Management Control of a Foreign Sales Corporation: Some Special Considerations.

Abstract The purpose of this paper is to provide information useful in the management control of certain segments of multinational firms. The Foreign Sales Corporation (FSC) is used throughout the paper to demonstrate that management control and the management control system are substantially influenced by the initial strategic decision to operate as an FSC in the first place. Thus, to achieve the goals inherent in the FSC choice, many dimensions of management control and systems design are not discretionary. Multinational firms often choose to operate in certain markets because of cash flow considerations that are the direct result of the favorable tax treatment allowed by a tax treaty or the Internal Revenue Code. The FSC form is only one of several opportunities available for the maximization of cash flow via tax minimization. Its use in this paper allows the authors to show how the influence of the initial choice pervades all aspects of management control and control systems. Items such as transfer pricing policies cease to be discretionary and become subject to the various statutes and regulations that govern.