Why Finance Professionals Need International Business Strategy ...

By?Lilach Nachum

Financial and strategic decisions are often intertwined such that choices made in relation to one of these functions carry critical implications for the other. It is probably in recognition of these interdependencies that the role of finance professionals in the management of their companies has substantially widened in recent years. Nonetheless, the non-financial consequences of finance-related moves, as well as the financial implications of strategic choices, are seldom addressed or discussed.

My engagement with finance professionals and executives around the world over more than two decades has made me realize how unprepared they feel to deal with this challenge. These executives recognize that this limitation inhibits their ability to play a broader role in the management of their companies and contribute more actively to value creation. A recent report by IBM, based on interviews of more than 1,900 CFOs worldwide provides an unequivocal support for my anecdotal observations. The report confirms the growing demand on finance professionals to take active part in management issues that extend beyond finance. At the same time, it also illustrates a large gap between what is expected from these professionals and their performance, and draws attention to the disturbing dearth of guide on these issues that have escaped the attention of most consultants and advisers to these professionals. The report strongly advocates a need for greater integration of finance and strategy, and provides suggestive evidence of the benefits of such integration.

While the creation of a dialogue between finance and strategy is important in a single-country context, it is critical internationally. The complexities associated with the management of organizations whose activities take place in multiple and different countries, separated by geographic distance and time, increase the difficulties of observing and making sense of non-financial consequences of finance-related decisions, as well as of the impact of financial decisions on strategic moves. Such difficulties are particularly notable when the cross-function consequences are exercised far away from the arena in which the decisions were made. At the same time, the inter-dependency between finance and strategy often has more critical consequences for companies operating internationally compared with their domestically-focused counterparts. Furthermore, the scope of opportunities for value creation via the interaction between finance and strategy is broader in an international context.

Financing international activitysuggestsan illustration of these challenges and opportunities. Such moves open up plethora of options, such as the choice of venue for capital-raising, notably whetherat home or overseas, and where overseas, or the choice between separate listing of individual affiliates versus the corporation as a whole. Different choices affect a firm?s perception by local stockholders, the legitimacy it could gain (or lose). Yet another illustration is related to non-financial advantages that could be gained by exploiting internal financial opportunities available for firms operating internationally. Examples include moving capital among sub-units around the world, or the ability to gain financial benefits derived from broad international scope, via access to low cost sources of capital. While those have apparent financial bearings, their importance extends beyond finance in that they set firms operating internationally apart from domestically-focused local firms and could provide valuable advantage relative to them. Such decisions require finance professionals to take explicit account of consequences of their decisions that extend well beyond finance and could have critical implications for their firms? overall competitive position.

The affinity between finance and international strategy is apparent also the other way around, that is, in relation to financial consequences of strategic moves. Country selectionis a case in point. Such choices undertaken with explicit account of the financial environment in the countries in question and their integration with financial systems elsewhere are likely to enhance a firm?s position in its entire country portfolio. Entry mode choices, such as the choice between wholly-owned affiliates and joint ventures, or between greenfield establishments and acquisitions, are yet another strategic decision with financial bearings. Different choices have consequences for a firm?s ability to raise capital in foreign countries. Involvement of finance professionals in such decisions is of considerable value for their overall outcome. That too requires that finance professionals deepen their understanding of international strategy and the varying ways by which it relates to finance.

The association between finance and international strategy is particularly notable in the contemporary business world, in which the numbers of countries that host companies operating internationally, and the heterogeneity among them, have increased a great deal. Finance-related decisions in environments whose characteristics vary considerably from those of the countries that are familiar to most finance professionals often have far-reaching strategic consequences that might be particularly challenging to grasp. That is the challenge typical of many emerging markets that are the focus of attention of many firms operating internationally.

Gaining an understanding of the relationships between finance and international strategy will enable finance professionals to exploit the substantial scope that is available to create distinctive value at the interaction between these functions. It will equip them with means to better appreciate the non-financial consequences of their finance-related decisions and to explicitly incorporate non-financial considerations in the choices they undertake. Such an understanding will also enable them to play an active role in strategic decisions and enhance the value of such decisions forfinancial management.

Professor Nachum is expert on issues related to globalization and international business, with more than two decades experience teaching, researching and consulting on these issues to firms and government agencies, including the United Nations, World Bank, and the European Union. She has held Senior positions at Cambridge University UK and City University New York, and visiting positions at universities in Austria, China, Hong-Kong, India, Israel, Italy, Singapore, Sweden, Switzerland, Taiwan and the UK. She is the author of two books and numerous articles and monographs.

Article source: http://blogs.forbes.com/85broads/2011/07/26/why-finance-professionals-need-international-business-strategy/

Source: http://loans.ismyblogs.name/why-finance-professionals-need-international-business-strategy/

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