9. International taxation

Taxation is used to finance government expenditure. It represents a transfer of income from individuals, groups, organizations to the government.

Taxes may be classified under various headings, the commonest distinction being “direct” and “indirect” taxation. Anyone paying direct tax (income tax) cannot shift this liability onto others. Taxes on goods, on the other hand are regarded as indirect. Corporation and individual income taxes are direct; value added taxes, sales taxes or excise are indirect.

Income tax is usually collected at source. Corporation tax, a tax on the income of companies which are distinct legal entities, is a major source of fiscal revenue. Corporation income taxes vary among the countries. Less developed countries usually have lower corporation tax rates in order to attract foreign investment.

Sales and excise duties are the best known examples of indirect taxes. The distinction between excise duties and sales taxes is based on the scope of coverage. Excise duties are levied on particular commodities, e.g. tobacco, alcohol, petrol, while sales taxes apply to a broad range of goods and services. Sales taxes are charged on top of excise duties, wherever the later apply, so that anyone buying cigarettes or petrol will not only pay excise duties but also a sales tax on top.

The best known kind of sales tax, value added tax (VAT) has won recognition in the European common market. This is national sales tax levied at each stage of production or at the sale of consumer goods. The tax is assessed in proportion to the value added during that stage. Generally, manufacturing goods, such as plant and equipment, have been exempted from this tax.

The VAT system offers advantages, such as rebates on exports. Profitable and unprofitable firms are taxed alike, as there is no possibility of tax deductions to determine taxable income. A badly run company is, therefore forced to improve or go out of business. Further, VAT is easy to calculate and collect. But VAT is often accused of having contributed to serious inflation in countries where it was introduced.

10. International management

The economic independence of nations fosters the growth of multinational firms that conduct business on a global scale where markets are more important than political boundaries.

Managers operating in an international environment deal with a variety of unique challenges growing out of such factors as politics, economics, and cultures.

Each foreign country is different from all other countries where a firm might do business. So, when a company is first getting established in a foreign country it is the environment's current state that gets more attention. It has to learn local laws, customs, and languages. It must learn to deal with foreign patterns of economic growth, investment, and inflation.

Firms that wish to expand into a foreign country must also assess its political stability; the business attitudes of its government, ruling party and opposition. A multinational company must adjust to a multinational legal environment.

A company's main resource is its people. Their attitudes guide its internationalization or prevent it. There are three primary attitudes among the managers of international companies: ethnocentric, polycentric, and geocentric.

Ethnocentric managers see foreign countries and their people as inferior to those of the home country. These managers believe that the practices of the home country can be exported along with its goods and services.

A polycentric manager sees all countries as different and as hard to Understand. Believing that a company's foreign offices are likely to understand their needs, such managers leave them alone.

Geocentric managers recognize similarities as well as differences among countries. Such managers attempt to draw on the most effective techniques and practices, wherever they originate.

Firms with foreign interests are likely to have managers with each of these perspectives. But it is considered that polycentric attitudes are the most suitable kind for managers of multinational companies, but they are also the hardest to learn and accept.

Operating in the international environment also affects the ways in which the basic management functions of planning, organizing, leading, and controlling are carried out.

There is currently much debate over selecting a managerial approach for a multinational enterprise. Probably no single method of managing works for all cultures.