Working Capital Management

CHAPTER 9 International Working Capital

This chapter covers these topics:

• Consideration of the working capital opportunities in international business.
• Awareness of the financing of international transactions
• Appreciation for the basic concepts of foreign exchange.
• Evaluation of country risk and other issues in international working capital.
• Understanding global corporate behavior and cultural differences.

UNTIL ABOUT 30 YEARS AGO, some finance texts would not have included a section on international working capital. Large companies have been active in world trade beginning at about the end of World War I. However, IBM, General Motors, Coca-Cola, and other businesses that found global opportunities raised capital at home; owned and controlled their foreign operations; and often paid their vendors in the strongest currency in the world, the U.S. dollar.

Starting at about the time of the 1973–1974 OPEC oil embargo, the U.S. Department of Commerce realized that American business had to substantially increase exports in order to pay for oil and other imports, and developed initiatives to improve participation in global trade. In the ensuing time, the U.S. dollar steadily declined in value (with brief periods of appreciation against other currencies). Companies make and receive payments in local currencies; capital is raised wherever the cost is lowest; and companies actively seek foreign joint venture partners.

CAPITALISM GOES GLOBAL

American companies originally demanded ownership ...