The challenges of international expansion In this interview with Zhang Kehui, chief financial officer of China Shenhua Energy Company, we explore the challenges and opportunities in executing a global expansion strategy. Zhang joined the company in and has been CFO since Zhang as part of an Accenture research initiative studying Chinese companies executing globalization strategies.
Accounting Method Globalization of the business community poses complex issues for fundamental analysis. In order to understand a company's fundamentals, an investor should first determine what accounting rules might have been used to compile reports and whose laws define the company's governance practices.
From the perspective of an investor in the United States, there are 3 broad categories of companies, each subject to different legal and accounting regimes: Domestic firms operate mostly or completely within the United States.
They may import supplies or export products, but these activities normally represent a comparatively small share of total business activity. Domestic companies are typically governed by U. Their financial reports are normally constructed according to generally accepted accounting principles GAAP.
International firms are headquartered in the United States but maintain significant investments outside the country and have geographically diverse profit centers. Any specific differences in accounting or governance between foreign subsidiaries and U.
Global firms have significant investments and profit centers in many countries, with no single center of dominance. Governance rules for global firms are generally determined by the laws of the official domicile of the parent company.
It took official multinational form when the European Union dictated IFRS as its common accounting standard inand has since been designated as the theoretical accounting framework by more than countries. With that in mind, here is a brief overview of key similarities and differences for a U.
However, there will be many detail differences. For example, the layout and format of public company reports are determined by detailed SEC regulations, so most such reports tend to look the same. IFRS reports, by contrast, may differ significantly as long as they include required information.
IFRS reports may also provide greater detail about prior-period results. Interim financial reports created under IFRS generally allow fewer kinds of costs to be deferred from one period to another. Guidelines for consolidation of subsidiaries under GAAP allow the determination to be based on controlling financial interests.
Under IFRS, however, the determination may be based on whether the parent entity has the power to control the subsidiary. GAAP allows valuation based on last-in, first-out accounting. IFRS bars that practice. GAAP does not allow inventory write-downs to be reversed, while IFRS permits the practice if the reason for the impairment no longer exists.
Rules for revenue recognition differ in many important but arcane details, so that total revenue for a company under IFRS may be noticeably different than it would be under GAAP. Many elements of GAAP evolved from cases brought by companies or industries seeking differentiated treatment for their circumstances.
IFRS has a much shorter history of case law, and so has had fewer opportunities to develop exceptional treatment issues. Investors who need to take action based on IFRS reports may need to monitor the evolution of IFRS case law as carefully as they now read new financial accounting standards issued by U.
Next steps to consider.Becoming a global company is an impressive accomplishment, but not every business is cut out for the challenge. There are many things to think about before you . Jun 27, · Despite its complications, domestic business is far simpler than international business.
When it has a presence in multiple nations, a business must work to understand and adapt to each national or domestic environment in numerous aspects of business.
Mar 04, · Many global companies try to launch with executives from the parent company or rapidly build a local team from scratch.
This is time consuming, risky, and slows time to market. Global becomes a strong driver of the company’s growth and future.
Nataly Kelly is the VP of International Operations and Strategy at HubSpot. Her latest book is Found in Translation (Penguin).
The domestic company’s name is Prestige, INC, which is owned by James Sammons. James Sammons is also the Chief Executive Officer (CEO). Over the past few years the company has grown very much due to its good services.
In most countries of the world, international trade represents an important share of the gross domestic product. In considering alternatives to grow your company, it will be worth investigating this accelerating trend which is the outcome of increasing industrialization, transportation and communication tools.