International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CHAPTER 24

International Control Conundrum

Forewarned, forearmed; to be prepared is half the victory.

Cervantes

You can't manage what you can't measure.

William Hewlett

As the comptroller of the French multinational BIC S.A.—known for its stationery products, shavers, and lighters—Jean de la Fontaine was perplexed by the performance of BIC's Thai subsidiary. The past three years had delivered declining returns on equity (ROE), now standing at 7.8 percent when the aggregate ROE for the group hovered around 12.5 percent, and yet a steadily appreciating Thai baht had allowed the Thai subsidiary to remit an increasing stream of dividends to its French parent. Profit margins—now at barely 1 percent when BIC averaged 2.5 percent worldwide—had been especially battered by increasing imports competition from China, and BIC-Thailand had missed its sales budget two years in a row. Was BIC applying the right metrics for evaluating its foreign operations?

This chapter develops a framework for evaluating the performance of a multinational corporation's (MNC's) foreign subsidiaries. Translating a company's diverse and far-flung set of activities into a set of objective numbers is crucial for assessing performance and planning future actions. Designing effective management control systems for domestic firms is fraught with problems of information asymmetry and goal incongruence between corporate parent and subsidiary units. In an international setting, the problems are further complicated by ...