Challenges of a multinational firm | Risk of foreign exchange
Challenges of a multinational firm
A multinational firm operates in diverse environments, the finance manager of the firm encounters a large number of challenges. They include
- Complex taxation systems : multinational firms, operating in different economic system with their subsidiaries, have to face multiple tax system. The diversity of taxation affects the profitability of the multinational firm and it because a tedious job for the finance manager to perform decision making tasks in such complex situations.
- Diverse financing mediums: A multinational firm has various sources of financing. However, some of them, coming from the economy in which the firm is new, may generate market-prone risks. This can be due to some specific risks pertaining to the economies that cause the decline in the profitability of the firm.
- Political risk : multinational firms, while investing in a country, are prone to the political risks in that country. A major political risk faced by them is expropriation on confiscation of private property. It is, therefore, necessary for the firms to carefully analyse the investment ratings of the countries before they invest.
- Risk of foreign exchange : multinational firms may also faces challenges due to its diverse physical environment . this hampers standardization of products, procedures and management style of a multi national firm. The weather and the landscape of the locations mayalso affect the performances of the individuals of the firm.