Strategic Asset Placement in a Global Firm

Bob Gross

Friday, August 11, 2017

For decades, companies have been ‘following the money’ as opportunities arose around the globe. Whether the allure was a new customer base or more cost-effective production, international trade has exploded in terms of volume and velocity. Many companies have realized, often the hard way, that there were more factors in that decision to globalize than they might have thought.

Somewhere between the very first sale overseas and a fully developed international presence, a tipping point was likely reached when a direct foreign investment was contemplated. Traditional strategic analysis critically assessed and concluded the operational and marketing advantages of being closer to the market and the resources, and fairly sophisticated capital budgeting tools may have captured the return metrics and the economic value added to the firm. Those are good and very important steps to have taken, but for many firms there may have been an empty seat at the decision-making table as the analysis may have been too U.S.-focused.  As a result, the firm may have placed their assets, but may not have strategically placed their assets.

In recent decades, many firms have found out that conducting business internationally exposes the company to risks that may have been previously missed. Certainly, the most visible of those relates to the changing relationships between currencies over the short run, as revenue and cost ‘surprises’ have occurred. There are others, however, that manifest themselves over the longer term, and their impacts become more pronounced as companies have made more and more tangible investments overseas. This comprehensive set of risks, their consequences and their potential solutions is what Lake Forest Graduate School of Management’s Global Finance course is all about, and being conversant in this area can be very helpful as the firm discusses the strategic placement of the firm’s assets.

As expansion decisions are at their earliest stages, someone needs bring a global financial perspective to the table and lead the discussion in response to questions like these:

  1. Does adding a manufacturing facility in Country L increase or decrease currency-related volatility to our firm’s earnings?
  2. What are the consequences of financing the construction of a new Country L facility with financing sourced in Country L versus our home country?
  3. If we launch a successful business in Country L, will we be able to bring the profits back home?
  4. Can any one of these three preceding things be improved if we expand in neighboring Country M?
  5. If we’re on the front end of a dozen global expansion initiatives, how and where should all of those facilities be strategically placed to minimize our risks and maximize our financial potential?

Does your company have somebody on board who can help answer questions like these?

bobgrossfinalBob Gross teaches Financial Management and Global Finance at Lake Forest Graduate School of Management. Bob is also the Co-Founder and Senior Managing Director of Prairie Capital Advisors, Inc. Prairie is an employee-owned company that provides investment banking, ESOP advisory and valuation services to support the growth and ownership transition strategies of middle-market companies. Bob has a passion for staff development, and he speaks to audiences on a wide variety of corporate finance topics, including valuation, mergers and acquisitions, ESOPs, ownership transition, securities design, and synthetic equity. Connect with Bob on LinkedIn.


(Category: , )