Two Diagrams with Many Stories: Incorporating Finance into Teaching Global Strategy

ABSTRACT

In this paper, we propose two diagrams, the corporate strategic framework diagram and the free cash flow diagram, to teach students how the finance function is integrated to other business functions in a multinational corporation. We recommend the diagrams as pedagogical tools in the context of a widely used management simulation software, Business Strategy Game (BSG). We provide specific examples of their use to enhance the effectiveness of the simulation experience, to motivate the students to follow current events in international business more closely, and to connect the simulation to real-world business situations. The formulation and implementation of global strategy are complex processes and can benefit from a structured framework. Methods that use the proposed diagrams in teaching international business provide the necessary framework to students in an experiential setting and enhance their learning. Using evaluation scores from end-of-semester business reports, we demonstrate that students’ learning of the global strategy-making process improved from semester to semester as these methods were gradually implemented in our classes.

KEYWORDS:

• International business
• management simulation
• innovative pedagogy
• integration
• financial strategy

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Although the free cash flow diagram here is for a manufacturing firm, the diagram is general enough to represent firms in any sector of the economy. Estridge and Lougee (2007) indicate that “ … in order to be consistent with the underlying economics of the business, the classification of cash flows into operating and financing should vary according to industry.” Accordingly, the free cash flow diagram also works for a service provider if the operating cash flow of the firm is properly identified.

² Some additional cash flows in this section are the utility costs of production, including electricity, heating costs, and compensation to the employers of the corporation. Agency costs, employment compensation policies, different types of energy supply decisions (electricity, coal, natural gas, solar), and the environmental consequences/perspectives would be additional topics of conversation when this first cash flow in the diagram is covered.

³ It should be noted that the definition of the FCF varies according to different researchers. Bhandari and Adams (2017) review numerous such definitions introduced in textbooks and academic articles. We follow the comprehensive and commonly used definition in Ross, Westerfield, and Jordan (2006, 34), where they refer to it as the cash flow from assets.

⁴ The tests are for the difference between the two averages of independent samples of different sizes. The data are from classes that have had roughly the same characteristics (except for the innovation discussed in the paper): same course, same schedule, same professor, same material except for the adjustments mentioned above, same age group of students pursuing the same major. The sizes of the samples are taken into account in the t-statistics and p-value calculations. The statistical significance observed even with these sample sizes is further confirmation of the effectiveness of the teaching innovation discussed in this study.

Additional information

Notes on contributors

A. Can Inci

Dr. A. Can Inci is a Professor of Finance at Bryant University. He received his Ph.D. from University of Michigan – Ann Arbor. He also has an MBA degree from Ohio State University, MSc in Control Systems from Imperial College – University of London, and BSc in Electrical and Electronics Engineering from Bogazici University in Istanbul. Prof. Inci’s research areas include international finance, investments, term structure of interest rates, exchange rate dynamics, futures markets, energy, behavioral finance, insider trading, market microstructure, cryptocurrencies, and intraday volatility. He has numerous publications in journals such as Journal of Financial and Quantitative Analysis and Financial Management. Prof. Inci is on the editorial board of Global Finance Journal, Journal of American Business Review, and others. He teaches innovations in finance, securities analysis, investments, corporate financial management, and international business.

Hakan Saraoglu

Dr. Hakan Saraoglu is Professor of Finance and Coordinator of the Financial Services Program at Bryant University.  He received his Ph.D. from Michigan State University. He also holds a master’s degree in business administration and a bachelor’s degree in industrial engineering from Bogazici University in Turkey.  He teaches international financial management and investments courses at Bryant University.  His research interests are in international finance, portfolio management, financial modeling, and machine learning applications in finance.