Human Captial and International Expansion Essay

International Business

Accounting for Intangible Assets in the Transnational Manufacturing Industry

The international business world has worked to break down barriers that formerly existed to allow businesses to more easily expand their operations to new markets. Much of this trend has been fueled by globalization which has allowed for the increasing connectedness of markets and resources through technological developments in many areas including, but not limited to, information and communications technology, advances in shipping, and a political environment largely accepting of deregulation. However, as companies have acted to expand into new opportunities in foreign markets, many have found that there is a plethora of different challenges that present by the cultural and social factors, among others, that are present in these markets. The main functions of business include operations, marketing, and accounting and there are many aspects of these functions that must be adjusted to effectively carry out international expansions. This analysis will focus on the challenges that are present in accounting for intangible assets in such international networks in countries such as the United States, Mexico, France, and Turkey and consider what factors that businesses must focus on to operate successfully in these markets.

Intangible Assets

In order to first explore how intangible assets, affect international business operations it is first necessary to expand upon the concept of intangible assets and develop a rough working definition. An intangible asset is something that is not a physical asset. For example, a factory and all the equipment that is needed to produce finished goods are physical and you can actually touch them, which makes accounting for them relatively straightforward even in international locales. By contrast, an intangible asset is more abstract in nature and do not have any physical form that can easily be valued; examples of this include items such as human capital, information capital, and organizational capital.

Although these intangible assets may be more abstract in nature, they can in some cases represent an organizations most valuable assets in relation to their strategy. For example, a company with a strong brand image may rely on this image to attract consumers and give the product or service a selection advantage in the market, which in turn can represent a company's strategic advantage. Similar analogies can also be drawn to a company's human capital, or the quality of their workforce, as well as their ability to add value through some transformative process in the organization or organizational capital. It is often the case that such factors can represent the success or failure of any organization. For example, while a number of entrepreneurs might be able to acquire the physical capital needed to launch a new product or service, they might not have the ability to promote their brand in the market or the human or process expertise to design a sufficiently valuable product relative to the competition. Therefore, considering the influence of intangible assets in any strategic decision often represents the difference between success and failure.

Globalization

One of the trends that have fueled a great deal of changes throughout the world has been globalization. Globalization is a complex phenomenon that is often misunderstood, but roughly deals with the movement toward more integrated economic and political systems. Much of the globalization trend has been driven by technological innovations that allow for greater communication, information sharing, travel, and other items that have allowed people to share different items across the globe and this trend has changed the lives of billions of people across the globe; in most cases for the better, but in some for the worse. Understanding the impact of globalization on the regional and national cultures requires the understanding of the process and the meaning of globalization.

During the initial stages of development of this trend, most the emphasis was on goods rather than services, however, given the fact that people are now more free to travel to different markets, there are also many services that people can seek to purchase from foreign markets. Examples of this a prevalent in the information technology service sector as well as in emerging sectors such as healthcare tourism. Therefore, globalization can be defined roughly as the worldwide exchange of goods and services irrespective of the national boundaries in which consumers and businesses have a wide array of new products, services, and markets in which they are exposed to. Furthermore, in the modern international economy, many complex products that are manufactured have different parts that are all assembled in different parts of the world before reaching their final assembly location (Jensen & Barfield, 2012).

However, despite improving access to these new opportunities, globalization has also created new sets of challenges that have arisen through the different cultures that exist in different regions. The notion of culture refers to a set of symbols and artifacts created by a society and handed down from generation to generation as determinants and often serve as the regulators of human behavior, thus different goods and services can be viewed entirely differently in the context of different cultures. (McCrackin, 1986). Culture refers to widely shared norms and patterns of behavior of different populations and international ventures will have to tailor their entire operational procedures in some cases to meet the challenges within these individual cultures to be most effective. Furthermore, this often has immense consequences for intangible assets given the fact that they are largely valued by subjective perceptions of value.

International Implications for Intangible Assets

Measuring the value of such intangible assets is one of the most challenging aspects of accounting and this challenge can be confounded by culture. Employees' skills, IT systems, and organizational cultures are worth far more to many companies than their tangible assets; unlike financial and physical ones, intangible assets are hard for competitors to imitate, which makes them a powerful source of sustainable competitive advantage (Kaplan & Norton, 2004). Kaplan & Norton (2004) defined the intangible aspect of assets in three primary when they designed their popular balanced scorecard model and these categories are (Kaplan & Norton, 2004):

Human Capital: the skills, talent, and knowledge that a company's employees possess.

Information Capital: the company's databases, information systems, networks, and technology infrastructure.

Organization Capital: the company's culture, its leadership, how aligned its people are with its strategic goals, and employees' ability to share knowledge.

One study illustrates the importance of human capital in strategic planning as well as illustrates the complexity that is present in such planning decisions in foreign subsidiaries. The analysis was based on 5604 subsidiary observations of 423 MNEs from 1990 to 2012, and confirms the positive synergic effect of aligning subsidiary strategy and human capital and shows the moderating effects of foreign exchange rate change and MNE international experience as well as highlights the importance of global staffing alignment and the roles of external economic environments and internal organizational capabilities as boundary conditions (Chung, Park, Lee, & Kim, 2015).

Although such studies clearly illustrate the complexities in foreign strategic decisions, they also indicate that research has been able to identify many of the salient factors that can are inherent in managing such relationships. Furthermore, given the fact that organizational capital also has a human factor that is influenced by culture, it can also be complex in nature. Many have claimed that organizational capital is essential to competitive advantage and enterprises with more and higher quality are likely to be more profitable and have higher market shares, yet businesses find it an intangible that is difficult to measure and even more so on an international scale (Lev, Radhakrishnan, & Evans, 2016).

Of the three forms of intangible assets included in the balanced scorecard approach, information capital is arguably the most straight forward since it does not rely on human factors to the extent that human and organizational capital do. There are many vendors that offer enterprise resource planning (ERP) systems that can provide a real time solution to managing information globally within organizations. However, there are also many issues that are present in training employees to use these systems as well as making use of the information that is maintained. One factor that affects a firm's competitiveness has been identified as how knowledge transfers in an organization across locations and international borders (Liew, 2007). Another study has identified that the absorptive capacity of knowledge transfer is correlated with the employees' abilities and willingness to learn (Minbaeva, et al., 2003). Therefore, international enterprises have many resources to help them hire and train local employees in foreign locations.

Applying Best Practices in Intangible Assets

This section will work to apply some of the various factors identified in the literature relative to intangible assets to a manufacturing company with operations in the U.S.A., Mexico, France, and Turkey. There is an interesting mix of factors found in the combination of these markets. For example, the U.S. and Mexico have had a long history of trade and cooperation due to trade deals and their proximity to each other. Mexico has largely adapted to many of the U.S.'s…