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Multinational Company?
What is …
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Multinational Company (MNC)
delivers services facilities
controls production
At least 2 countries
*Originated in 20th century and expanded after World War II.
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Also can be named as… Multinational enterprise (MNE), Transnational corporation (TNC), Multinational organization (MNO) , Super National Enterprises, Global companies, Cosmocorps, International corporation.
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Examples…..
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Characteristics:
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of Multinational Companies (MNC)
Advantages & Disadvantages
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Advantages Acquire larger pool of customer Borderless World- do global, get
more customers 96% Consumers/ 67% World
Purchasing Power=> Outside U.S.A.
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Advantages Create rivalry and increase competitiveness
Source : http://www.goldensegroupinc.com/mosongo/0906CW-IndiancompaniesvsMNCsTheRaceIsStillOn.pdf
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Advantages
Gain cost advantage Increase efficiency, cut costs India receives most of all offshore revenue Companies from U.S. and Western Europe
have hired 170,000 Indians
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Advantages Avoid trade barriers Inward investment- build own facilities Japanese car manufacturers invest into UK -
avoid EU Common External Tariff- UK can access to high-quality cars at lower prices.
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Disadvantages Exploitation on natural resources
by MNCs Japanese MNCs - obtain raw materials
or lower-cost components to the international markets (Ozoigbo & Chukuezi, 2011)
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Disadvantages
A threat to economic and political sovereignty of host countries, perhaps
Protectionism Keep new entrants away from market- reap
profits
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Disadvantages
Destroy local companiesDestroy competition in local market
Acquire monopoly through acquisition of domestic firms
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Disadvantages MNCs may ignore home countries’
industrial and economic development More investments to foreign countries Less availability of domestic capital
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BENEFIT MULTINATIONAL
COMPANIES
Harmonization of accounting standards
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Systematic review and evaluation of the company performance
Communication within the groups become easier Monitoring business operation and take
corrective action
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Increases comparability of company performance against domestic and international peers
Financial statements presented on same basis Analysis of competitive and operational can be
conducted easier
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Attract capital from a larger pool of investors
Differences in financial reports reduced Better quality and credibility of financial report Investors understand and confidence
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Reduce reporting costs
Simplified consolidation of financial statements of foreign subsidiaries
Accountants only require knowledge for common accounting practices
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Easier to move accounting staff between foreign subsidiaries
Increase mobility of accountants Not need outsource accounting tasks Better respond and manage human capital needs of
subsidiaries
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- Align two sets of standards
What MASB Do???
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Renamed as Financial Reporting Standards (FRS) & Renumbering
the standards
Correspond to international standards Example: >> IFRS 1 to 5 are FRS 1 to 5 in Malaysia
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Introduced a two-tier reporting framework
For non-private entities:>> Financial Reporting Standards (FRS) For private entities:>> Private Entity Reporting Standards (PERS)
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FRS made identical to IFRS and 10 revised accounting standards issued
Removed all remaining differences>> Local guidance and editorial matters
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Issued statement about the fully convergence plans with IFRS
Ensure companies have sufficient time to prepare
Ample time frame was necessary to adopt remaining standards
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Issued Malaysian Financial Reporting Standards (MFRS)
Fully IFRS-compliant framework Equivalent to IFRS
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- Arising from new Financial Reporting
Standard
What is the impact??
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Increase the transparency of financial reporting
Provide more disclosures
More flexibility in financial reports Principle-based standard To determine stock option value: >> Not only use option pricing model
>> Allow for use of valuation techniques
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Increase the credibility and reliability
High quality and consistency reports Increases the ability of foreign investors and
analysts to understand
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Greater comparability
Sets limits on the alternatives allowed for similar transactions
Facilitates comparison between Malaysian companies with foreign companies
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Small companies bear a higher cost
Lesser resources to handle the implementation and training
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