Choosing a strategic objective

A great deal has been written on strategy for the multinational. Most companies, setting strategic objectives, focus on choosing a suitable numerical target. This be in terms of a particular budget number or financial ratio, and it seems to vary considerably from country to country and from business unit to business un Possible targets include:

1. sales;

2. cost reduction;

3. quality targets;

4. market share;

5. profitability;

6. budget to actual.

Each of these has its value. In basic management accounting theory appropriate method to be used in a multinational is best defined by the focus of unit for which the target is being set. Sales or market share are particularly relevant for a unit that has no control over its input costs and whose primary purpose is to sell the goods of some other unit. Profitability, measured as a ratio, is most appropriate for a fully fledged (розвинутий, зрілий) strategic business unit (i.e. a unit within a group of companies that makes its own business decisions at all levels, a major division or subsidiary). In addition, targets for a unit may be linked not only to its objective, but also to that part of its operations that it controls.

Interdependence between adequate strategic targets and countries of origin

Turning from companies as a whole to an analysis of companies by country origin, there is considerable evidence that suitable targets vary across countries

Borkowski (1999) provides a good summary of studies prior to that year. A few studies, listed above, stand out as classics. In an early study using some 200 US multinationals, ROI was identified as the primary target used by US multinationals. However, because of the problems of calculating ROI, some supplementary measure, usually a comparison of actual results to budget, was often used. In a sample of 70 US chemical multi­nationals, it was found that multiple measures were used, including in descending order of use: profit, ROI, and budgeted-versus-actual for profit and sales.

Table 2. Top objectives by country

	Canada	Germany	Japan	UK	US
Net income	4	3	1	>5	5
Return on assets	>5	>5	>5	>5	5
Market share	>5	4	>5	>5	>5
Cost reduction	2	5	>5	1	1
Profit margin	1	2	4	1	3
Sales growth	3	1	2	>5	2
Budget adherence	>5	>5	5	3	5
Goal attainment	5	>5	3	3	4

Additional studies found that most Japanese firms (86.3 per cent) pre­ferred to use sales volume as their overall objective, with net profit after corporate overhead being a poor second (44.7 per cent); American companies, by contrast, tended to use ROI most often as the divisional budget goal (68.4 per cent) followed by controllable profit (51.8 per cent). It was similarly found that Japanese companies in the United Kingdom tended to use sales and market share targets over the longer term.

The Borkowski (1999) study not only reviewed the available information but also examined the performance goals of 261 multinational companies drawn from sam­ples of global companies in Canada, Germany, Japan, the United States and United Kingdom. It was found that firms from Canada, Germany, Japan, the United States and United Kingdom each have different objectives in their own countries (see Table 2). In Japan net income is the most important measure of performance. German and Japanese companies also focus quite heavily on sales growth. Canadian companies pay attention to sales, but their premier goal is profit margin. UK com­panies' premier measures of success are cost reduction and profit margin. For US com­panies, cost reduction is the number one goal along with sales and profit growth.

So, focus of US companies appears to have shifted from ROI to profit margin (gross margin) as the primary goal, and sales growth from controllable profit as a secondary goal. Japanese com­panies had shifted their focus to net income rather than market share.

In summary, these studies on corporate objectives tell us that corporate goals vary across nations and that companies need to be aware that their competitors may not be playing for the same objectives. Controllers also need to adapt goals, and the MCS for each national subsidiary to attempt, by socialization or selection, to create a common corporate culture that overrides national culture. Some of this uniqueness may be reflected in the budget process to which we now turn.