Decision Making and Controlling in International Operations

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INTERNATIONAL MANAGEMENT
Chapter 7

• Decision Making and Controlling in International
  Operations

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• In International operations, decision making and
  controlling play critical roles.
• They are two vital and interlinked functions of
  international management.
• Selecting a course of action among
  alternatives.
• Evaluating results in relation to plans
  and taking corrective actions, if any.

Decision Making
Controlling
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Decision Making authority controlling
techniques differ from one to other
internationally.
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• Issues
• What is the way through which decisions are made
  in the international operations.
• Do decision-making philosophies and practices
  differ from country to country?
• How decision-making is used to help the
  subsidiary to respond to the economic and
  political demands of the country?

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Decision-Making Process

• Centralized Decentralized
• Decision Making Decision Making

Mostly important decisions are made at the top
Decisions are delegated to operating personnel
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Factors affecting Decision-making practices

• Level of confidence on the French Managers lack
  
• middle level managers (Centralized)
• Level of understanding British Managers lack
• technicalities of business (Decentralized)
• Focus on productivity, German Managers
• quality of goods and (Centralized
  autocratic)
• services
• Existence of legal system German MNCs
• (workers and managers to (Hierarchical)
• discuss major decisions-
• Codetermination)

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• Decision-making by Japanese Managers
• consensus (ringisei)
• Control to develop world American Managers
• wide strategy (centralized)
• Quality of work life and Swedes Managers
• importance to individuals (Decentralized and
• participative)
• Centralized Decision Making- Reasons
• To attain higher Operational Efficiency.
• To increase Economies of Scale.
• To use advanced Information Technology.

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• Economic Oriented Decisions
• Decisions are based on economic considerations,
  such as ROI etc.
• Cultural Oriented Decisions
• Decisions are affected by cultural differences
  across countries.
• Should Consider
• The environment in which MNCs are operating.
• Flexibility needed by the subsidiaries.

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Retaining or Delegating Decision-making to
Subsidiary- Factors Affecting

• Company Size
• Larger the size, the decision making will be
  centralized.
• Designed to increase the overall efficiency of
  operations.
• Creates the desired uniformity and coordination.
• Capital Investment

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• Greater the MNCs capital investment, decision
  making will be centralized.
• Ensures that everything should run smoothly.
• Importance of Overseas Operations to MNC
• With relatively high importance to MNCs,
  subsidiary managers normally are not allowed to
  make major decisions.
• Ensures better control and effective decision-
  making.
• Level of Competition
• Centralization and Standardization of products
  in high level of competitive environment.

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• Helps to reduce cost.
• Ensures better profit.
• Volume-to-Unit-Cost Relationship
• Centralize decision making when large quantities
  of production will have lower cost per unit.
• Ensures to reduce the subsidiarys unit cost.
• Level of Technology
• Greater degree of centralized decision making
  with high level of technology (high-tech,
  research intensive firms).

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• Prefers to control the technology at the home
  office rather than at local level.
• Importance of Brand name, Patent rights
• Decision making is centralized, when high
  importance is given to brand name, patent rights.
• Ensures better protection of MNCs rights.
• Product Diversification
• Decision making is decentralized with greater
  amount of product service diversification.
• Ensures fast decision making suitable to the
  local need.

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• Helps to compete in the market.
• Geographic Distance between Home Office and
  Subsidiary
• Decentralization is preferred if the subsidiary
  and home office are far apart.
• Ensures effective decision making with limited
  time.
• Interdependence among the firms
• Centralization of decision making is preferred
  with greater degree of interdependence among the
  units.

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• Ensures better integration and coordination.
• Presence of Local Managers
• Centralization in decision making is argued with
  the presence of fewer highly competent managers
  (less experienced) in host countries.
• Ensures effective decisions.
• Promotes efficiency and ensures delegation.
• Experience in International Business
• Operations likely to be centralized, if the firm
  has wide international experience.

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Challenging Areas in Decision Making

• Total Quality Management (TQM)
• Strategic Alliances
• Strategies for attacking Competition
• TQM
• An organizational structure and techniques that
  result in delivering of high quality
  products/services to customers.

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• TQM Techniques
• Use of concurrent engineering/inter-functional
  teams (designers, engineers, production
  specialists and customers) to work together in
  developing new products.
• TQM approach for MNCs- Customer Driven.
• (Tailoring products as per customer needs)
• Delegation of decision making to subordinates.
• (Employee Empowerment)

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• Process of giving individuals and teams the
  resources, information and authority to develop
  ideas and effectively implement them.
• Practice of rewards and recognition.
• Training for continuous improvement.
• Statistical Quality Control Techniques.
• Team meetings to generate ideas.
• Streamlining operations and eliminating waste.

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• Strategic Alliances
• Most common- International Joint Ventures (IJVs).
• Provide large firms with an opportunity to
  penetrate in new emerging markets.
• Method to enter into countries previously closed
  to foreign investment (Vietnam).
• Strategies foe Attacking Competition
• Key Decisions- designed to attack the competition
  and gain a foothold in world markets.

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• Strategies are made to capture on particular
  segment of the market to attack competition.
• Controlling
• Concern
• How companies attempt to control their overseas
  operations to become an integrated and
  coordinated unit?
• Problems in Controlling
• Objectives of the overseas operation and the
  corporation conflict.
• Objectives of J-V partners and corporate
  management are not in accord.

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• The amount of experience and competence in
  planning are widely diverse among managers
  running the various overseas units.
• Basic philosophic disagreements about the
  objectives and policies of international
  operations due to cultural differences.
• Types of Control
• Direct Indirect Internal External

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• Direct Controls
• Face-to-face or personal meetings to monitor
  operations.
• Visits by top executives to overseas operations.
• Determining the staffing practices- who will
  manage overseas operations.
• Designing a highly responsive organizational
  structure.
• Discussions based on problems, setting of goals,
  evaluation and action taken for improving the
  effectiveness of the unit.

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• Mostly used semiannually or annually.
• Indirect Controls
• Reports and other written forms of communication.
• Mostly used to monitor performance on a monthly
  basis, includes operating reports, financial
  statements etc.
• (Dual approach provides effective control of
  MNCs operations in most cost-effective manner.

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• Internal External Controls
• MNCs focus on the things that it does best.
• Management ensures the market for goods and
  services which will be offered.
• Needs to find out customers want/ need and to
  respond appropriately (external control focus).
• Approaches to Controlling
• MNCs philosophy of control.
• Economic environment in which overseas unit is
  operating.
• Needs and desires of the managerial personnel who
  staff the unit.

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• Ensures autonomy required to adapt to changes.
• Helps to attract competent local personnel.
• Coordinates operations with home office.
• Techniques in Controlling
• Financial Performance
• Quality Performance
• Personnel Performance