Finance Function in a Global Corporation

As corporations go global, capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets. But in managing their internal markets to build an advantage, CFOs must balance the opportunities with the challenges of operating in multiple environments. By exploiting their internal capital markets, CFOs can create value in three functions: Financing. A CFO can reduce a group's tax bill by, for example, borrowing in countries with high tax rates and lending to operations in countries with lower rates. But the global CFO needs to be aware of the downsides of strategic financing. Saddling the managers of subsidiaries with debt, for instance, can cloud their profit performance. Risk management. Instead of managing currency exposures through the financial market, global firms can offset natural currency exposures through their worldwide operations. Doing so, however, can obscure the performance of local units, making it harder for headquarters to assess local managers and easier for financial managers to take purely speculative positions. Capital budgeting. CFOs can add value by getting smarter about valuing investment opportunities. But adopting an overly formal approach may tempt managers to game the system and can lead to an outcome at odds with the company's objectives. CFOs can help their global finance operations make the most of their opportunities by inventorying their capabilities and ensuring their adaptation to institutional variation and their alignment with organizational goals. To achieve this, a global finance function must locate decision making at a geographic level where other strategic decisions are made, rotate finance professionals through various institutional environments, and codify practices that can be adjusted to suit local conditions.