Essay: Financial Management in Multinational Organizations

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Financial Management in Multinational Organizations

The contemporaneous business community is marked by a wide series of features, such as an increasing emphasis placed on customer satisfaction or on employee on the job satisfaction. Aside these however, two crucial elements define today's business community -- globalization and competition. With the emergent forces of globalization and market liberalization, more and more economic entities have found opportunities to expand their business across other countries. The process has allowed them to benefit from the comparative advantage of the respective countries (such as cost effective labor force or an abundance of natural resources) and to exponentially increase their revenues by addressing a wide market. Yet, this also materialized in the presence of more and more players within the international industry, leading as such to higher than ever levels of competition.

In order to respond to the intensified competition, organizational managers have begun to develop and implement a wide series of strategic approaches. As mentioned in the commencement of the paper, some of these strategies refer to increasing customer and employee satisfaction. Yet, the aim of this paper is to assess a third set of strategic efforts -- those in the field of financial management. The first step on this agenda is that of defining the two concepts. Secondly, three multinational organizations will be identified and shortly described. Third, the financial management functions within the three corporations will be presented, to culminate with a section on the findings. The paper will come to an end with a section on concluding remarks.

2. Definition of Concepts

The concept of financial management is ever present in the specialized literature, with some sources offering definitions, whilst others arguing that the concept is extremely complex, and simply revealing some of its most prominent features. Economy Watch for instance argues that financial management "entails planning for the future of a person or a business enterprise to ensure a positive cash flow. It includes the administration and maintenance of financial assets. Besides, financial management covers the process of identifying and managing risks." John T. Zietlow and his colleagues (2007) introduce the numerous issues assessed and addressed with the aid of financial management. These basically refer to the totality of departments and elements that make up the organization and include components such as the business language used within an organization, liquidity and long-term debt decisions, financial objectives (such as an increase of 5% in net income for the new year or the reduction by 7% in operational costs), strategic planning in order to achieve the established financial goals, means of controlling the implementation of the strategies, the consolidated financial statements or ethical stipulations in financial operations.

The terms of multinational or transnational organizations have entered the specialized literature staring with the end of the Second World War and they basically refer to organizations conducting businesses in more than one global region (Nizamuddin, 2007). Multinational corporations are characterized by a wide series of features, including large number of employees, the necessity to obey the regulations in all regions in which they operate or the necessity for an integrated business approach to unify all their international facilities.

3. The Multinationals

The discussion on the principles and practices employed by multinational organizations can often be regarded as generic, but in order to get an unbiased opinion, it is necessary to look at three major corporations and assess their way of conducting financial management. These organizations are automobile manufacturer Ford Motors, fast food giant McDonalds and shoe and apparel manufacturer Nike.

The Ford Motor Company was established in 1903 and it has gone through numerous process of organizational change in its more than one century existence. Once America's largest automobile manufacturer, Ford is now facing the consequences its past mistakes, amplified by the internationalized economic crisis. The company has been put in the difficult position of having to close some of its international plants. Yet, manufacturing operations continue and the company remains one of the strongest players in the international market. Despite negative financial outcomes for 2008, the company officials argue that the past year has been a positive one in strengthening the entity (Ford Motors Website, 2009).

McDonald's is the ultimate epitome of corporate success, with a presence in more than 200 countries. The fast food giant was founded in 1940 and has rapidly captured global attention. McDonald's is recognized for a wide series of features and strategic approaches, such as its being the first organization to appeal to children as individual consumers or the adaptation of its menus to fit the unique needs of each market. The McDonald's stores in Germany for instance include beer in the menus, while the stores in Hong Kong sell rice burgers (Adams, 2007).

The last organization, Nike is also highly successful and a leader within its market. The shoe and apparel organization is the youngest one in this analysis, with its existence only commencing in 1972. The company is famous for its swoosh sign, the logo Just Do It, the high quality of its merchandise, but also for more controversial issues, such as the running of sweat shops in third world countries. Nike has been an innovator in the field of advertising though the introduction of interactive marketing principles. The manufacturer has outsourced all of its operations, with the United States quarters only handling design, marketing and administration.

4. Financial Management at the Ford Motors Company

The financial management at Ford has been subjected to intense criticism due to the recent losses in revenues. Despite these however, the organization has maintained its ability to lead the automobile industry. An interesting financial policy has been that of increasing the sources of income. Ford has historically retrieved revenues from the sales of its manufactured vehicles, but in more recent periods, it has focused on a diversification of its operations. More specifically, Ford has recognized the need of its customers to get efficient funding for the purchase of their vehicles and has as such decided to offer financial services. Basically, the manufacturer has become the creditor of its customers by allowing them to pay for the cars in monthly payments for a given period of time. The move was even more successful given the current context in which commercial banks place a reduced emphasis on commercial lending (Sullivan, Warren and Westbrook, 2006). In 2006 for instance, revenues generated by financial services accounted for nearly $2 million. By 2007, they had decreased to $1.224 million, to end fiscal year 2008 on losses.

In order to deal with the threat of the internationalized financial crisis, the financial managers at Ford have developed a set of strategic courses of action focused primarily on improving the organizational balance sheet. The pivotal elements in this financial approach include:

a 10% reduction in the personnel costs in North America and in the rest of the global facilities elimination of merit pay and performance bonuses suspension of matching funds for the employees participating in Ford's Savings and Stock Investment Plan

reducing annual capital spending by cutting launch costs cutting the costs with marketing, information technology, manufacturing and engineering; a point has to be made in that the cuts are proposed to be achieved through increases in efficiencies

recuperating the credits granted to customers through the Ford financial services (Ford Credit) and investing the money in strengthening the brand reducing debt (Ford Motor Company 2008 Annual Report)

5. Financial Management at the McDonald's Corporation

As an overall statement, it can be said that the financial management policies at McDonald's have been based on market movements. In this order of ideas, if the customers identified a particular need, the organization employed its resources in order to satisfy the respective need and generate revenues from its products or services. It can be then argued that the financial management strategies at the fast food giant were generally market-driven (Schindehutte, Morris and Kocak, 2008). This approach offered the company great successes in 2008, a year in which several players declared bankrupt or suffered tremendous financial losses. The resulting opinion is that the financial managers at the fast food retailer are extremely competent. The company's most recent annual report reveals the following financial triumphs for 2008:

revenues increased to the largest value ever of $23.5 billion global comparable sales increased by 6.9% operating income increased by 17% earnings per share increased by 15%

$5.8 billion was returned to investors through stock repurchases or dividend payments (McDonald's 2008 Annual Report)

6. Financial Management at Nike Inc.

Nike's historic financial approach has been that of reducing manufacturing costs to a minimum possible and in achieving this desiderate, they have outsourced all of their manufacturing operations to less developed countries. Whilst the criticism of the sweat shops was fierce, the financial results indicated organizational triumphs. Despite the economies with manufacturing, the retail prices of the Nike products remained increased, making as such the observer question the destination of the savings. They were mainly used in advertising as Nike is one of the greatest innovators in advertising. With the… [END OF PREVIEW]

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