What is

Multinational Company?

Multinational Company (MNC)

At least 2 countries delivers services facilities

controls production

*Originated in 20th century and expanded after World War II.

Also can be named as

Multinational enterprise (MNE), Transnational corporation (TNC), Multinational organization (MNO) , Super National Enterprises, Global companies, Cosmocorps, International corporation.

Examples..

Characteristics:
Gigantic size company
Capitals, size plant, Machinery Sales turnover 100 mil

Profit oriented
Generate profits No social welfare activities

Unified control of the parent company

New investment & local objectives Members of BOD

Advantages & Disadvantages

of Multinational Companies (MNC)

Advantages
Acquire larger pool of customer

Borderless World- do global, get more

customers 96% Consumers/ 67% World Purchasing Power=> Outside U.S.A.

Advantages
Create rivalry and increase competitiveness

Source : http://www.goldensegroupinc.com/mosongo/0906CWIndiancompaniesvsMNCsTheRaceIsStillOn.pdf

Advantages

Gain cost advantage

Increase efficiency, cut costs India receives most of all offshore revenue Companies from U.S. and Western Europe

have hired 170,000 Indians

Advantages
Avoid

trade barriers

Inward investment- build own facilities Japanese car manufacturers invest into UK -

avoid EU Common External Tariff- UK can access to high-quality cars at lower prices.

Disadvantages
Exploitation on natural resources

by MNCs Japanese MNCs - obtain raw materials or lower-cost components to the international markets (Ozoigbo & Chukuezi, 2011)

Disadvantages
A threat to economic and political

sovereignty of host countries, perhaps Protectionism Keep new entrants away from market- reap profits

Disadvantages
Destroy local companies
Destroy competition in local

market Acquire monopoly through acquisition of domestic firms

Disadvantages
MNCs may ignore home countries

industrial and economic development More investments to foreign countries Less availability of domestic capital

Harmonization of accounting standards

BENEFIT MULTINATIONAL COMPANIES

Systematic review and evaluation of the

company performance
Communication within the groups become easier Monitoring business operation and take

corrective action

 Increases

comparability of company performance against domestic and international peers

Financial statements presented on same basis Analysis of competitive and operational can be

conducted easier

Attract capital from a larger pool of investors

Differences in financial reports reduced

Better quality and credibility of financial report Investors understand and confidence

 Reduce

reporting costs

Simplified consolidation of financial statements

of foreign subsidiaries Accountants only require knowledge for common accounting practices

Easier to move accounting staff

between foreign subsidiaries

Increase mobility of accountants Not need outsource accounting tasks Better respond and manage human capital needs of

subsidiaries

What MASB Do???

- Align two sets of standards

 Renamed as Financial Reporting

Standards (FRS) & Renumbering the standards

Correspond to international

standards Example: >> IFRS 1 to 5 are FRS 1 to 5 in Malaysia

 Introduced

a two-tier reporting

framework

For non-private entities:

>> Financial Reporting Standards (FRS) For private entities: >> Private Entity Reporting Standards (PERS)

 FRS made identical to IFRS and 10

revised accounting standards issued

Removed all remaining differences

>> Local guidance and editorial matters

 Issued statement about the fully

convergence plans with IFRS

Ensure companies have sufficient time to

prepare Ample time frame was necessary to adopt remaining standards

 Issued Malaysian Financial

Reporting Standards (MFRS)

Fully IFRS-compliant framework Equivalent to IFRS

What is the impact??

- Arising from new

Financial Reporting Standard

Increase the transparency of financial reporting

Provide more disclosures

More flexibility in financial reports Principle-based standard To determine stock option value:
>> Not only use option pricing model >> Allow for use of valuation techniques

 Increase the credibility and reliability

High quality and consistency reports Increases the ability of foreign investors and

analysts to understand

 Greater comparability
Sets limits on the alternatives allowed for

similar transactions Facilitates comparison between Malaysian companies with foreign companies

 Small

companies bear a higher cost

Lesser resources to handle the

implementation and training