Control and Coordination of MNE

1
Lecture VI

• Control and Coordination of MNEs International
  Operations
• (chs. 4 and 7)

2
Who Gets What?

• Problems in international management mostly arise
  from control-related issues (headquarters-subsidia
  ry relationships)

3
Factors complicating MNCs 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?

4
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

5
Control Mechanisms

• Input and output controls 
• Resource allocation 
• Communication and information flow 
• 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)

6
Integrative mechanisms

• Cosmopolitan liaison personnel
• Project teams
• Cross-border teams
• Informal integration and structural integration
• International job rotations

7
Cultural Aspects of MNEs 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

8
Evolution of MNEs Control and Coordination

• 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)

9
Evolution of MNEs Control and Coordination
(Contd..)

• 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 HQs administrative system

10
Evolution of MNEs Control and Coordination
(Contd..)

• 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?

11
Evolution of MNCs Control and Coordination
(Contd..)

• 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.,)

12
MNEs 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

13
The Transnational Challenge (p. 339, table 4-1)

• Multidimentional perspectives
• Balancing the influences of product managers,
  country managers, and functional managers 
• Distributed, interdependent capabilities

14
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)

15
Other Issues of MNEs Control

• Intrafirm Business Transactions
• Host Government Involvement

16
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

17
(No Transcript)
18
Intrafirm Business Transactions (Contd..)
19
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

20
Building Multidimensional Capabilities ( ch. 7)

• Global Business Management
• Global Business Strategist
• Architect of Asset and Resource
• Configuration
• Cross-Border Coordinator

21
Building Multidimensional Capabilities ( ch. 7)

• Worldwide Functional Management
• Worldwide Intelligence Scanner
• Cross-Pollinator of Best Practices
• Champion of Transnational
• Innovation

22
Building Multidimensional Capabilities ( ch. 7)

• Geographic Subsidiary Management
• Bicultural Interpreter
• National Defender and Advocate
• Frontline Implementer of Corporate
• Strategy

23
What does Headquarters do?

• Providing direction and Purpose
• Leveraging Corporate Performance
• Ensuring Continual Renewal

24
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