Northwestern

1. Situation Analysis – what were the critical factors for the company as a whole in managing its financial relationships with its international subsidiaries?

Northwestern’s company maximizes its own profit according to allocation among international subsidiaries.

(1) In order to keep capacity utilization of its U.S. mills at adequate levels, Northwestern had directed its foreign-based manufacturing facilities to procure pulp from its U.S. mills whenever possible.

(2) Each of Northwestern’s foreign subsidiaries was assigned to a certain amount of pulp that is was required to purchase during the year from one of the company’s U.S. mills.

(3) In evaluating the financial performance of each subsidiary, the Finance Department allocated income generated by the mill in manufacturing and selling the pulp allotment to the subsidiary. [1]

2. Strategic Interest – examine the priorities and expectations of the parent company in the establishment of the international ventures. How did these elements fit with important realities?

The considerations that parent company in establishment of the international ventures are:

(1) Less-stringent environmental controls.

The environmental movement in the United States successfully lobbied for legislation to limit access to government-owned forest lands and to invoke stricter environmental regulations regarding mill operations.

European paper companies had also come under increasing pressure from environmental groups. This resulted in higher prices for U.S. and European paper products. This was particularly true relative to other, less-developed regions of the world. To gain the Less-stringent environmental controls, the parent company may choose to establish foreign subsidiaries.

(2) Low-tax areas, transfer pricing.

 To take the whole company’s interest into consideration, it is wise to transfer its profits into the parent company or subsidiaries which are in low-tax jurisdictions in order to reduce the whole company’s tax expenditures.