Foundations of Financial Management
Chapter 21 Exercise 1
A foreign affiliate is an enterprise in the compiling country managing business on behalf of an International firm. Affiliated enterprises may face several challenges as below:
Geopolitical and social stability
Currency fluctuations, immigration, and employment laws as well as tax structures can pose unplanned expenses for the company. Clearances for visas in many countries can be time-consuming and complicated. Business licenses and additional costs of subsidiaries can be another added challenge.
Cultural and language barriers
The interchange of employees from more than one country requires their acclimatization which can be challenging at times. Adherence to local language can create a barrier to open conversations. Cultural nuances can also lead to incongruencies.
Bureaucracy in the parent company
The business of a foreign affiliate is majorly dependent on the efficient function of the parent company and any problems on that front may create a problem for the affiliate company.
Unforeseen event
Unforeseen events such as the recent Covid-19 pandemic can disrupt several functions such as the supply chain, etc., and can be a potential cause of a complete standstill in some cases. The companies that participate are a part of two political and social systems and problems in either can be a source of problems for the foreign affiliate.
