MULTINATIONAL WORKING CAPITAL MANAGEMENT
The goals of working capital management in an MNCare the same as those of a domestic firm, that is to manage the firm's current assets and liabilities in such a way that a satisfactory level of working capital is maintained. The discussion of the working capital management in section is made with reference to (j) cash management, (ii) credit management and (iii) inventory management.
Cash management is one of the key areas of working capital management. Its basic objective is to meet the payment schedule, that is, to ave sufficient cash to meet the cash disbursement needs of the firm. In the normal course of business, firms are to make ash payments on continuous and regular basis to suppliers of goods, employees, bankers and so on. The importance of sufficient cash to meet the payment schedule can.hardly be overemphasized. The major advantages are: (j) It"helps in fostering good relations with trade creditors and suppliers of raw materials. (ij) Good relations are maintained with banks, (Hi) It leads to' a strong credit rating, which. enable~s the firm to purchase goods on favorable terms and to maintain its line of credit with banks
and other sources of credit. (iv) Cash discounts can be valid. . Since large cash balances entail high financial costs, inter Sovereigns Foreignness subsidiaries (like domestic firms) should maintain adequate cash balances and not excessive cash balances. Like domestic firms, multinational companies can employ the following key ash management strategies to minimize the operating cash balance requirement. (i) speedy collection of accounts receivable (by using.
ck box system and electronic' funds transfer); (ii) stretching accounts payable (without damaging its credit standing); 'Om shift cash as sat as possible from those parts of .. the business/foreign subsidiaries where it is not needed to those parts/places where it is needed (by sing the netting system and currency center concept). The first two strategies are self explanatory. The concept of currency center is illustrated in Example 36.14. A US multinational has its subsidiaries in India, UK and France. The multinational receptionist its inter- I ~ subsidiary cash now using the netting system and currency center located at us headquarters. Each subsidiary Example I reports its payable to other subsidiaries, on the fit day of each month. to the centre. In their report, these subsidiaries also intimate the funds available with them and expected requirement of funds for operations by it in that month The currency centre then .issues instructions to he net-paying subsidiary on the fifth of each month, using the market exchange rate on that date. Also'.the currency centre requires subsidiary companies to transfer