Critical Analysis

Critical Analysis

DOI: 10.4018/978-1-7998-2007-9.ch008

Abstract

Given the specific challenges of the internationalization process for emerging markets, which require a constant adaptation of the organizational structure and of management control systems, this chapter aims to analyze the evolution of activity over the years studied, taking into account three key aspects: the assessment of the financial performance, focusing on the analysis of the value creation capacity and on the comparison with the values of the Portuguese industry; the assessment of the internationalization process, where several proposals are made in order to reduce business risk, both in terms of approach to the markets and in terms of the use of credit and exchange risk hedging techniques; the assessment of the management control systems implemented, with a reflection on the various types of instruments used (piloting, behavioral orientation, and dialogue) and elaboration of system optimization proposals, aiming a greater involvement and alignment of managers to organizational goals and business sustainability.
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Financial Performance Assessment

The internationalization process allowed the activity’s expansion to countries with much higher growth rates’ economies than the European ones, which provided an important turnover increase (Teixeira, Pardal & Rafael, 2017).

This increased activity put the company in contact with management practices and national cultures quite different from the Portuguese reality, which led to the gradual adjustment of the organizational structure and the development of important and singular competencies to achieve strong competitive positions in these markets (Teixeira et al, 2017).

Growth had a direct impact on investment levels and financial needs, which also conditioned the ability to generate profitability.

In order to carry out the assessment of financial performance and to demonstrate a detailed picture of the impact of the internationalization process on the economic and financial situation of the company, two evolutionary studies will be presented:

  • Evaluation of the capacity to create value from the most serious start of the internationalization process, which took place in the year 2006, until the last period under review, 2014;

  • Comparison of the company's evolution throughout the period in review with the economic and financial evolution of the activity sector, notably with the companies included in the activity code NACE 62.0 - Computer programming, consultancy and related activities, which are considered more similar to “Technological” in terms of supply and organizational strategies.

Regarding the Financial Concepts considered, in order to assess the capacity of value creation in the analyzed period, the concepts of sup abnormal profitability and weighted average cost of capital were used, as previously presented (Teixeira & Amaro, 2013).

Due to its importance, the calculation of the following headings will be detailed: invested capital, financial liabilities and cost of financing the activity, including the weighted average cost of capital, the cost of equity and the cost of foreign capital.

To calculate the invested capital, it is necessary to construct a functional balance sheet, which allows the conclusion of how the organization obtains and invests its financial resources. Table 1 presents the typical structure of a functional balance sheet (Teixeira & Jorge, 2016).

Table 1.
Structure of Functional Balance
HeadingsYear n
Fixed Assets Set
NFM Exploration
-Cyclical needs
-Cyclical Resources
NFM extra exploration
-Active Treasury
-Passive Treasury
Total Investment
Equity
Financial liabilities
Total Financing

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