The finance function in a global corporation is an integral part of the company’s operations. However, many issues surrounding the finance function make it particularly challenging. These include the need to align strategic decisions and locational activities across subsidiaries. Additionally, global corporations must coordinate their professional finance staff to ensure their effectiveness in a wide range of environments. For this reason, global corporations must have a strategy for achieving this goal.
The role of the finance function in a global corporation has become increasingly important over the past forty years. External markets have become more demanding and multinational companies have developed their own internal capital markets. With these challenges, the finance function needs to become more strategically engaged to meet the firm’s objectives. A globally competent finance department must reconcile the competing priorities of the firm. But how does the CFO succeed in this new role?
One challenge facing the global finance function is the lack of a central hub. As a result, the global finance department must locate decision making at the geographic level. This requires rotating a large number of finance professionals through diverse institutional environments and codifying practices that can be adapted for local conditions. It must also understand the importance of local markets. And it must be aware of the different laws and regulations that govern different jurisdictions.
The globalization of a corporation has changed the finance function. In the past, large firms focused on internal audit, cost control, and capital budgeting. With globalization, the finance function has expanded into a new realm and posed new challenges for CFOs. For example, capital budgeting decisions must take into account divisional differences. In addition, capital markets must be globally competent to reconcile global firm priorities.
The globalization of an organization creates new challenges and opportunities for the CFO. The CFO must understand the role of the finance function in a global corporation and find ways to make decisions in an efficient and flexible manner. It must be able to rotate the finance professional across multiple institutional environments. It also must codify best practices for the global financial system. For example, GM’s approach to hedging illustrates the centralization of the finance function.
The finance function in a global corporation should be as global as the firm itself. The role of the finance department is crucial in reconciling the company’s priorities and ensuring financial stability. In fact, a globally competent finance department must be able to deal with the growing challenges of a diverse organization. So, why is the finance function important? A healthy company is the only way to maintain its success. Keeping up with the external environment and managing its resources are vital.