International Money Management Control
The international financial manager can apply himself to further IMM programs, including short term borrowing and investment of funds. As has been pointed out, international money management emanate from a centralized control over the financial transactions of the multinational corporation.
The section also describes three more sophisticated IMM programs - multilateral netting, pooling accounts, and accumulation-investment schemes as examples of ways in which to rationalize the use of short-term funds or requirements on an international scale. They are but three of a number of techniques that have individual IMM application; others, including use of computer programs, are only briefly mentioned.
The essence of international money management is centralized in formation and control. The problem of manipulating and rationalizing the liquid assets of the multinational corporation can best be solved by making an analysis of the underlying global position and problems of the group.
Typically, that requires concise and frequent reporting from each group member, whether manufacturing, selling, or holding company, to a central coordination point.
It is the routine practice of the larger multinational companies to require several types of financial reports from foreign subsidiaries; they include balance sheets, income statements, and forecasts, often on a monthly basis. But for the rationalization of the use and movement of cash or its equivalent assets, for control over exchange exposure, and for short-term investment purposes, additional data are needed.
For example, intercompany netting programs require definition of the exact intercompany position of each subsidiary in advance of a single clearing date. Service-oriented companies, such as airlines and shipping and insurance companies may have cash-rich periods within a single month when agents submit payments or when premiums arrive; the funds are disbursed over a period of time.
Forecasts of expected receipts and expenditures during a month would therefore allow the central coordinator to shift or invest surplus funds within the month, and that may be beyond the responsibility (or, indeed, capability) of the local manager.
Centralized reporting systems and resultant financial directives do result in a loss of autonomy for the local finance manager, which must be dealt with. The arguments for centralized control are strong ones: local executives can rarely know the liquidity position of the group; local executives cannot analyze the exchange exposure of the group in either its component parts or as consolidated entity; and the central financial office--- no matter what shape it takes, draws on information from a wide number of financial institutions and so can formulate a better decision on the probable nature of financial events and a broader approach to protection against them.
Against those arguments can be weighed a lack of whole-hearted support for rationalizing systems if the local manager feels his sphere of influence is limited or his achievements are downgraded.
The answer to what is a discernible management problem-acceptance of new techniques directed from above-is to insure that the local finance manager will be judged by the new constraints imposed upon him and the management of assets entrusted to him.
His input and raw data, as well as his judgments on local economic conditions, hedging, and marketing, continue to be determinant in analyzing the group's position. Furthermore, the fees, commissions, interest, or float saved by IMM systems accrue directly to the individual participating companies according to their own payment patterns.
Most multinational corporations impose a direct and centralized control over their international affiliates for the reasons given in the preceding paragraphs.
The location of centralized control is influenced by communications, time differences, and the depth of local financial institutions. Owing to the problem of day-to-day control of subsidiaries when the parent company is several thousand miles removed, recourse is often had to an international headquarters or several regional or continental offices.