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Lecture VI

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

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Lecture VI

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  1. Lecture VI Control and Coordination of MNE’s International Operations (chs. 4 and 7)

  2. Who Gets What? • Problems in international management mostly arise from control-related issues (headquarters-subsidiary relationships)

  3. 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?

  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 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

  8. Evolution of MNE’s 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 MNE’s 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 HQ’s administrative system

  10. Evolution of MNE’s 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 MNC’s 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. 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

  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 MNE’s 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. Intrafirm Business Transactions (Contd..)

  18. 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”

  19. Building Multidimensional Capabilities( ch. 7) Global Business Management • Global Business Strategist • Architect of Asset and Resource Configuration • Cross-Border Coordinator

  20. Building Multidimensional Capabilities( ch. 7) Worldwide Functional Management • Worldwide Intelligence Scanner • Cross-Pollinator of “Best Practices” • Champion of Transnational Innovation

  21. Building Multidimensional Capabilities( ch. 7) Geographic Subsidiary Management • Bicultural Interpreter • National Defender and Advocate • Frontline Implementer of Corporate Strategy

  22. What does Headquarters do? • Providing direction and Purpose • Leveraging Corporate Performance • Ensuring Continual Renewal

  23. “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

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