doing well, but we also felt that we didn’t really have any basis on which to judge
ourselves.”
The GM example suggests a need for consideration of the issues involved with
identifying appropriate “hurdles” for entry into a new country as well as the compli-
cations encountered when trying to measure the performance of existing international
locations. The hurdle rate and the company’s perceptions of its ability to meet or ex-
ceed it have clear implications for the decision to enter a foreign market; it also sets
the standard for evaluation of future performance of the foreign operation. Obvi-
ously, the need to develop an appropriate measure or hurdle to use for making deci-
sions regarding proposed or existing foreign operations is great. Meyers, in his CFO
article, pointed out that “[g]etting the numbers right is critical to making good in-
vestment decisions and accurately compensating offshore managers.”^13 Smith has
posited that it might make more sense “for multinationals to determine what level of
returns equity investors are demanding in foreign markets today, and then invest only
in those markets.... If GM isn’t earning a rate of return in Brazil comparable to what
[could be made] investing in a Brazilian fund, then [GM is] not doing a service to any
U.S. investor.”^14
Yet, in the domain of hurdle rate calculation, as with other forms of measuring or
assessing foreign operations, success has been, at best, mixed. History has been a pri-
mary source of guidance, and many corporations have relied on capital asset pricing
models, marked up to reflect the perceived increase in risk related to the particular
foreign market.^15 Although limited, a recent survey of such practices suggested some
surprising results. Companies were asked how they calculated the cost of capital and
set hurdle rates in assessing, evaluating, and comparing their operations around the
world. The survey found that a “follow-the-leader” mentality exists and that “none of
the surveyed firms had developed a methodology for setting international hurdle
rates.”^16 Most firms reported that the evaluation, measurement, and assessment of
foreign operations tended to vary with current strategy rather than be held to some
regular standard based on some calculation of rates of return.^17
Global companies continue to struggle with the question of how to evaluate and
assess their foreign operations; for example, Hewlett-Packard recently decided to
abandon its previous pricing policy and adopt a global pricing initiative.^18 Elizabeth
Smith, the former director of finance and administration at Levi Strauss’s Greek af-
filiate, reported some of the difficulties of her experience in managing foreign oper-
ations. She argued that there can be many frustrating business practices encountered
by a foreign office—many of which can affect financial practices and the bottom
line.^19 The varying practices result in a number of differences that make it difficult to
compare operations in one country to operations in another country. The problematic
individual experiences of companies continuing to struggle with the search for ap-
propriate performance measures or assessment techniques for foreign subsidiaries is
reflected by a study of a large number of companies with foreign operations. Only
26.1 INTRODUCTION 26 • 3(^13) Id.
(^14) Id.
(^15) Id.
(^16) Id.
(^17) Id.
(^18) Anonymous, 1994.
(^19) Anonymous, 1995.