Implications of Corporate Expansion in the Global Economy

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1. Desai A. Mihir is a finance professional with expertise in international and corporate finance. The author’s education includes a Ph.D. in political economy from Harvard University, an MBA as a Baker Scholar from Harvard Business School (HBS), and a bachelor’s degree in history and economics from Brown University. He has taught finance at HBS and Harvard University and built a second-year course called International Financial Management. The author’s professional and educational background provides a foundation for publications on corporate global expansion and the implications of a world-wide market on the corporate finance sector.

2. Corporate expansion into the global market creates financial opportunities that are affected by three critical functions: financing, risk management, and capital budgeting. Through international expansion, corporations have the ability to subsidize various sectors by utilizing varying tax codes based on international locations. Function in the global market necessitates financial expertise. However, organizational strategy, based on the corporation’s financial strategy, “requires expertise constrained so that financial incentives don’t overwhelm operating ones” (Desai, 2008, p. 2). Thus, corporations benefit from moving finance professionals from one subsidiary to the next, to create informed professionals who understand multiple markets. Domestic methods of capital budgeting must be redefined as companies globalize. Compared to domestic markets in which variables are understood, finance professionals must actively evaluate risks, within the context of their international location.

3. Corporate global expansion is at the forefront of business enterprise, and the implications of expanding into the global marketplace directly affect U.S. business prospects. U.S. businesses are competitors in the global economy, and to create a sustainable presence, there must be effective communication within the financial sector of a global corporation.

4. Because of the high tax code in the United States, global expansion from multi-national companies into the U.S. is not as attractive a prospect as in other countries. Likewise, U.S. tax laws do not permit exemption from income earned in foreign countries. In this way, the U.S. lacks a competitive edge on foreign investment and in global expansion from U.S. based corporations.

5. Internal capital markets exist in corporations that operate in the global marketplace. This existence expands a firm’s risk-management operations. Based on tax rates, a global presence allows corporations to borrow money from certain foreign jurisdictions and lend to their subsidiaries. Although regarded as inherently advantageous, managing all currency exposures requires offsetting the potential loss in exposures unrelated to the risk. In an effort to reduce risk, global companies like GM require each geographic region to gage exposures independently.

6. Boeing international was established in 2001, to expand the company’s global impact by focusing solely on international growth and development. “The Boeing International organization has country and regional executives in 20 offices worldwide” (Boeing, n.d.). On Wall Street, Boeing (BA) shares have fallen after the discovery of structural cracks on some 787 Dreamliners and the disappearance of Malaysian Airlines 777. According to Ausick, on March 10th shares were down 13% and opened Thursday the 13th at 14% below that high (2014). Furthermore, a petition for discovery was filed again Boeing with the intention to secure evidence of possible design or manufacturing defects that may have contributed to the disappearance. Boeing is likely to experience severe financial risk and loss in its larger markets (U.S. and China) and as such, asset management may force Boeing to borrow from subsidiaries in other international markets. Although speculative in nature, prospects of a multi-million dollar lawsuit and repairs to the entire 777 fleet (assembled in Everett, Washington, U.S.) advance the assumption that Boeing subsidiaries, in affected markets, will endure financial repercussion.

References

(N.D.). Boeing. About Boeing International. Retrieved from http://www.boeing.com/boeing/aboutus/international/about.page

(N.D.). Mihir A. Desai Mizuho Financial Group Professor of Finance Senior Associate Dean for Planning and University Affairs. From Harvard Business School Biography. Retrieved from http://www.people.hbs.edu/mdesai/biography.html

Ausick, Paul. (13 March, 2014). Why Boeing Stock Is Down but May Not Be a Bargain. 24/7 Wall St. Retrieved from http://247wallst.com/aerospace-defense/2014/03/13/why-boeing-stock-is-down-but-may-not-be-a-bargain/

Desai, A., Mihir. (July-August, 2008). The Finance Function in a Global Corporation. Harvard Business Review, pages 1-4.