How two World Congress speakers look at their companies' global role.

CPAs attending the XIV World Congress of Accountants, to be held October 11 to 14, in Washington, D.C., will be exposed to a variety of viewpoints on the impact of the emerging global economy on the accounting profession. (See page 94 for a schedule of events and a registration form.) In recent Journal interviews, two World Congress speakers commented on the ways in which their companies cope with the worldwide move toward globalization.

John Flaherty, vice-president and general auditor for PepsiCo Inc., is chairman of a plenary session on the international impact of regional market trends. He has a simple way to illustrate the immense differences in international markets: He points to some of PepsiCo's international barter arrangements. The long-established deal to swap Pepsi for Russian vodka might be the most well known, but there are others. For example, PepsiCo recently concluded a transaction in which it helped arrange the sale of Russian oil tankers to generate foreign exchange credits for use by Pepsi bottlers in Russia.

Flaherty also says PepsiCo has very active barter, or countertrade, operations in other parts of the world, including Eastern Europe, China and some African countries. "We're involved in areas such as shrimp farming, pineapples and sisal, which is used to make hemp," he says. Bartering is a much more complicated way to do business than using currency as an exchange medium, but when it's the only way you can do business in a country, you adapt."

POSITIONING FOR THE

PepsiCo is earning a satisfactory return on its international barter operations, according to Flaherty. Nevertheless, the company entered those areas with the future in mind. He says, "The important thing is we're positioned in those countries for whatever the future may hold. With a country such as China, with one billion people, we want to be there ahead of our major competitors."

International barter agreements are especially common in Eastern Europe, China and most African countries. Moreover, such arrangements need not be restricted to industrial giants, such as PepsiCo. Flaherty believes midsized companies could use barter agreements to enter markets in those countries and points out that barter brokers are available to assist smaller companies in reaching mutually beneficial agreements. Barter brokers, sometimes called business trading companies, can be found in all major U.S. port cities and are numerous in countries where bartering is common.

ADAPT TO LOCAL CONDITIONS

In any case, Flaherty says, "if a company intends to conclude a deal with an overseas partner, it must adapt to local conditions. Agreements may include a share of local ownership, barter arrangements or tailoring a product to local tastes." A company therefore should investigate thoroughly before moving into an overseas market. To illustrate, he points to PepsiCo's Pizza Hut, Kentucky Fried Chicken and Taco Bell operations. Pizza and chicken have been accepted readily internationally; however, PepsiCo will need a strong marketing effort to gain wide acceptance for Mexican food in many parts of the world.

A MOVE TO REGIONAL TRADE ASSOCIATIONS

Continued difficulty in reaching a consensus in the Uruguay Round of negotiations on the General Agreement on Trade and Tariffs (GATT) put the rise of regional trade associations, such as the European Community and the North American Free Trade Association, in the spotlight. Flaherty believes regional associations will enhance the position of companies with strong regional positions in international markets, simply because there will be fewer major economic powers competing in a given region.

At the same time, however, the regionalization of international markets will have little impact on companies such as PepsiCo. As Flaherty says, "Our products require fresh ingredients, so we manufacture and distribute them country by country. We don't export many goods from one part of the world to another. Therefore, we fit well into a regional scenario for the international economy."

BULLISH ON THE LONG-TERM OUTLOOK

With a breaking down of international trade barriers, Flaherty is very optimistic on the long-term outlook for PepsiCo's international markets. "We look for an improving world economy and an increasing interest in consumer goods throughout the world.

"For this reason, we see terrific opportunities for our product lines. For example, the average American drinks 770 servings of soft drinks per year. The rest of the world drinks only 62 servings per year. We see a lot of opportunities to close that gap in overseas markets. We also believe there are many U.S. companies that should have similar thoughts about their products. "

JOINT VENTURES: THE WAY TO GO GLOBAL FOR SMALL COMPANIES

Pierre Duhamel, a vice-president of Imasco, Ltd., a large, diversified, Canadian consumer-products company, will speak on international joint ventures at the World Congress. He is a chartered accountant in Canada and chairman of a Canadian Institute of Chartered Accountants (CICA) task force on accounting for joint ventures.

Duhamel endorses joint ventures as a way for small companies to enter international markets. He says, "As a company enters new international markets requiring new technology, joining forces with a local company is simply good strategy. It is particularly difficult for a smaller company to penetrate a new market by itself."

SPREADING INTEREST IN JOINT VENTURES

He witnessed the growth of joint ventures in Canada firsthand. He observes, "We're seeing more and more of them in Canada. We have Canadian companies joining together with companies from the United States to distribute products to North American, or even global, markets. I think more small companies from all industries will look to joint ventures as the way to enter international markets." Traditionally, joint ventures in Canada involved the oil and gas, mining or real estate industries. Lately, however, Duhamel has seen evidence of growing joint venture activity in a number of industries outside of traditional areas, including the paper, consumer goods and lumber industries.

KEEP CURRENT ON JOINT VENTURES

Duhamel believes it important for CPAs in all practice areas to keep current on accounting for joint ventures. The chances their clients or companies will become involved in an international joint venture are growing. CPAs should be in a position to advise on structuring the deal to provide safety and maximum return.

If anything, accounting for joint ventures will become more sophisticated. Duhamel says the presentation of data for joint ventures in Canada is inconsistent between various industries at present, particularly on the extent to which gains and losses are recognized by the parent corporations when assets are transferred to a joint venture. The CICA task force intends to resolve such questions. The results of the task force study now in progress could receive attention from accounting standard-setting bodies in other countries.

SOMETHING TO LEARN FROM EACH

Flaherty and Duhamel are examples of the diversity of the expertise to be found at the World Congress. Flaherty stresses a regional approach to global markets, building from within each country. Duhamel emphasizes cooperation through international joint ventures with local partners. Each has a different message, but both concepts are key to U.S. CPAs.