Control Mechanism

To check progress of work from time to time Comparison of standards and actual

performance Deviations are identified, the cause of deviation are found out and corrective action is taken Control is the process taking steps to bring actual results and desired results closer Philip Kotler

Types of control
Internal Control
Headquarters of MNCs exercise control over its

working in parent nation as well as host nation Control improves efficiency, profitability, best utilisation of resources, reduces wastages and unproductive expenses

External Control
It is exercised by govts. of parent company and host

nation International bodies such as WTO, IMF, UNCTAD also exercise control NGOs also exercise control by public awakening

Difficulties in control
Wide geographic area
Big MNCs operate in as many as 150 nations

Diversity in culture
Work procedures, working styles, value system are

different in different nations

Uncertainty
It is difficult to predict environment in so many host

nations, analysing home countries environment is easy as compared to host country

Language
Nearly 10000 languages are spoken in the world These creates barrier in communication

Internal control mechanism

Internal reporting
Periodic reports are send to the parent company

Cash flow, capacity utilisation, sales volume, bad

debts, working capital, profitability etc Quarterly financial statements like profit and loss account and balance sheet are sent to the parent company

Control over performance of managers

Periodic evaluation of managers
Performance standards of managers are fixed

 Official visits to subsidiaries

Executives from headquarters visit subsidiaries from

time to time Face to face interaction with staff of subsidiaries It gives first hand information

Financial analysis
Cash flow analysis, fund flow analysis, working capital

analysis, ratio analysis (profitability, activity and solvency)

Operational efficiency indicators

Break even analysis, reduction in cost per unit, human

resources efficiency, labour turnover rate, man hours lost due to strikes, market share, sales growth etc

 Operational audit (Internal Audit)

It is an important technique of control Auditor makes independent inquiry into the financial

and other activities of the subsidiaries It helps in highlighting weaknesses & checks frauds

Control in cases of mergers and acquisitions

Merger is union of two or more already existing

companies In acquisition stronger company takes over weaker company Difficulty in using common control measures as there are different working styles and performance standards

External Control Mechanism

MNCs try to get maximum profit at the cost of

health and environment of host nation Union carbide in USA and India Bhopal gas tragedy

External
Control

Govt. (Home & Host)

International organisations

Social Organisations/ NGOs

 Control by govt.
Tariff barriers Non Tariff barriers Technical barriers (Safety and health)

EXIM Policy
Rules and regulations for exports and imports of

a country It is also known as foreign trade policy This policy is reviewed from time to time according to changing environment India imports capital goods and technology For making payments for the imports, exports are promoted to maintain BOP Govt. gives incentives to exporters

 Import Quota Import license The purpose of restrictions is to curb

unnecessary imports Various export promotion incentives are offered to exporters Govt. has expanded list of import items under open general license (OGL) OGL list items can be imported freely New foreign trade policy 2009-14 aims to double the exports of goods and services by march 2014

Foreign Investment Policy

It lays down rules regarding ceiling on foreign investment in different sectors

It also makes provisions for repatriation of profit earned, interest, royalty, technical fee etc
Initially in India foreign equity participation was

restricted to 40% but, now 100% equity participation in high technology and high priority areas is allowed Automatic approval of foreign capital in many nations in certain sectors In India investors are required to notify the RBI within 30 days

 100% equity participation is allowed in India in

power, drugs, airport, internet service etc Govt. control over MNC through

Department of company affairs Ministry of industry Ministry of finance Cabinet committee on economic affairs FEMA FIPB (Foreign Investment Promotion Board) RBI Restricting import of non essential items Fixing maximum limit for royalty to 8% of exports and 5% of domestic sales

 Equity participation is restricted in some areas MNCs have to follow the guidelines laid down

by FIPB Condition of export for MNCs (certain percentage of the output is to be exported) Foreign investment up to Rs. 1200 Crore requires clearance from ministry of industry Foreign investment above Rs. 1200 Crore requires clearance from Cabinet committee on economic affairs

Ethical code of conduct for MNCs To follow laws of host country

Not to indulge in unfair and corrupt practices

Not to restrict entry of new company in business, not to indulge in monopolistic trade practice
To conduct R & D for developing better technology

Timely payment of taxes and duties

Fair treatment to employees, good working conditions

Not to work against national interest of host country

To respect socio-cultural values

Not to interfere in political affairs of host country

Control by International Institutions

IMF World bank WTO UNCTAD

International trade agreements

Counter trade agreements Regional trade agreements

Control by social organisations

Issue of health Issues of environment Lead in Chinese toys Pesticides in cold drinks USA imposed ban on Indian carpets as child

labour was used in manufacturing it