Free «International Financial Management» Essay
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Analyze at least three drivers of globalization and how they affect your organization
Globalization has given rise to the emergence of the many global organizations like General Electric (Kiggundu, 2002). General Electric has evolved from the national to the international then multinational and now global organization. As it is the case with many global corporations General Electric differs from other forms of organizational forms because it operates with a single global strategy with a worldwide system and a plan of products, marketing, manufacturing, logistics, and research and development (Kiggundu 2002).
In this context, there are several drivers of globalization which have affected global organizations and they include: changes in restrictions, privatization, potential for economic growth, tax rates, factors affecting international portfolio investments and exchange rates. In this perspective General Electric is mostly affected by changes in restrictions, exchange rates and tax rates. These are the global finance changes which have over the time affected General Electric.
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Changes in restrictions
Changes in investment restrictions have had a positive influence in General Electric. According to Madura (2009) changes in restrictions have been significant in the growth of General Electric globally. He continues to he say that during the 1990s many countries lowered their restrictions on international trade and global investments hence opening way to more international companies to invest in their countries. Madura (2009) continues to say that after these changes in restrictions many U.S based countries including General Electric have been penetrating in less developed countries such as Argentina, Chile, Mexico, India and china. The new opportunities in these countries have risen from the removal of government barriers and they have been the key driver for globalization for General Electric.
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Exchange rates have both positive and negative influence in General Electric globally. Madura (2009) says that global firms typically prefer to pursue in countries where the local currency is expected to strengthen against their own. Under this condition General Electric has invested funds to establish operations in a particular country while that country’s currency is relatively weak (Madura, 2009). Madura (2009) argues that the earnings from General Electric new operations can be converted back to the firm’s currency at a more favorable exchange rate. For example if the home currency of the country in which General Electric is situated is expected to strengthen, this means that foreign investors may be willing to buy shares in that company in order to benefit from the currency movement (Madura, 2009).
High tax rates have negative influence in global organizations. Studies show that General Electric is located in countries which impose both high and low tax rates. This has attracted relatively a considerable number of investors in this organization in some countries while at the same time discouraged investors in other countries . According to Madura (2009) countries that impose relatively low tax rates on corporate organizations for example General Electric in U.S are likely to attract international investors. Madura (2009) continues to say that investors normally prefer to invest in countries where the taxes on interest or dividend income are relatively low. This factor has been significant to the growth of General Electric globally.
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Describe the risks associated with global investing.
Research shows that both developed and developing countries face a number of long standing impediments to growth and their impact is compounded by geopolitical turmoil and risks associated with global investing (Suder, 2004). He continues to say that strong and lasting global growth belongs to the past, given the many risks and vulnerabilities that spill over and create volatility (Suder, 2004). The first risk according to Suder (2004) is that the volatility and complexity of global investing makes the quantitative assessment of a country’s risk difficulty. This is based on the fact that the country’s currency exchange rates fluctuate as well as its tax rates.
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Suder (2004) also says that another risk may be “due to absence of institutional stabilization mechanisms such as lender of last resort fund makes the global investing risky and vulnerable to shocks like never before” (p. 84). Suder (2004) argues that worldwide income inequalities within and among countries impede the conditions of stable and sustaining growth and therefore it is further associated with risks of global investing.
In his research, Suder (2004) argued that slower and more erratic growth might be the new reality. This is a major risk associated with global investing because as the global economy becomes an echo chamber that propagates and accentuates imbalances, it is doomed to face cycles of stop and go. As a result investors and lenders are worried about the reliability of corporate governance and accounting systems (Suder, 2004).
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Explain the importance of cultural sensitivity and ethics in global finance
Cultural sensitivity is very important in both global investments and finance. Lack of cultural sensitivity and ethics in global finance leads to shortcomings of ratings and panel based market and global finance consensus. In addition Suder (2004) says that this leads to a more rigorous examination of the economic, institutional and socio-political fabric that holds or distorts a country’s development path.
Moreover, Kim & Seung (2006) indicated that cultural sensitivity is important in the area of global finance because it promotes customer relations. Cultural sensitivity and ethnicity will ensure sufficient care in selecting for example overseas distributors and chasing orders around the world instead of establishing a basis for profitable operations and orderly growth (Kim & Seung, 2006). Cultural sensitivity and ethnicity will ensure that international distributors are treated on an equal basis with domestic counterparts and also ensure that print service, sales, and warranty messages are in local languages which can be understood by indigenous cultures (Kim & Seung, 2006).
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Marquardt & Berger concluded that the global economy has forced the creation of global organizations, companies that operate as if the entire world is a single entity with a common culture and business ethics (2000). Marquardt & Berger (2000) continue to say that global firms emphasize on global operations hence they use global sourcing of human resources which a big drive towards achieving global cultural sensitivity and ethnicity. They also noted that an organization is globalized when it develops a global corporate culture, strategy and structure as well as global operations and global people which are fully supported by cultural sensitivity and ethics in global finance (Marquardt & Berger, 2000).