International Controlling

1. National (e.g. MAnner, Völkl, FC Bayern AG)
2. International (operating in two countries) (e.g. Marker, Fischer Sports GmbH)
3. Multinational (operating in various countries on one continent) (e.g. Mayr-Melnhof, Öst. Volksbanken AG)
4. Transnational (various countries, two continents) (e.g. KTM, REWE, Julius Meinl)
5. Global (Doppelmayr, Kapsch, Palfinger, Rosenberger, Wienerberg....)

1. Subsidiaries
2. Mergers (e.g. Daimler-Chrysler, Exon-Mobile)
3. Acquisition (e.g. Lufthansa – AUA)
4. Joint Venture (e.g. Sony Ericsson, Shanghai Volkswagen Automotive Company, Ltd.)

• Volatilities (quick changes) of currencies
• Different country risks
• Differences in legal framework
• Ecological differences
• Deliveries and services within the group
• Cultural distances

• Budgets are prepared in the group/company currency (e.g. €; $)
• When sent out to departments in foreign markets, those budgets get transformed into foreign currencies (e.g. Yen, Yuan, Can$)
• With the end of the budgeting period, the numbers of the branches are re-converted into the group currency
• Changes of the national currency’s value can influence the numbers and therefore distort the evaluation of the subsidiary’s performance
• Therefore, numbers have to be adjusted to the volatility of the currencies to enable a serious controlling process

• The buying and selling rate on the spotmarket (notes and coins / liquid money)
• The buying and selling rate on the forward market/derivatives market (assets)
• The rates which have to be used to transform the value of assets are the selling rates (liquidation of asset through selling). In order to transform liabilities, use the buying rates

v := value stated in the incomestatement

p:= percentage of "fictitious profit"

real value = v - v * (p/(1-p))

• National currencies can get devaluated in relation to the group currency
• In case that the currency gets devaluated in the period between investments (materials, production costs etc.) and the sale of goods, inflation influences the financial result of the product.
• This is called fictitious profits
• Those fictitious profits have to be eliminated from the results.

• Laws, rules, restrictions differ from country to country
• Uncertainty of the validity and continuity in countries in the CEE and South America e.g.:

o   Sudden change of regulations

o   Corruption (e.g. in tenders/bids, digging rights, mergers/acquisitions)

--> Lobbying & interventions as possible solutions

• Ecological restrictions in industrialised countries are expansive --> outsourcing heavy industry to developing countries
• But also in developing countries environmental awareness is rising
• Energy costs are increasing steadily (e.g. petrol) à production & transportation costs are rising

--> Scenarios about the future development help to decide about outsourcing projects

• Interdependencies between group’s firms
• Prices for services are paid according to Service Level Agreements (SLAs)
• Prices for one good may differ within two countries (e.g. for taxation) à--> affects results of those companies
• But, therefore tax burden can also be reduced

• Interdependencies between group’s firms
• Prices for services are paid according to Service Level Agreements
• Prices for one good may differ within two countries (e.g. for taxation) à affects results of those companies
• But, therefore tax burden can also be reduced

1. International strategy (low globalisation, low advantage of acting local)
   1. Just a view businesses abroad – mainly exports
   2. Highly standardised controlling
2. Global strategy (high globalisation, low advantage of acting local)
   1. Same products and processes worldwide
   2. Very high standardised controlling
3. Multinational strategy (low globalisation, high advantage of acting local)
   1. Specified products and processes according to local needs
   2. Very poor standardised controlling
4. Transnational strategy (high globalisation, high advantage of acting local)
   1. Think global, act local
   2. Poor standardised controlling

see fig.

Aims:

• Maintaining existing potentials for success
• Creating new potentials for success

Tools:

• Potential analysis
• Strategic Balance Sheet
• Portfolio Concept
• Scenario Technique
• Diversification Matrix

1. Analyse your companies reasons for success and failures in the last periods
2. Define the future SWOT characteristics
3. Define the most important key factors in the market
4. Compare yourself with the most important competitor
5. Are there further future potentials for success?

