Download Evolution of MNE`s Control and Coordination

Lecture VI
Control and Coordination of MNE’s
International Operations
(chs. 4 and 7)
Who Gets What?
 Problems in international management
mostly arise from control-related issues
(headquarters-subsidiary relationships)
Factors complicating MNC’s control

Conflicts of interests

HQ: control
Subsidiary: autonomy

Language and cultural differences

Geographical distances

Legal differences

Intrafirm business transactions

Inflow and outflow of resources

Host government intervention and restrictions

Ownership

Greater % of ownership, greater control?
Control Approaches
 Market approach (output controls)
--- pricing, capital out, dividends in
 Rules approach (both input and output
controls)
--- policies, procedures, performance reports
 Cultural approach
--- integrative mechanisms
Control Mechanisms
1. Input and output controls
2. Resource allocation
3. Communication and information flow
4. Organizational structure
headquarters often uses restructuring to gain great control of
the overseas sub-units
5. Integrative mechanism
(note these control mechanisms are not mutually exclusive)
Integrative mechanisms
 Cosmopolitan liaison personnel
 Project teams
 Cross-border teams
 Informal integration and structural
integration
 International job rotations
Cultural Aspects of MNE’s Control

Reliance upon internalized norms and standards

Involving both the controls internalized by the society and the
organization culture induced by corporate socialization (job
rotations in MNE?)

The challenge of an MNC, relative to domestic firms, is to
achieve a synergistic integration of diverse societal cultures
into the corporate culture
W. G. Ouchi [1981], Theory Z: How American Business Can Meet
the Japanese Challenge
Theory F?
F. Fukuyama [1996], Trust: The Social Virtues and the Creation of
Prosperity
Evolution of MNE’s Control and
Coordination
1. 1920-1950
Multidomestic – strategic decisions
decentralized
Loose, simple controls
Little coordination
Subsidiaries are managed as portfolios
Mainly financial flow – capital out,
dividends back (Market approach)
Evolution of MNE’s Control and Coordination
(Contd..)
2. 1950-1980
International companies
Control through budgets, structural
mechanisms
Formal system controls – output controls
Subsidiaries are managed as portfolios




Rules approach predominate
Planning
Budgeting,
Replicating HQ’s administrative system
Evolution of MNE’s Control and
Coordination (Contd..)
3. 1980-1990
Efficiency-driven global companies
Centralized control on strategic decisions
(product decisions –cost, quality
emphasis)
Local autonomy on operational decisions
What control approach predominates?
Evolution of MNC’s Control and
Coordination (Contd..)
4. 1990-Present
Transnational
Complex process of coordination and
cooperation in an environment of shared
decision making (emphasis on worldwide
innovation)
Control mechanisms from previous periods, but
with increased reliance on integrative
techniques and socialization (international
job rotation, cross-border teams,…etc.,)
MNE’s administrative heritage (management
culture) and organizational configuration model
Four organizational configuration
models (p.338, figure 4-2, and p.342, figure 4-3)
 Decentralized Federation
 Coordinated federation
 Centralized Hub
 Integrated Network Model
The Transnational Challenge (p. 339, table 4-1)
 Multidimentional perspectives

Balancing the influences of product
managers, country managers, and
functional managers
 Distributed, interdependent capabilities
The Transnational Challenge (Contd..)
 Flexible integrative process
 Building the Organizational Psychology

The use of cultural control mechanisms

The emerging change process (change
attitudes and mentalities first) vs. the traditional
change process ( change formal structure first)
(pp. 346 - 347)
Other Issues of MNE’s Control
 Intrafirm Business Transactions
 Host Government Involvement
Intrafirm Business Transactions
As the importance of a subsidiary
increases, decision making authority
begins to decline – a hypothesis which
has been empirically examined and
verified
Intrafirm Business Transactions (Contd..)
Host Government Involvement
Financial and investment decisions(% of foreign
ownership)
Business decisions

Local content requirement

Market limit
HRM decisions
Ownership and the control of foreign affiliates
“…with a smaller % ownership comes less control” ?
“planned domestication”
Building Multidimensional Capabilities ( ch. 7)
Global Business Management
Global Business Strategist
Architect of Asset and Resource
Configuration
Cross-Border Coordinator
Building Multidimensional Capabilities ( ch. 7)
Worldwide Functional Management
Worldwide Intelligence Scanner
Cross-Pollinator of “Best Practices”
Champion of Transnational
Innovation
Building Multidimensional Capabilities ( ch. 7)
Geographic Subsidiary Management
Bicultural Interpreter
National Defender and Advocate
Frontline Implementer of Corporate
Strategy
What does Headquarters do?
Providing direction and Purpose
Leveraging Corporate Performance
Ensuring Continual Renewal
“What is a Global Manager?”
By Bartlett and Ghoshal, HBR, 8/2003
3 specialists
The Business Manager – Strategist + Architect +
Coordinator
The Country Manager – Sensor + Builder +
Contributor
The Functional Manager – Scanner + Cross-pollinator
+ Champion