What key financial ratios will be affected by the adoption of FAS 141R and FAS 160? What will be the likely effect?

Assignment Instructions/ Description

I. Assignment 1Financial reporting in the U.S. is changing dramatically. Consistent with the Securities and Exchange Commission's proposed "Roadmap" (SEC, 2008), the U.S. likely will join the more than 100 nations worldwide that currently utilize International Financial Reporting Standards (IFRS), and require the use of IFRS in the U.S. Because of the globally widespreaduse of IFRS, multinational entities with subsidiaries that prepare IFRS-based financial statements already have to be knowledgeable about IFRS as well as the current differences between U.S. GAAP and IFRS. Fortunately, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working together to bring about convergence between the two sets of accounting standards. Recently, FASB and the IASB issued new and revised several existing standards that eliminate many differences between U.S. GAAP and IFRS with respect to business combinations and consolidated financial statements. However, some significant differences persist. Until the SEC makes a final decision regarding the mandatory use of IFRS, and during the proposed multi-year transition period, current and future accounting professionals must continue to keep abreast of changes in U.S. GAAP, be knowledgeable about differences between U.S. GAAP and IFRS, and, at the same time, prepare for the likely transition to IFRS. In addition, company executives should be cognizant of developments that may affect their strategic decisions as the U.S. moves toward a likely adoption of IFRS during the next five years. This case focuses on the effect of changes in financial reporting for business combinations. Changes as w ell as continuing differences between U.S. GAAP and IFRS are explored. Secondarily, strategic decisions arising from the changes and the likely future adoption of IFRS are addressed. This case, which can be utilized in Advanced Accounting on either the graduate or undergraduate level can enhance students' analytical, technical, critical thinking, research, and communication skills.The primary subject matter of this case concerns changes in accounting for business combinations and the convergence of International Financial Reporting Standards (IFRS) with U.S. Generally Accepted Accounting Principles (GAAP). The case focuses on the effect of the changes on financial statements of global entities, as well as strategic decisions made by company executives.Secondary, continuing significant differences between U.S. GAAP and IFRS and future potential developments in accounting for consolidated multinational entities are explored. This case has a difficulty level of three to four and can be taught in about 50 minutes. Approximately three hours of outside preparation is necessary to fully address the issues and concepts. This case can be utilized in an Advanced Accounting course, either on the graduate or undergraduate level to help students understand changes in and differences between U.S. GAAP and IFRS. Two sets of questions address U.S. GAAP and IFRS and include re searchable questions that are especially useful for a graduate level course. The case has analytical, critical thinking, conceptual, and research components. Utilizing this case can enhance students' oral and written communication skills.CASE SYNOPSISFinancial reporting in the U.S. is changing dramatically. Consistent with the Securities and Exchange Commission's proposed "Roadmap" (SEC, 2008), the U.S. likely will join the more than 100 nations worldwide that currently utilize International Financial Reporting Standards (IFRS), and require the use of IFRS in the U.S.Because of the globally widespreaduse of IFRS, multinational entities with subsidiaries that prepare IFRS-based financial statements already have to be knowledgeable about IFRS as well as the current differences between U.S. GAAP and IFRS. Fortunately, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working together to bring about convergence between the two sets of accounting standards.Recently, FASB and the IASB issued new and revised several existing standards that eliminate many differences between U.S. GAAP and IFRS with respect to business combinations and consolidated financial statements. However, some significant differences persist. Until the SEC makes a final decision regarding the mandatory use of IFRS, and during the proposed multi-year transition period, current and future accounting professionals must continue to keep abreast of changes in U.S. GAAP, be knowledgeable about differences between U.S. GAAP and IFRS, and, at the same time, prepare for the likely transition to IFRS. In addition, company executives should be cognizant of developments that may affect their strategic decisions as the U.S. moves toward a likely adoption of IFRS during the next five years.This case focuses on the effect of changes in financial reporting for business combinations. Changes as w ell as continuing differences between U.S. GAAP and IFRS are explored. Secondarily, strategic decisions arising from the changes and the likely future adoption of IFRS are addressed. This case, which can be utilized in Advanced Accounting on either the graduate or undergraduate level can enhance students' analytical, technical, critical thinking, research, and communication skills.INTRODUCTIONFinancial accounting and reporting in the U.S. is changing rapidly. During the past six months, the Financial Accounting Standards Board, the primary accounting standard setter in the U.S., issued twelve (12) new standards and launched its on-line "Accounting Standards Codification," which organizes existing GAAP into 90 topics (FASB, 2009). At the same time, a significantly more dramatic change is on the horizon for accounting professionals, company executives, and financial statement users.Consistent with the SECs 2008 proposal entitled, "Roadmap for the Potential Use of Financial Statements Prepared in Accordance With International Financial Reporting Standards by U.S. Issuers," (Roadmap) in approximately five years, public companies likely will have to utilize IFRS, instead of U.S. GAAP (SEC, 2008). In fact, some large global U.S. -based entities are permitted to early-adopt IFRS starting in 2009. The SEC expects to reach a final decision regarding the mandatory adoption of IFRS in 201 1 (SEC, 2008).If the U.S. indeed adopts IFRS as the required standard for financial accounting and reporting, the U.S. will join the more than 100 nations worldwide that currently permit or mandate the use of IFRS. For example, starting with the 2005 reporting period, all European public companies listed on any European stock exchange must prepare IFRS-based financial statements. Other nations, such as Canada, are planning to adopt IFRS in the near future.Currently, U.S. GAAP and IFRS are not identical. However, since signing their Memorandum of Understanding, commonly referred to as the "Norwalk Agreement," in 2002, FASB and the IASB have been working together to develop a set of high-quality globally acceptable financial accounting standards and to bring about convergence of U.S. GAAP and IFRS. Since the Norwalk Agreement was signed, many new and revised standards issued by FASB and the IASB have served the purpose of eliminating existing differences. However, while many differences have been eliminated, others persist.Accounting for and reporting by global entities is quite complex. U.S., as well as international accounting rules require that a parent company consolidates its subsidiaries' financial statements with the parent company's financial statements. Recent standards issued by the IASB and FASB have eliminated many differences between U.S. GAAP and IFRS in accounting for business combinations and financial reporting for consolidated entities. However, some significant differences continue to exist.KLUGEN CORPORATIONIrma Kuhn, CPA, CMA holds the position of Chief Financial Officer (CFO) of Klugen Corporation, a global telecommunications company. Klugen is a consolidated entity headquartered in the U.S. with four majority-owned European subsidiaries. The company has expanded primarily by acquiring majority interest in European companies and holds between 51% and 70% of the outstanding voting stock of its subsidiaries. Three of these subsidiaries were acquired in stages and consolidated once the company achieved majority ownership.Consistent with current accounting rules, Klugen consolidates all four of its subsidiaries. In addition, Klugen also holds financial interests in several unconsolidated entities and accounts for those as investments.Klugen' s European subsidiaries currently prepare their financial statements consistent with International Financial Reporting Standards (IFRS), which are promulgated by the International Accounting Standards Board (IASB). Klugen, the parent company, issues consolidated financial statements, which include the results of its majority-owned subsidiaries in conformity with U.S. GAAP. Preparation of Klugen' s consolidated financial statements requires that Irma and her staff convert the subsidiaries' IFRS-based financial statements into U. S. GAAP priorto consolidating the numbers. This process is quite complex and requires many of the accounting departments' resources.Irma is well aware of efforts between the FASB and the IASB to bring about convergence between U. S . GAAP and IFRS . She expects that consistent with the SEC ' s "Roadmap," (SEC, 2008) within the next five years, U.S. public companies likely will have to apply IFRS, rather than U.S. GAAP. Irma welcomes this development and believes that in the long-run, use of IFRS by the parent company as well as its subsidiaries will preserve and strengthen the company's global financial competitiveness. In addition, she believes that it will simplify the accounting and consolidation process significantly and, in the long-run, reduce financial reporting costs. She is aware, however, that in the short-run many challenges, such as conversion of the accounting and IT systems and extensive staff training will increase costs. Knowing that the SEC s Roadmap proposes a phased-in adoption by public companies between 2014 and 2016, Irma plans to recommend adoption of IFRS at the earliest permitted time.As the person who ultimately is responsible for financial reporting, Irma is very knowledgeable about current and proposed changes in U.S. GAAP as well as IFRS. She knows that the IASB and FASB have issued new and revised standards applicable to business combinations that affect the company's consolidated financial statements. After in depths analysis of the new and revised standards, she determined that many of the past differences between U.S. GAAP and IFRS where eliminated when the FASB issues FAS 141 R "Business Combinations" and FAS 160 "Noncontrolling interest in consolidated financial statements" (FASB, 2007) and the IASB revised IFRS 3 "Business Combinations" and IAS 27 "Consolidated and Separate Financial Statements" (IASB, 2008). She also realizes that some significant differences still persist. Klugen Corporation has properly adopted FAS 141R and FAS 160 (now codified in sections 805 and 810 of FASB's 2009 Standards Codification) for the 2009 fiscal period and its forthcoming annual report will reflect those changes.Irma regularly conducts in-house seminars to instruct her accounting staff regarding new developments in financial reporting. In fact, her seminars meet the Continuing Professional Education (CPE) sponsor requirements set forth by the National Association of State Boards of Accountancy (NASBA) and the Quality Assurance Service (QAS), which is required by State Boards of Accountancy and other licencing organizations for the renewal of CPA, CMA and other professional certifications.Irma' s CPE seminars entitled "Financial Reporting Updates" are always well received by her staff. During the past six months, Irma already has held several seminars to inform her staff regarding IFRS. Those who attended all her seminars are already familiar with the SECs Roadmap that proposes adoption of IFRS starting in 2014, and also know about some of the most significant differences between U.S. GAAP and IFRS.Since in about five (5) months, Klugen Corporation will issue its consolidated financial statements, which will, for the first time, incorporate FAS 160 and FAS 141R, Irma decides to schedule a seminar on "Business Combinations - Consolidated Financial Statements" for October 15, 2009. The following is a brief agenda for Irma' s Seminar:Business Combinations - Consolidated Financial Statements - Financial Reporting UpdateOctober 15, 2009 - Agenda1 . Review of fundamental concepts of business combinations and consolidated financial statements2. Changes to U.S. GAAP (FAS 141R and FAS 160)3. Significant continuing differences between U.S. GAAP and IFRS4. Developments with potential impact on future fiscal periods5. QuestionsThe seminar will be highly beneficial for staff members who are currently involved or planning to become involved in critical aspects of financial reporting and also for those who want to develop their knowledge of IFRS. During the seminar, Irma distributes several handouts, including the company's prior year income statement and balance sheet for reference.The SeminarAgenda Item 1 Fundamental Concepts of Business Combinations - Consolidated Financial StatementsDuring the first part of the seminar, Irma reviews several fundamental concepts relating to accounting for business combinations. She emphasizes that these concepts are common to both U.S. GAAP and IFRS.Fundamental Concepts common to both U.S. GAAP and IFRS* The parent company issues consolidated financial statements that include the results for all subsidiaries that the company controls.* Control is usually assumed when the parent holds a controlling financial interest (generally, more than 50% ownership of the outstanding voting common stock.* Consolidated financial statements include 100% of the subsidiaries' assets, liabilities, revenue, expense, gains, and losses, even if the subsidiary is only partially owned.* Subsidiaries' previously unrecognized assets are identified at time of business combination and are recognized in the consolidated financial statements.* Goodwill is recognized on the consolidated balance sheet if the acquisition cost exceeds the fair value of the subsidiaries' identifiable net assets.* Goodwill is not amortized, but periodically tested for impairment.* Non-controlling interest (formerly called minority interest) is recognized on the consolidated balance sheet.Agenda Item 2 Changes in U.S. GAAPIrma discusses the most important changes in accounting and financial reporting for consolidated entities consistent with FAS 14 IR and FAS 160. She prepares a handout for the seminar participants, consisting of a comparative table that contrast the new rules (effective for the 2009 financial statements) with the prior rules.Agenda Item 3 Significant Continuing Differences Between U.S. GAAP and IFRSIrma highlights continuing significant differences between U.S. GAAP and IFRS. This information is particularly important for those staff members who are involved in the consolidation process and those who wish to prepare for the future adoption of IFRS. The following table represents a handout based on Irma' s PowerPoint presentation:Agenda Item 4 Developments with Potential Impact on Future Fiscal PeriodsIrma briefly mentions other developments in the consolidation area. She mentions that in June 2009, FASB issued FAS 166, "Accounting for Transfers of Financial Assets," and FAS 167, "Amendments to FASB Interpretation No. 46R" (FASB, 2009). FAS 166 eliminates the concept of qualifying special purpose entities (SPE); FAS 167 deals with the consolidation aspects of this elimination. Specifically, companies with formerly classified qualifying SPEs must now assess these entities for possible consolidation.FAS 167 focuses on control and the primary beneficiary of the SPE in determining whether a company, such as Klugen Corp., must consolidate its SPE. A primary beneficiary is (1) able to direct activities of the SPE and is required to absorb significant gains and losses. A company is assumed to have control if (1) it has the power to direct activities, (2) has the most significant impact on the entity's performance, and (3) is required to absorb losses, and benefit from gains (FAS 167, par. 14A-G). Irma reminds her staff that currently Klugen Corporation does not have investments in qualifying SPE' s; thus, the new standards will not affect the company.Irma also mentions that in December 2008, the IASB issued Exposure Draft 10 (ED 10) "Consolidated Financial Statements," (IASB, 2008), which proposes a single definition of control that is very similar to the FAS 1 67 definition. Once this exposure draft is finalized, convergence between U.S. GAAP and IFRS likely will be further enhanced. Irma promises to keep her staff informed about developments in that area.Agenda Item 5 QuestionsAt the end of the seminar, many questions arise from the staff and some from the CEO, who attended the second half of the seminar. Irma answers as many questions as possible and promises to prepare a short question/answer briefing sheet for all those who were present at the seminar. During the seminar she summarizes the following questions as shown in the Assignments section.

ASSIGNMENTS answer any three of the six questions:1. What key financial ratios will be affected by the adoption of FAS 141R and FAS 160? What will be the likely effect?2. Could any of the recent and forthcoming changes affect the company ' s acquisition strategies and potentially its growth?3. What were FASB's primary reasons for issuing FAS 141R and FAS 160? (Research question)4. What are qualifying SPEs? Do they exist under IFRS? What is the effect of FAS 166 eliminating the concept of qualifying SPEs on the convergence of accounting standards?5. If the company adopts IFRS, what changes should management be aware of?6. What are the principle differences between IFRS and U.S. GAAP?
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  II. Assignment 2
The Chicago Food and Beverage Company (CFB Co.) is an American multinational with subsidiaries in North America, Europe and Asia. The case is about the alignment of CFB Co. internationalization strategy and the orientation of the head office in regard to its international human resource management (IHRM) policy and management of international assignments, with an emphasis on expatriates ' recruitment and compensation. The case describes the international development of the company and the subsequent expatriation of Paul Fierman, the head of the Vietnam subsidiary. Paul's three-year mandate includes the preparation and execution of the strategy to synergize the three Asian subsidiaries (Singapore, Hong Kong, Vietnam) with the collaboration of the head of the Pacific Rim, which should allow CFB Co. to conquer the Asian market. Six months after his arrival, Paul Fierman is disappointed by the financial conditions of his contract and by his relationships with local colleagues, not to mention the difficulties his wife has been having adapting to this new environment. The discussion of this case in class allows introducing and illustrating the theoretical concepts related to the following topics: 1) internationalization strategies and international human resource management policies; 2) strategic management of international postings; and 3) advantages and disadvantages of different international compensation methods. [PUBLICATION ABSTRACT]CASE DESCRIPTIONThe primary subject matter of this case concerns the management of expatriate managers with a particular focus on their recruitment and compensation. Secondary issues examined include the internationalization strategies of a multinational company and particularly the alignment of international strategy and headquarters' orientation regarding the international human resource management policy. The case has the difficulty level of six (appropriate for second year graduate level). The case is designed to be taught in three class hours and is expected to require five hours of outside preparation by students.CASE SYNOPSISThe Chicago Food and Beverage Company (CFB Co.) is an American multinational with subsidiaries in North America, Europe and Asia. The case is about the alignment of CFB Co. internationalization strategy and the orientation of the head office in regard to its international human resource management (IHRM) policy and management of international assignments, with an emphasis on expatriates ' recruitment and compensation. The case describes the international development of the company and the subsequent expatriation of Paul Fierman, the head of the Vietnam subsidiary. Paul's three-year mandate includes the preparation and execution of the strategy to synergize the three Asian subsidiaries (Singapore, Hong Kong, Vietnam) with the collaboration of the head of the Pacific Rim, which should allow CFB Co. to conquer the Asian market. Six months after his arrival, Paul Fierman is disappointed by the financial conditions of his contract and by his relationships with local colleagues, not to mention the difficulties his wife has been having adapting to this new environment. The discussion of this case in class allows introducing and illustrating the theoretical concepts related to the following topics: 1) internationalization strategies and international human resource management policies; 2) strategic management of international postings; and 3) advantages and disadvantages of different international compensation methods.EVOLUTION OF CHICAGO FOOD AND BEVERAGE COMPANY FROM 1960 TO 1998Chicago Food and Beverage Company (CFB Co.) is an American multinational which was established in Chicago in 1963. The company is specialized in the production of all kinds of fruit jams, canned fish, meat, vegetables, and non-alcoholic beverages. CFB Co. is primarily an American company and until 1985, it concentrated exclusively on the U.S. market. Due to its reputation as a high-technology intensive company and its capacity to adjust to the changing market demands, CFB Co. grew rapidly. It expanded all over the U.S. through its five national subsidiaries based in Chicago, New York, Atlanta, Los Angeles and Portland. In 1985, CFB Co. became the fifth largest American producer in the food and beverage sector. In 2003 its revenues amounted to several billion U.S. dollars (USS).Since the long U.S. recessionof the 1980s, CFB Co.'s management wanted to expand abroad so that the company wouldn't be so dependent on the already saturated domestic market. However, Mr. Brandon Long, CEO of the company since it was established, stubbornly opposed the idea. In late 1984 Mr. Long retired and was replaced by Mr. Bill Stevens who always dreamed of CFB Co. becoming a global power. With top management's approval, CFB Co.'s foreign expansion plans finally started and at the beginning of 1985, the company went international. The foreign expansion plans included two growth strategies: the company would either purchase small foreign enterprises operating in the same sector or establish joint ventures with foreign food and non-alcoholic beverage producers. CFB Co. expanded to Europe first, and between 1985 and 1990, the company acquired three local enterprises in Belgium, France, and Germany.Following that, from 1991 to 1998, CFB Co. turned toward the Asian market, installing three joint ventures in that region. According to CFB Co. 's managers, there was a huge potential for food processing and distribution in the Asian market because firstly, it accounted for over 60% of total world population, and secondly, Asian consumers' expenditures were increasing three times more rapidly than those of North Americans. Therefore, the company's expansion to this region was thought to be of crucial importance for its economic health. Thus, the first joint venture specializing in Asian fruit-based jam production was established in 1991 in Singapore. The second joint venture which was created in 1995 in Hong Kong produced canned fish, meat and vegetables. Thethirdjoint venture, started in 1998 with a Vietnamese subsidiary based in Haiphong, specialized in the production of all kinds of non-alcoholic drinks, fruit juices, and sodas. Although some of their clients are based in the neighbouring countries, each joint venture produces its own products which are basically distributed on the local market. There is no cooperation between subsidiaries since they are considered as completely independent entities from each other.CREATION OF CFB VIETNAM JOINT-VENTURE IN 1998CFB Vietnam, created one year after the beginning of the Asian economic crisis, is ajointventure between CFB Co. (which owns 49% of capital) and a local state-owned enterprise (which owns 51% of capital). It was CFB Co.'s largest investment in Vietnam. The joint venture formula was chosen due to the mutual advantages it offered to the parties involved. On the one side, CFB Co. was gaining rapid access to the Vietnamese market, benefiting from the lands, buildings, and other infrastructure of the local enterprise and from the cheap national labour costs. On the other hand, the Vietnamese counterpart was benefiting from the accrued capital, high technology transfers, and American know-how. Therefore, the joint venture was rapidly granted with the licence to produce and distribute non-alcoholic drinks in the Vietnamese market. During its first year of functioning, the multinational invested more than USS 2 million in bottling equipment. In three years, the subsidiary became the second biggest non-alcoholic beverage producer in Vietnam. It had only one competitor in the market: Vietnam Drinks Company, which was the national producer of all kinds of drinks and had its headquarters in Ho Chi Minh City.The subsidiary is located in Haiphong, the third largest city in Vietnam after Ho Chi Minh and capital city of Hanoi'. Haiphong is one of the three cities of the Northern economic triangle (Hanoi - Haiphong - Quangninh) and is very popular among foreign investors. CFB Co. management had chosen Haiphong for its economic dynamism and its accessibility to the sea, rail and air transport. Haiphong represents a main gateway by the sea to the Northern provinces of Vietnam, facilitating fluvial commercial exchanges not only with the whole country but also with neighbouring countries. The subsidiary's activities, its production, bottling factory, and administrative buildings, are all concentrated in one site situated at the Northern periphery of Haiphong. CFB Vietnam's primary mission was to produce exclusively for the national market, with an objective to export its products to neighbouring Asian countries over the next three years.CFB CO. RESTRUCTURING IN 2000At the end of 1999, CFB Co. started to lose money in all of its foreign operations. National and international competition grew in all markets and consumers became quality-oriented. Even though the company's main operations in the U.S were still profitable, the figures were declining significantly as compared to the 1998 levels. The modest profits from the U.S. plants were not enough to offset the losses reported abroad.In 2000, U.S. headquarters analysed the situation and decided to undertake a radical strategic change. In order to reduce costs and achieve greater profits, the company's management decided to regroup its food and beverage production activities into three regional /ones: United States, having its center in Chicago; Europe, with its regional center in Brussels; and Asia, with its center in Singapore. In other words, the subsidiaries which previously enjoyed exclusive rights in their respective local markets had to be integrated into "three regional networks: United States, Europe, and Asia".This strategy was expected to allow CFB multinational to find synergies within these three regional /ones and thus to assure a significant increase in revenues per region. For instance, CFB Co.'s management wants the Vietnamese subsidiary to export its non-alcoholic drinks to the whole Asian /one, helped by the distribution systems of other regional subsidiaries from Hong Kong and Singapore. It is therefore necessary to create and implement common distribution and communication strategies. The main objectives are to reduce costs, to increase revenues and to promote CFB Co.'s activities in the whole Asian region.CHANGES IN EXPATRIATES' COMPENSATION POLICY IN 2002Back in 1985, when CFB Co. started its international expansion, the company did not have any experience in the field of expatriation management. Since the initial stage of foreign growth strategy, only a small number of expatriates were used. Therefore, the Chicago management team opted for a flexible expatriate compensation approach: the negotiation method. According to this method, each expatriate is handled case by case; the components included in the compensation package represent the final outcome of negotiations between the expatriate and the company. Moreover, this compensation formula is beneficial due to its administrative simplicity, requiring little information on costs of living and tax issues in host countries. Over the years, however, the multinational company penetrated several European and Asian markets and, therefore, the number of its expatriates increased considerably. Hence, starting in 1998 CFB Co. employed constantly about 25 American expatriates. With increasing expatriation development, the negotiation method became less effective, more time consuming, and rather expensive. In order to keep its costs under control, CFB Co.'s senior management decided that a significant change in its current expatriate compensation philosophy would be needed.In 2002, Chicago human resources department (HR), which manages the company's expatriates, adopted a new and mixed compensation approach. In light of this approach, different compensation systems are proposed to senior and junior expatriates. Seniors, expatriates having more than six years of international experience, are compensated according to the international method. In this case, a specific international scale is applied to all senior expatriates. During their expatriation period, senior expatriates are compensated using the international compensation scale and once they are back in their home countries, they reintegrate the standard national compensation scale. Expatriate juniors, having less than six years of international experience, are compensated in line with the home country method, which uses the balance sheet approach. According to this method, the parent company allows it's expatriate to make the same expenditures in terms of accommodation, goods and services in the host country as those that would have been incurred in the home country had the employee remained at home. Moreover, the company commits to maintain the purchasing power of its expatriates in the host country, making some adjustments to the home compensation package in order to balance additional expenditures in the host country due to a higher cost of living index. The key purpose of this approach is to ensure that expatriate employees are no better or worse off as a result of an international assignment.The summary of important events in the evolution of CFB Co. is presented in table 1.
Table 1: Summary of important events in the evolution of CFB Co.PAUL FIERMAN'S EMPLOYMENT WITH CFB CO. AND HIS EXPATRIATION TO VIETNAM IN 2004Paul Fierman, a 34-year-old American, was appointed General Director of CFB Vietnam at the end of March 2004, with a mission to lead the subsidiary and to implement the new organizational strategy.Obtaining this expatriate position was not a difficult endeavour for Paul. In 1995 he earned his bachelor's degree in marketing from Johnson Business School, at Cornell University in New York. After graduation, Paul took a position as product vice-manager in the marketing department at the New York subsidiary of CFB Co. Three years later, he became carbonated non-alcoholic beverages' manager for the Eastern American region. After two years in this position, Paul was put in charge of both carbonated and non-carbonated non-alcoholic drinks in the U.S. market. As a country manager, he was paid USS 300.000 annual base salary and 10% to 15% commission on sales. Although Paul was satisfied with his job, he wanted to reorient his career towards general management positions in this company. Therefore, in 2002 he decided to undertake a full-time Master in Business Administration studies in international management at Harvard Business School in Boston. After completing his MBA, Paul wanted to come back to CFB Co., but in order be able to reach the pinnacle of his career, he thought he needed to acquire some international professional experience. The only international experience he had so far was a year spent in Oxford, Great Britain, as an exchange program student.Paul Fierman's employment for CFB Co. is summarized in table 2.
Table 2: Paul Fierman's professional evolutionDuring his M.B. A. studies, Paul kept in touch with his former supervisor at his first position within CFB Co., Allan Roger, marketing director of the New York subsidiary. Just before graduating from his M.B.A., Paul called Allan to discuss about his potential return to the company. Allan, very enthusiastic about this perspective, told him:"Mike Shannon, the expatriate Managing Director of CFB Vietnam, has just returned to the U.S. unexpectedly due to health problems. Since Mike's departure was not planned, the headquarters are desperate to replace him as soon as possible. If you are interested, you can send me your application for the position of Managing Director in Haiphong, and I will forward it to the General Manager in Chicago. In my opinion, Paul, you have a high professional potential in this company. Your lack of international experience is a problem..., but it does not mean that you would not be able to prepare and implement, in collaboration with the regional director of Pacific Rim, the new strategy aiming at integrating the three Asian subsidiaries. This expatriation would be an exceptional training experience for you, preparing you for a higher level managing position within the Chicago headquarters on your return to the U.S., three years later."With his experience within CFB Co. and his high recommendations, Paul Fierman was a good candidate for this three-year expatriate position. He was perceived as a promising young manager due to his excellent academic background and the outstanding professional results he achieved during his employment within the company.At that point, things went very fast. In March 2004, thanks to Allan's intervention and contacts, Paul met directly with the General Manager in Chicago. Two weeks later, a notice of approval had been sent to Paul from the Chicago HR department, officially confirming his managing position within CFB Vietnam. Robert Greenberg, managing director in charge of the Pacific Asia region, had been informed about Paul's nomination by Chicago's General Manager himself. One month later, in April 2004, Paul began his new position in Haiphong. Before his departure he spent a couple of weeks preparing his move and organizing the rental of his house in New York. His wife Carrie and their seven-year-old daughter Rachel joined him two months later in Haiphong. These two extra months gave Carrie enough time to have her dismissal accepted by her employer. In the meantime, Paul settled into their new Vietnamese house and enrolled their daughter at Haiphong international school. Before his departure, Paul bought three books on Vietnam in order to get some preliminary knowledge about the general business context of the country. However, his readings on culture and the economic and political history of Vietnam seemed to be too disconnected from today's business reality.One week before his arrival in Vietnam, Paul had a three hour meeting with Robert Greenberg in New York. Robert showed him the outlines of the corporate strategy aiming at creating synergies among the three Asian subsidiaries. Since then, they never spoke to each other directly anymore.PAUL AND ARRIE'S FRUSTRATION SIX MONTHS AFTER THEIR ARRIVAL EV HAIPHONGSix months after his arrival in Vietnam, Paul was feeling extremely frustrated. Sadly, he begins to explain to his wife Carrie:"I have two big problems. My first one is related to the financial conditions of my expatriation contract. When I applied for this expatriation position in Vietnam, I expected to benefit from an excellent compensation offer, as all the other expatriates I had met before in the CFB Co. internal conferences had enjoyed. Although the final result of negotiations with the HR manager from headquarters varied from one expatriate to another, all of them were generally managing to negotiate at least double their previous salaries and lots of mobility, protection of purchasing power, accommodation, and hardship allowances. I thought that this expatriation to Vietnam would be not only a springboard for my career but also a good financial move. Unfortunately for me, the expected financial gain did not materialize. I am one of the five expatriates out of 25 who have less than six years of international experience. My compensation is therefore calculated according to the balance sheet approach. Of course, the cost of living in Haiphong is significantly lower than in New York and the company had provided me with a nice house and a good company car. Nevertheless, I feel upset and frustrated. The expatriates from other multinational companies that I met in Hanoi and Ho Chi Min City enjoy better living conditions. In addition, they live in far more attractive cities than Haiphong. As I am the only American expatriate in CFB Vietnam, I feel isolated and frustrated. Since my arrival in Haiphong, I have practically worked alone in order to make the things work. The expatriates from CFB Hong Kong and CFB Singapore subsidiaries are all seniors, they are paid according to a far more advantageous compensation scale, plus they are living in very modern cities where all the usual distractions Americans are accustomed to are available. Furthermore, these two Asian subsidiaries employ several expatriates who are all collaborating closely in order to achieve their objectives together. Between Hong Kong and Singapore, the expatriates are used to pay each other regular friendly visits. My own salary does not allow me to enjoy the week-ends that my counterparts from Hong Kong and Singapore are enjoying."Carrie was not surprised. She had many times noticed the sad mood of her husband in the past few months... She encouraged him to continue. "What is your other problem?""My second problem is related to my work. I feel very frustrated by the results of my work in the subsidiary and the relationships I have with my Vietnamese colleagues. The financial situation of the subsidiary six months after my arrival is very bad: declining revenues, decreasing motivation of Vietnamese plant workers and staff, lack of cooperation onbehalf oflocal management, etc. The implementation of the new organizational strategy is far from even getting off the ground! I have to handle all these problems alone. I have the impression that my work does not produce any of the expected results... What about you, Carrie, how do you feel?"Carrie's situation was hardly encouraging. Carrie seemed to be getting more and more depressed and irritated. Before their departure from U.S., she had been starting her fourth year of employment at the New York Stock Exchange as a financial analyst. Even though she liked her j ob and had good prospects for advancement in her career, she seemed enthusiastic to accompany her husband to Vietnam for the entire expatriation period. Thus, she could spend more time with their daughter. Carrie collected her thoughts and her courage and replied to Paul:"To me, who have never left the North American continent, Vietnam seemed to be an exotic country... and I thought, before our departure, that your expatriation would be a very new, enriching experience. However, this experience turns out to be hard to get through. Life here in Haiphong is not what I had imagined. Being used to work, I am getting bored staying home all day long. I also miss my family and friends whom we were used to visiting regularly in New York. Besides that, I have to admit that Haiphong's heat and humidity are really unbearable for me... And finally, I am also very worried for Rachel. The fact that she has arrived in the middle of the school year in the local Anglophone school prevents her from making any friends, as her classmates do not speak English outside the classroom. Rachel no longer wants to do her homework and cries every morning before going to school... We definitely cannot go on like this! What will we be doing, Paul? I hardly recognize our family, which is normally so happy."


Assignment II
Please answer question 1 and any three of the following questions after reading the case study:1. Which staffing framework do you recognize in this case study? Explain its characteristics and the advantages to using this type of framework?2. Would this type of staffing framework affect Paul’s ability to get things done? Why, or why not?3. Explain if any of the other staffing frameworks would be any better? What can you recommend to the company’s headquarters in this sense?4. Why does Paul want this job? Is Paul a good candidate for this expatriate position?5. What comments can you make on expatriate management in general? And what comments can you make on the expatriate recruitment policy in particular?6. What are the different expatriate compensation methods you recognized in the text? What are the advantages and disadvantages of these different expatriate compensation methods?7. What do you suggest to the U.S. headquarters’ human resources manager in order to improve the expatriate satisfaction/compensation?