Why is inventory management especially important for a multinational firm?

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Why is inventory management especially important for a multinational firm?

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Why is inventory management especially important for a multinational firm?

Explanation & AnswerSolution by a verified expert

Explanation

Inventory management of foreign business is complicated as compared to domestic business. The most important factor is the physical storage of stocks. A multinational corporation has clients in various countries. Thus, it has to determine a specific centralised location for the storage of stocks, as storing them in different parts of the world may lead to higher storage costs, transportation costs and tedious management processes. To eliminate the danger of expropriation, the companies need to set up storage locations which are outside the ambit of the host country. Thus, the goods can be prevented from getting seized. Also, the organization is required to insure the stored goods, which increases the overall cost.
The principles of inventory valuation differ from country to country. Depending upon their accounting policies differential standards are set for inventory valuation like FIFO, LIFO, weighted average. Moreover, the frequent fluctuation in the exchange rates affects the constant valuation of the inventory. Taxation policies of the home and the foreign countries often vary. Some countries levy tax on inventories on a specific date. Thus, to avoid excess taxation the company has to schedule production in a way which leads to less inventory on the assessment date. Tracking the inventory at various storage locations in foreign countries needs advanced softwares and effective security controls.

Verified Answer

Management of inventory for a foreign business requires more attention as compared to the domestic one, because of geographical distances, expropriation risks, additional insurance costs, differences in accounting policies and tax policies of home and foreign countries

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