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Inventory Management

The task of inventory management in the case of multinational” firms is more complex than that of domestic firms, particularly when  reign subsidiaries encounter the following situations: (1) When a foreign subsidiary is located in a country having’ a high rate of inflation,  t may be profitable, prim face, oi

accumulate more stocks than otherwise needed. However, carrying inventory involves costs, in   articular, .interest costs; such costs tend to be high in countries experiencing inflation. Therefore; Mn Cs should undertake a cost-benefit  analysis before  taking the decision of carrying more stocks. This becomes a the more important if foreign subsidiaries ‘are located in  politically unstable countries and run the threat frisk of expropriation  of assets. When the foreign subsidiary is located far from the market  supplying the goods, the consideration will have to be given to potential delays in getting the goods from central storage  locations to user  locations, all around the world. There is a’ need to maintain both working stocks and safety stocks at each user location as well as at the   strategic storage centres. TIle problem gets compounded in case the foreign subsidiaries are imposed with property taxes on assets. including   inventories. In such cases the tax is on the holdings, on specific days, say, 31st December ylsr March. Such rules then warrant that -the  foreign subsidiary should nave a low inventory on these dates. To achieve that, it should hold safety stocks in..different·  countries locations   different times during the year19. Clearly, the problem of physical location of inventories is more acute in the case of foreign rums tlis a  ts domestic fums, .  (W) Finally he MNC and its subsidiaries are to deal with, inter-alia, adverse exchange rate fluctuation~, tariffs, non-  tariff barriers, and other similar problems, generally when they are located ¥l less developed nations.

 Indian corporates are permitted to  raise finance through ECBs within the framework of the policies   and procedures prescribed by the Government. ECBs include commercial  bank loans., huy~rs’l  suppliers’ credit, securitised instruments .such as Floating Rate NOles (fRIIs) and Fixed Rate Bonds (FRBs), credit  rom-official export credit agencies and commercial borrowings from the private sector window of multilateral financial institutions such ;IS   he IFC, ADB, AFlC, CDC and so on. While the ECB policy’ provides flexibility in borrowings consistent with maintenance of prudential ‘ts  or total external borrowings, its guiding principles are to keep borrowing maturities long,  low and encourage infrastructure core and  export sectors financing, which are crucial for

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