MULTINATIONAL FINANCIAL MANAGEMENT

Multinational Financial Management



INDITEX - Company in Focus

Introduction

Inditex is the largest Spanish company, invested in a variety of clothing lines to support palette such as Zara, Pull and Bear, Massimo Dutti, Tempe and many others covering under its belt. The brand itself has been one of the most important fashion groups to have existed on the face of the earth. Here we shall be discussing financial management in the light of risk associated within the frames of international business known to us (Ancona, 2003,, 334).

Defining Risk Management

Risk Management is an inevitable part of any organization to face the risks that might arise when a new project started. It should be a first concern when the decision is being made. Risk management is the practice of looking at the exposure to risk and deciding how to best handle that exposure. The idea behind risk management is to decide if the benefit outweighs the risk. This process will help you to identify risks that might normally be overlooked so when things come up, they do not surprise you by having a plan in place on how to solve them. Risk management would help to identify and then manage threats that can severely impact or bring down the organization. This could be done by reviewing operations of the organization, identifying potential threats to the organization and the likelihood of their occurrence, and then taking appropriate actions to address the most likely threats (Ancona, 2003,, 334).

In addition to the above, another risk involved is the of the risks is the unpredictability of the exchange rate because of fluctuating prices and inflation. Due to the unpredictability of the exchange rate many companies' initial investments could ultimately become more expensive adding adverse consequences to their profitability. “Many countries” put restrictions on convertibility of currencies such as the “ability of residents and nonresidents to convert the local currency into foreign currency, making international trade and investments more difficult” (International Business, 2004, pg. 21). Governments can allow residents and nonresidents to exchange unlimited amounts of currency, this is said to be freely convertible, and externally convertible allows for only nonresidents to convert currency without any limitations.

When companies start operating in other countries assessing where their competition is and where their competition could come from are important factors before proceeding with their expansion plans. Will the products or service being brought to a new market be able to with stand other companies brining similar products and services into the same market? How much investment will be needed to make the company a success? Many companies sell their products and services through existing chains or market in another country. Other companies invest directly by buying or building facilities to produce their products, this is referred to as “Foreign Direct Investment (FDI)” (International Business, 2004, pg. 3). Building a successful business requires more than assessing the competitiveness of the market but also other factors such as taxation that can directly affect a companies' ...