Chapter 3

12. Stages of DevelopmentGlobal Structure • In a global geographic structure: • domestic and international divisions become part of several geographic divisions. • In a global product structure: • Distinctions between domestic and international divisions are eliminated. • Product division managers now have responsibility and control over the production and sale of their products. Gray, Salter & Radebaugh Chapter 3

13. Stages of DevelopmentGlobal Geographic Structure Corporate Headquarters Corporate Staff HQ Region A HQ Region B HQ Region n Staff Staff Staff North Amer. Oper. Division Latin Amer. Oper. Division European Oper. Div. Gray, Salter & Radebaugh Chapter 3

14. Stages of DevelopmentGlobal Product Structure Corporate Headquarters Corporate Staff: Functional and Geographic Product Group 1 Product Group 2 Product Group n Worldwide Oper. Div. Worldwide Oper. Div. Worldwide Oper. Div. Gray, Salter & Radebaugh Chapter 3

15. Stages of Development Global Matrix • To coordinate/control global operations - the global grid/matrix emerges • In this structure, areas share power and responsibilities. • The matrix is not a solution because it is complex. Gray, Salter & Radebaugh Chapter 3

16. Stages of Development Global Grid Organization Product Division Agricultural Industrial Equipment Household Production Accounting Americas Finance Europe Marketing Far East Africa Function Accounting at Japanese Subsidiary Manufacturing Industrial Equipment Geographic Area Gray, Salter & Radebaugh Chapter 3

17. Stages of DevelopmentImpacts of Structural Changes These issues influence the following: • nature of the information system, • establishment of accounting policies, • internal controls • attitudes between parent and affiliates (centralization/decentralization), • top management (informal/subtle mechanisms) Gray, Salter & Radebaugh Chapter 3

18. CENTRALIZATION VERSUS DECENTRALIZATION • A company must decide to what extent: • decision making should be centralized; • decision making should be decentralized. • This implies it must be one or the other. • HOWEVER, global business is too complex for such simplicity. Gray, Salter & Radebaugh Chapter 3

19. CENTRALIZATION VERSUS DECENTRALIZATION Bartlett & Ghoshal (1989) suggest a more thoughtful answer by describing global imperatives which determine levels of centralization. Gray, Salter & Radebaugh Chapter 3

20. Bartlett & Ghoshal Forces • Forces for global integration • Efficiency & Economies of scale • Global Harmonization of Tastes • Forces for local differentiation • national & local government • consumer preferences • Forces for worldwide innovation • The need for learning • Developing and diffusing global innovations. Gray, Salter & Radebaugh Chapter 3

21. CENTRALIZATION VERSUSDECENTRALIZATION Bartlett & Ghoshal believe that to deal with imperatives, firms need to focus on all 3: • Firms must move to a transnational strategy where corporate assets are dispersed, specialized and interdependent. • As opposed to multi-domestic companies where assets are decentralized, and global companies where they are centralized. Gray, Salter & Radebaugh Chapter 3