• Deals with the stakeholders of the group (“person or group which can affect or be affected by the business as a whole”
• Active and passive dependencies
• Results in the so called “strategic bottleneck” = stakeholders on which the firm depends most
• The strategic bottleneck indicates the point from which the strategic planning should start
• It consists (like the accounting balance sheet) from:

o   Assets – “How much is the stakeholder dependent on the firm” (e.g. personnel)

o   Liabilities – “How much depends the company on the stakeholder” (e.g. Banks)

• Division of the business into functional and geographical units:

o   Strategic business units (Products)

o   Strategic business countries

• Positioned in the Portfolio-matrix according to the dimensions:

o   Market growth (y)

o   Relative market share (x)

• Size of the bubbles shows the turnover (and/or contribution margin; cash flow)
• Product life cycle in the right turn
• Cash flow in the left turn

• Shows different imaginable future developments
• Helps to identify interference factors and allows setting measures in time
• Three basic scenarios are always analysed:

o   Worst case

o   Base case – development without any environmental changes/influences

o   Best case

• The truth lies between those boarders
• Possible measured values:

o   Turnover

o   Profit

o   Margin

o   Growth rate

1. Performance (Equipment, Quality, Wear & tear. Design, Price)
2. Location (Walking distance, Parking place, Neighbourhood, Atmosphere)
3. Personnel (Qualification, Kindness, Reliability)
4. Service (Time of delivery, Repairing service, Training of customers)
5. Image (Trade-marks, Symbols, Slogans, Status, Unique)

1. Vertical expansion – similar/new product/service/solution/SBU on an existing market
2. Horizontal expansion – entering new markets with an existing product/service/solution/SBU
3. Lateral expansion – entering a new market with a new product/service/solution/SBU

--> lateral is the most risky one, therefore not so much to apply (exception: entrepreneurs)

see fig.

• Group controlling is in charge
• Gets the needed, detailed information through reporting system
• Holistically looks at the group – interventions in the case of one or more drifting subsidiaries

Tasks:

• Standard reports:

o   SBU & SBC reports a certain number of ratios and information

o   Delivered information is analysed and reported by the group controlling

• Extraordinary analysis and special inquiries

o   Each SBU SBC needs individual attention

- Group controlling carries out the controlling on an individual basis

• Local controlling departments in the subsidiaries are responsible for the controlling tasks
• Day to day business: collecting, collating, reporting the data to the group department
• Advantages:
  • Higher degree of flexibility within the group
  • Motivation for “foreign managers”
  • Higher knowledge about local conditions (markets, culture etc.) in the subsidiary

Tasks:

• Setting up local priorities:

o   Trading systems, trading habits

o   Political influences

o   Legal frameworks

• Carrying out local tasks

o   Sales controlling

o   Marketing controlling

• Using local instruments and tools

o   IT-systems

  -  Programs

• Book-Keeping
• Local reports within the SBU or SBC
• Planning (e.g. time horizons)
• Controlling instuments

• Often used (no matter the size and degree of globalization of the firm)
• Restricted by local needs and different national legal rules (e.g. accounting standards)
• Need of IT-systems in order tot generate standadised reports
• e.g. Henkel, OMV, WIenerberg, Mayr-Melnhof

• Technical

o   Standardisation of IT

o   Standardisation of forms, structures and designs

• Organizational

o   Training of controllers

o   Exchange between local and group controllers

o   Definition of reporting standards which satisfy the need of the local and the group controlling

• Definition on measurable, quantitative controlling targets (e.g. profit, turnover, financial ratios)
• Fix dates of reporting for all subsidiaries (e.g. figures for the annual closing, monthly reporting etc.)
• Data based on the IFRS à highest level of standardisation

Advantages:

• Transparency
• Uniformed treatment of topics
• Short processing time
• Fast initial period
• Improved decision making
• Former experiences used
• Better calculation of actions (better data)
• Independency of local controllers

Disadvantages:

• Workload for central controlling
• Low degree of consideration of local facts
• High expenses in generating and actualising the reporting standards
• Risk of treating topics too equal
• Little space for innovative solutions
• Reduction of flexibility

see fig.

• Usage of a global IT-System, besides the local reporting system
• Connection of the different systems via data warehouse
• Transformation by hand