CIMA F3 Syllabus A. Financial policy decisions - Financial strategy - international operations - Notes ^{7 / 13}

Trading abroad

Compared with companies that trade entirely within one country, companies that trade overseas will have to deal with a variety of international constraints.

Foreign exchange influences

A company that exports or imports faces the risk of higher costs or lower revenues because of adverse movements in foreign exchange rates. 

A company that owns assets in different countries (subsidiaries abroad) faces the risk of accounting losses due to adverse movements in exchange rates causing a fall in the value of those assets, as expressed in domestic currency.

Political issues

A company which trades abroad can face risks of economic or political measures being taken by governments, affecting the operations of its subsidiaries abroad. 

An example was the import restrictions imposed by the USA on the British cashmere industry during 1999, in retaliation for EU restrictions on banana imports.

Geographical separation

The geographical separation of the parent company from its subsidiaries adds to the problems of management control of the group of companies as a whole. 

Separation may enhance problems caused by language and cultural differences.

Litigation

The risk of litigation varies in different countries and to minimise this risk, attention should be paid to legislation and regulations covering the products sold in different countries. 

Care should be taken to comply with contract terms.

Multinationals

A MULTINATIONAL COMPANY or enterprise is one which owns or controls production facilities or subsidiaries or service facilities outside the country in which it is based. 

Thus, a company does not become 'multinational' simply by virtue of exporting or importing products - ownership and control of facilities abroad is involved.

Examples of multinational companies include: