The Realities of Global Trade and Capital Flows: Implications for 21st- Century Accounting
By Bruce J. Harper and Gary J. Previts
As the world continues to shrink, the importance of professional relationships as a basis for international alliances has never been greater. Trade barriers are vanishing to keep pace with technology, and we truly live in a global village. No wonder the approach to entrepreneurship is becoming more standardized around the world. Selling software in New Orleans is not very different from selling it in Tokyo.
A certain global awareness is now essential for lifelong learning, experience, and professional credentials. Governance must consider both national and international standards-setting, toward the aim of more predictable outcomes in international practice and trade. For a truly global approach to take root, however, business professionals must be able to work readily with their counterparts, both as trade partners and capital sources.
Canada and Mexico
This new global awareness should be consistent with the trade and capital flows of the U.S. economy. The United States' largest trading partners have the most to gain from being involved early on. Likewise, it would be to the advantage of U.S. professionals to become recognized and respected in those countries most likely to do business with U.S. companies and financial institutions.
As Exhibit 1 and Exhibit 2 show, Canada and Mexico are the United States' largest trading partners by a wide margin. Collectively, they represent 36.4% of U.S. exports and 30% of U.S. imports. The accounting associations in these two countries are likely to become closer professional partners in the near future, and the authors urge an ambitious effort in this regard. In addition to the obvious benefits, such a collaboration could also provide the critical mass necessary to attract other important countries, such as Japan and Germany, to international endeavors.
An analysis of direct investments into and out of the United States tells a slightly different story, but one that is instructive. Capital markets are relevant for one simple reason: People and businesses require a high degree of trust in those to whom they lend money. Although Canada is the second largest recipient of direct capital investment from the United States, Exhibit 3 and Exhibit 4 demonstrate the importance of other countries as well, most notably the United Kingdom, the Netherlands, and France. An important part of the new global awareness requires an understanding of the changing economic relationships between countries.
Another imperative will be outreach to Mexican professional associations. The importance of Mexico to the U.S. economy goes beyond its membership in NAFTA. The new government led by Vicente Fox has embarked on the most comprehensive overhaul of Mexico's financial sector overhaul ever. A stronger corporate governance structure, with strengthened minority shareholder rights as its centerpiece, should make Mexico a more attractive destination for U.S. capital.
Investors seem prepared to make the most of a more secure investment climate in Mexico. According to Augustin Carstens, Mexico's undersecretary of finance and public credit, a recent survey by McKinsey & Company found that 90% of potential investors would be willing to pay a premium of approximately 22% for a well-governed company in Mexico. To take advantage of this potential influx of capital, professionals on both sides of the border will need global experience and a sophisticated knowledge base-certified by a professional organization recognized in both countries-to identify world-class companies and certify them to third parties.
Which Professions Will Benefit?
As the world shrinks, it will be the most far-sighted, nimble professions that benefit the most. Numerous surveys name CPAs as today's most trusted business advisors. As such, the accounting profession should be at the vanguard of such opportunities. The largest accounting firms have already extended their practices internationally. A new awareness of this on the part of all CPAs would bring medium-sized and Group B CPA firms, as well as small and medium-sized businesses, into this global, multidisciplinary realm.
One component of the new global age is its access to database resources, which should benefit firms and businesses that do not yet have access to a comprehensive and continuously updated knowledge database. International databases would be a tremendous asset to CPAs for the purposes of research and referrals.
For CPAs working in or near border states, many of whom have contacts with companies and professionals from outside the United States, global awareness will qualify them to provide business insight. This would be of almost immediate benefit and would also help CPAs expand beyond traditional services. Equally important, it would allow CPAs to leverage their existing skills within a nonregulatory environment.
Makers of Change
The shrinking of the business world during the past two decades is simply a continuation of advances in transportation and communications. As sailing ships, canals, and railroads, as well as the telegraph and telephone, reduced the size of the world as humanity knew it, previous generations adapted. Today's generation must adapt both to diminishing costs of transportation and communications and to falling trade barriers. There is little difference between a U.S. corporation building factories in Mexico today and Great Britain issuing bonds to fund Southern railroads after the U.S. Civil War.
As a new global awareness begins to take hold, other, unanticipated benefits may occur. For example, it may become easier to export and gain recognition for the AICPA's existing accreditations, such as information technology (CITT), business valuation (ABV), and personal financial planning (PFC). Of course, specialties and expertise may develop elsewhere and be imported into the United States. The expansion of the global market space for multidisciplinary advisors can only help all professionals committed to the strategic integration of knowledge, regardless of origin.
To some extent, this new global awareness is a natural extension of a trend that has been evolving within the AICPA for a number of years. For example, in 1997 the AICPA Council created a nonvoting International Associate category of membership for individuals from other IFAC organizations.
Taking the leadership role in the creation of a new global awareness that takes advantage of the accelerating flow of international trade and capital has risks. But being the passive spectators of change, rather than the makers of change, is even riskier. A new global awareness offers a golden opportunity for CPAs to take the leadership role in occupying the global, ever-increasing marketspace of ideas and strategic vision. History shows that those who fail to respond to the changing demands of the marketplace will be left behind as others move quickly to fill the void. It has also shown that those who take advantage of changes in the world will be the ones to benefit the most from them.
Bruce J. Harper, CPA, is chairman of the National Accreditation Commission of the AICPA. Gary J. Previts, PhD, CPA, is a professor of accountancy at the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio, a member of the AICPA Council, and co-author, with Barbara D. Merino, of A History of Accountancy in the United States (Ohio State University Press, l998).
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