Copyright © 2012 The McGraw-Hill Companies, Inc. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGraw-Hill/Irwin Global Business and Accounting Chapter 15

15-2 Globalization Occurs as managers become aware of and engage in cross-border trade and operations. A high level of globalization is a multinational enterprise that begins with raw material extraction and ends with final product assembly and sales in multiple foreign locations.

15-3 Globalization Location of the Worlds Largest Multinationals in 2009 Country/Block Number of Companies Percentage European Union16333% United States14028% Japan6814% China377% Switzerland153% Canada143% South Korea143% Central/ South America 112% Australia92% Russia81% India71% Others143% Source: Adapted from The Fortune Global 500,

15-4 Globalization Globalization typically progresses through a series of stages that include: 1.Exporting 2.International licensing 3.International joint ventures 4.Wholly owned international subsidiaries 5.Global sourcing. 1.Exporting 2.International licensing 3.International joint ventures 4.Wholly owned international subsidiaries 5.Global sourcing.

15-5 Environmental Forces Shaping Globalization

15-6 Political and Legal Systems Threat of government control or seizure of assets. Differing taxes, tariffs and licensing fees. Restrictions on foreign ownership percentage. Restrictions on currency flows. Trade agreements specifying raw material sources and labor content. Duty-free foreign trade zones. Tax incentives encouraging or discouraging stock ownership. Policies affecting individual savings. Policies impacting educational level of citizens.

15-7 Economic Systems Planned Economy Government owns factors of production Market Economy People owns factors of production

15-8 Culture

15-9 Technology and Infrastructure Difficulty transferring knowledge and information Differences in educational and training levels Differences in internal accounting systems Poor access to communication equipment Unreliable utilities Inadequate transportation systems Lack of specialized equipment

15-10 Harmonization of Financial Reporting Standards The International Accounting Standards Board (IASB) has as one of its stated goals the harmonization of accounting standards. Harmonization is used to describe the standardization of accounting methods and principles used in different countries throughout the world.

15-11 International Financial Reporting Standards: Adoption or Convergence

15-12 International Financial Reporting Standards and Budgeting Two approaches to implementing international financial accounting standards AdoptionConvergence Europe 2005 Canada 2011 Chili 2009 Australia 2007 Brazil 2010 China 2007 Mexico 2012 Japan 2016 India 2012–14 USA 2014–16

15-13 Foreign Currencies and Exchange Rates An exchange rate is the amount it costs to purchase one unit of currency with another currency. ¥1,000,000 × $ = $7,640

15-14 Hedging Fair Value Hedge Any gain or loss is recognized currently in earnings. If the hedge is on available-for-sale securities, any gain or loss is reported in other comprehensive income on the equity section of the balance sheet. Future contracts are the right to receive a specified quantity of foreign currency at a future date.

15-15 Global Sourcing Differences in exchange rates in many different countries can create significant complexities for firms practicing global sourcing. Many companies underestimate the cost of globalizing their business operations because they are not familiar with the environmental characteristics previously discussed. Differences in exchange rates in many different countries can create significant complexities for firms practicing global sourcing. Many companies underestimate the cost of globalizing their business operations because they are not familiar with the environmental characteristics previously discussed. ¥£ Customs duties Import fees Multicountry tax laws Tax treaties

15-16 In many countries around the world, bribery is part of doing business. In many countries, this officially sanctioned corruption is not viewed as wrong or unethical. However, U.S.-based businesses are prohibited from influence peddling. The IMF and World Bank instituted policies to cut off funding to countries ignoring corrupt practices. Foreign Corrupt Practices Act

15-17 End of Chapter 15