Title: GLOBAL ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS
1GLOBAL ACCOUNTING AND CONTROL A MANAGERIAL
EMPHASIS
- Sidney J. Gray, University of New South Wales
- Stephen B. Salter, University of Cincinnati
- Lee H. Radebaugh, Brigham Young University
2CHAPTER FOUR
- COMPARATIVE INTERNATIONAL
- MANAGEMENT ACCOUNTING
3What is Global Management Accounting - Management
Control
- Management Control focuses on
- The strategic objective of the firm.
- The types of resources the firm needs, where it
can get them in the short and long terms. - A system that tells the firm if it is going off
track and needs to make corrections. - How to evaluate and reward manager performance.
4What is Global Management Accounting? Continued
- The Cross Border setting asks the following
- questions
- How do external internal environments affect
information needs and questions? - Are there different views in different countries?
5What is Global Management Accounting? Continued
6CULTURE, MARKETS CONTROLCulture An
Introduction
- A firms social/business environment affects
strategy and control dimensions. - These environment dimensions are culture and
markets. - Hofstedes model of culture identified dimensions
of human values that affect decision making by
society and individuals.
7CULTURE, MARKETS CONTROLAn Introduction to
Culture Continued
- Hofstedes Dimensions
- Individualism versus Collectivism.
- Large versus small power distance.
- Strong versus weak uncertainty avoidance.
- Masculinity versus femininity (Achievement
Orientation). - Long term versus short-term orientation.
8Table 4.1A Selection of Hofstedes Scores
9CULTURE, MARKETS CONTROLCulture and Control
- The impact of a cultural variable on management
control is not always clear. - Studies suggest that management control is
affected by individualism, power distance,
long-term orientation.
10CULTURE, MARKETS CONTROLStudies of Culture and
Control I
- These studies find
- Asian nations tend to look to longer term market
dominance profile. - Collectivists, e.g., Japan, tend to plan and
reward at the group level. - Individualist cultures link reward and
performance for each individual.
11CULTURE, MARKETS CONTROL Studies of Culture
and Control II
- The Western concept of checks and balances makes
the individual responsible culpable. - The individualist culture is the basis for the
system. - In Collectivist cultures group rewards dominate.
These take longer to emerge, so planning would be
longer term. - High Power Distance societies have few
consultative/participative budgeting processes.
12EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS
- US Multinationals
- In a study of MNEs, Robbins Stobaugh (1973)
found - Intangible items rarely taken into account when
evaluating performance. - Foreign subsidiaries are judged on same basis as
domestic subsidiaries.
13EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
- US Multinationals Continued
- Return on Investment is most utilized measure of
performance. - A Supplementary device is often used to gauge a
foreign subsidiarys performance. - Comparison to budget is most widely used.
14Table 4.2Evaluating Foreign Subsidiaries and
Foreign Subsidiary Managers
15EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
- Non-US Multinationals
- British Firms
- Appleyard, Strong Walton (1990) found that
British companies - Preferred to use budget/actual comparison
followed by some form of ROI. - Tended to use the same ROI measure for foreign
subsidiaries as for domestic subsidiaries.
16EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
- Japanese Firms
- Shields et al (1991) compared US and Japanese
MNEs and - found that
- Japanese firms tend to use sales as the major
performance criteria. - US firms prefer ROI.
17Table 4.3 - Criteria Used for Evaluating
Divisional Managers
18EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
- Bailes Assada (1991) also compared US and
Japanese MNEs. - Japanese firms prefer to use sales volume as
overall objective. Net Profit is second. - American companies tend to use ROI most often,
then controllable profit. - Demirag (1994) - Japanese MNEs in the UK tend to
use sales/market share targets.
19Table 4.4Top Budget Goals for Division Managers
20EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
- APEC Firms
- Merchant, Chow Wu (1995) found little evidence
of a link between national culture and firms
goals in Taiwan. - Kong, Harrison et al (1994) found that
Anglo-Saxon managers prefer shorter term but more
quantitative objectives. - Company objectives vary from culture to culture
21EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- Issues needed to be resolved are
- Is there a formal budget setting process?
- Who participates and how?
- What style of communication should be used?
- How are objectives set?
- Time period to be covered?
- Should there be a monetary objective or
non-quantitative objective?
22EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- US Firms
- Anglo-American practice assumes that performance
is improved through participation of persons in
carrying out the budget.
23EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- Japanese Firms
- Bailes Assada compared US/Japanese companies
- 90 of companies in both countries prepared
master budgets. - This process varied by country.
- US Managers tend to be more involved.
- Japanese managers tend to see this process as a
way to improve performance.
24EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- Japanese Firms Continued
- Ueno and Sekaran (1992) found
- US Managers use a more formal structure.
- Budgeting thus becomes a drawing together of
diverse, often conflicting interests. - US budget makers tended to create more slack.
- Japanese managers tend to measure performance
over a longer time horizon than US managers.
25EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- Mexican Firms
- Frucot Shearon (1991) found
- Performance of Mexican managers is the same as
typical US managers. - Higher level managers participate more.
- Lower level managers participate less. This is
attributable to the high power distance culture. - Managers of foreign owned subsidiaries show no
desire to participate in the budget process. See
themselves as powerless and process as alien.
26EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- APEC Firms
- Comparing managers in Australia and Singapore,
Harrison (1992) found no significant relationship
between national origin and participation,
interaction and satisfaction. - Both groups seem to prefer a participative style
of budgeting.
27EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
- Harrison et al (1994) compared Australia, US,
Singapore and Hong Kong and found - Anglo-American firms place emphasis on
decentralization, responsibility centers,
organizational design, as well as quantitative
and analytical techniques in planning and control - Singapore/Hong Kong Firms place emphasis on long
term planning group centered decision making
28Ameripill CaseObjectives
- The case illustrates the importance of
considering global implications and
organizational design issues when creating and
implementing an accounting-based performance
evaluation system. - The issues presented are typical of the
pharmaceutical industry. - Specific teaching objectives are identified as
follows - Provide students with an understanding of
numerous complex issues involved in evaluating
international subsidiaries. - Demonstrate the impact that financial-based
evaluation systems have on strategic decisions. - Illustrate the institutional, regulatory, and tax
incentive factors associated with international
strategic decisions. - Provide a basis for considering the strengths and
weaknesses of centralized versus decentralized
decision making in international settings.
29AmeripillCase Overview
- The case is organized around the performance
evaluation system's impact on decision making in
three interrelated international subsidiaries. - The decisions include
- expanding operations in and shifting production
to the U.K., - acquiring new product lines in Germany, and
- withdrawing a product in France.
- Exhibit TN-1 provides a method to summarize the
interactions between the performance evaluation
system and decisions at the international
subsidiaries.
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35United KingdomImpact of Expanding Current
Manaufacturing Capacity by Acquiring Worsley
Plant
36GermanyImpact of Acquisition of Chemie Company
37FranceWithdraw Saincoeur from French Market