Decentralization of MNCs 1

Decentralization of multinationals

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INTRODUCTION:

In answering the questions I will use a pragmatic research approach. The approach will help

provide answers based on the already existing facts and careful judgment.

ANALYSIS:

How would a multinational company benefit from a decentralized management control

system?

A management control system refers to the means used by management to gather and use

information. Decentralization of management control systems by multinational companies

enables the country managers to gather and use information to make decisions about the local

and political conditions they encounter.

Decentralization of control systems comes with a lot of benefits which include:

With the decentralization gathering of information and decision making is left to managers in

different countries rather than from the parent. This increases responsiveness to local needs.

Managers in different subsidiaries collect and analyze information concerning the conditions in

the area they operate. This helps them to respond to the needs just in time contrary to the

situation where decision making is left to the parent.

Decentralization of the control system is a major motivator to the sub-unit managers since they

are left to exercise power and are given the ability to make critical decisions. Their participation

in decision making makes these managers as if they own the goals and objectives of the MNC

and this improves their productivity.

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The decentralization helps the sub unit mangers to learn and develop. By making decisions the

managers gain experience and also develop in their careers. The latter can learn from their

success as well as mistakes in decision making.

Unlike in centralized control systems where decisions are made from central management and

take time, decentralization helps to make quicker decisions which can be beneficial to the

organization. The MNC can take advantages of opportunities and deal with emergencies

effectively.

What issues would a multinational company face in establishing global wide performance

measurement standards?

Developing standards that will help in the overall performance appraisal of the multinational

company is quite challenging. To ensure that the MNC maintains high standards and consistency

in all its subsidiaries a centrally developed criterion should be used in performance appraisal.

There are many issues that arise when goal wide performance measurement standards are used.

The most critical factor is consistency in more subjective criteria like integrity, team work and

results orientation. The evaluation of subjective criterion may differ from one subsidiary to

another based on the cultural dimensions of the subsidiary location.

Similarly, the centralized performance measurement standards face pressures for local

responsiveness as well as weak pressures for worldwide integration.

In addition, since the criteria for rating performance differs across various subsidiaries due to

geographical and multi-cultural concerns, persons with the same job title may receive different

compensation. This is against to the principle of fairness and equity.

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What should a multinational company consider when defining boundary and belief systems?

In defining the boundary and belief systems of a multinational company, the company should

consider geographic dispersion as well as the multicultural aspects of operating globally.

Geographic dispersion refers to the extent in which the firm can operate across borders and still

ensure coordination between the subsidiaries for overall effectiveness. The geographic dispersion

will thus define the boundaries for multinational companies and will also the feasible number of

countries to operate in.

Multiculturalism on the other hand refers to the diverse cultural backgrounds of the workers,

customers, suppliers and other stakeholders. In developing the belief systems of a multinational

company it’s important to consider the multiculturalism context.

Conclusion:

A multinational company should thus leverage on geographic dispersion and multiculturalism;

this can only be achieved by striking a balance between centralization and decentralization of

control systems.
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References:

Ferner, A. (1994). Multinational Companies and Human Resource Management: an Overview of

Research Issues1. Human Resource Management Journal, 4(3), 79-102.

Ferner, A. (1997). Country of origin effects and HRM in multinational companies. Human

resource management journal, 7(1), 19-37.