Implementation of leading and lagging techniques
How Can an MNC implement leading and lagging techniques to help subsidiaries in need of funds?
Multinational Corporation highly depends on proper measuring and managing their performance to ensure all their subsidiaries are stable. Leading and lagging indicators are a good way to assist in the required measuring and managing technique. Leading indicators assist in determining where the company resources or process is going to be thus providing an opportunity to act in a proactive manner. Lagging on the other hand informs the analyst or the company management where resources or company strengths have been thus providing an opportunity for a reactive action. In other words the leading technique focuses on the expecting actions while lagging tends to delay the processes that are likely to reduce payments or expenses (Hass, Horst & Ziemski, 2008).
Multinational corporations such as McDonald’s are known to have embraced the leading and lagging techniques to ensure their subsidiaries are financial stable or at least increase receipts and reduce payment. Some of the ways that leading is embraced by this corporation is by corrective management of work orders or corrective. Ensuring that work order are done universally the corporation assist in reducing managerial costs for the subsidiaries and also maintain proper records of the most profitable orders and techniques. Leading is also implemented though capacity scheduling and other work management processes. When capacity scheduling is done from one end such as the corporation’s headquarters, time allocation and equipment are shared and this brings about increase resources or funds to subsidiaries. Rather than harmonizing activities leading technique can also assist subsidiaries by management of export and import whereby cash inflow from export is used as cash outflow. By so doing MNC manages to assist the subsidiary escape devaluation risk brought about by import payment.
Further Multinational Corporations can also assist subsidiaries by delaying payment of goods for the sole reason of deferring taxes. In cases whereby the subsidiaries may need to receive receipts and the particular cash inflow is taxed the corporation may opt to delay payment or even request for credit facilities which may attract reduced taxes. As a result subsidiaries gain from reduced payments through tax reduction and benefit from interest attained when credit facilities are provided (Frederic, 2010).
Foreign currencies may also encourage corporations to use leading and lagging techniques. For instance, in case the local currency in the subsidiary company country is depreciating there may be a need to pay foreign debts immediately. This is a leading technique that the multinational corporation assist subsidiary in exploiting. In some case the subsidiary may be granted financial assistance to settle foreign debts before the local currency depreciates thus having to pay more at a later stage. Lagging technique may also be implemented in relation to foreign currency whereby; the subsidiary may want to postpone receipts of foreign currency so that after payment by the corporation’s the foreign currency is worth more in local currency.
Similarly, multinational corporations may also at times employ lagging techniques when it comes to reacting to occurrences, as well as to fluctuating situations. Lagging techniques afford the company an opportunity to review company performance and react accordingly if need be. When dealing with multiple subsidiaries, being able to effectively implement and put in place measures that serve to enhance the effective use of lagging indicators (Matthew, 2004). Bottom line, when the leading and lagging indicators when effectively being used, usually provide very clear insights into whatever could be going wrong, or could have gone wrong thus assisting in maintaining financial stability for both Multinational Corporation and subsidiaries.
Hass, K., Horst, R., and Ziemski, K. (2008), From Analyst to Leader: Elevating the Role of the Business Analyst Management Concepts.
Frederic, M. (2010) The Economics of Money, Banking and Financial Markets(Global, Tenth Edition). Pearson Education Limited
Matthew, B. (2004). Essential Economics. London: The Economist Newspaper. pp. 102–103.