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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