He also explains the beneficial effects of funding companies abroad in order to gain a financial and political interest in them and in their surrounding countries. This tactic weakens the internal market yet strengthens the parent company (Fan et al., 2008). Additionally, the utilization of internal capital allows for more effective monitoring than bank lending (Gertner et al., 1994, p. 1211). These options simply were not available prior to the current global marketplace, which is why the author's deconstruction of these tactics and their effect on international financial management well support his primary argument that CFO's need to be cognizance of financial differences in today's market.
Desai alludes to implications of his argument near the end of his argument in which he disseminates a series of best practices. These practices consider the unifying elements of the three ways in which he supports his argument, through the financing of international capital market, managing global risk, and budgeting global capital. Similarly, the author offers three best practices: designating an appropriate geographic locus, adapting to priorities and methods to local conditions, and rotating financial staff between international locations. The first of these is extremely prudent, since it adheres to the author's conviction that the intrinsic differences in international markets (such as interest rates and tax customs) need to readily be accounted for by specifying decision making to those areas. This best practice coincides with the second one, adapting to local conditions, which readers can consider a natural extension...
The final implication or recommendation, to create a professional finance staff that goes between international locations, is not as well supported as these first two. If one is making decisions based on local conditions, it stands to reason that those involved in those local conditions and well versed in their customs would have a better chance of implementing the second best practice than international travelers who know a little bit about every market and not a lot about one in particular.
However, there are few doubts as to the insight Desai produces in this article as a whole. He provides a number of salient examples of corporate entities who made mistakes in areas of risk management and capital budgeting while learning the global marketplace. He also offers savvy advice for taking advantage of financial differences between countries. Both of these factors, combined with his best practices, demonstrate his theme that the global marketplace requires a distinct set of financial management tactics.
References
Desai, M.A. "The finance function of global corporation."
Fan, J., Jin, L., Zheng, G. (2008). "Internal capital market in emerging markets: expropriation and mitigating financing constraints." www.isb.edu. Retrieved from http://www.isb.edu/EMFConference/File/InternalCapitalMarket.pdf
Gertner, R.H., Scharfstein, D.S., Stein, J.C. (1994). "Internal vs. external capital markets." The Quarterly Journal of Economics. 109 (4): 1211-30.
