1. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Global Business and Accounting Chapter 15

2. 15-2 Globalization

3. 15-3 Globalization Those companies wishing to globalize typically progress through the following stages: (1) exporting domestically produced products, (2) establishing licensing and joint venture arrangements, (3) creating wholly owned subsidiaries, and (4) full-scale global sourcing.

4. 15-4 Environmental Forces Shaping Globalization

5. 15-5 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.

6. 15-6 Economic Systems Planned Economy Government owns factors of production Market Economy People owns factors of production

7. 15-7 Culture

8. 15-8 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

9. 15-9 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.

10. 15-10 International Financial Reporting Standards: Adoption or Convergence

11. 15-11 International Financial Reporting Standards and Budgeting Two approaches to implementing international financial accounting standards Adoption Convergence

12. 15-12 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 × $0.01005 = $10,050

13. 15-13 Strategies to Avoid Losses from Rate Fluctuations There are two basic approaches to avoiding losses from fluctuations in foreign exchange rates. Settlement at specified amounts of domestic currency for receivables and payables. Hedging Pricing will depend upon which company has the better bargaining position Futures are accounts receivable in foreign currency to offset risk.

14. 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. 15-15 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

16. 15-16 End of Chapter 15