Management Control in MNCs

Concept of Multinational Corporations

Global Organization
Centralized Operations
Production in one or two countries
Economies of scale
Exports to other countries

Multinational/ Transnational Corporation

Operates in addition to the country of
incorporation
Decentralized and independent operations
Operates in more than one country

International Corporation
Falls between the two. Depending upon the
relative strengths of global and regional pull
factors
Global pull-Competitive advantage in
production, high volume required for cost
cutting
Regional Pull-Restrictions on movement of raw
materials, Cross Cultural and cross national
differences

Cultural Differences
Individualism/Collectivism
Power Distance
Uncertainty Avoidance- budgeting should be
more elaborate
Masculinity/ Feminity

Differences in Business Environment

Risk and uncertainty factors
Political risks
Economic Risk
Exchange Rate
Inflation
Labour Availability
Labour Mobility- Rewards may be introduced

 Evaluation of Managerial Performance

Currency Fluctuation
Inflation
Subsidies and Taxes

Transfer pricing
Taxation
A transfer system that results in profits to low- tax countries can reduce total
worldwide income taxes
Government Regulations
In absence of government regulations, the firm would set prices to minimize taxable
income in countries with high tax rates
Tariffs
The incidence of tariff is opposite to the incidence of income taxes
Income taxes are of larger amount than tariffs which make income taxes the main
driver
Foreign Exchange Controls
Limit on control of foreign exchange available to import
Funds Accumulation
Some countries may wish to accumulate funds in one currency rather than the other
Joint Ventures

Exchange Rates
Nominal
Spot
Forward Rates