International Management

McGraw-Hill/Irwin Phatak, Bhagat, and Kashlak

© 2005 The McGraw-Hill Companies, Inc., All Rights
International Management
 Chapter 10

Controlling International Strategies

and Operations

McGraw-Hill/Irwin
© 2005 The McGraw-Hill Companies, Inc., All Rights
International Management
 10-3

Learning Objectives

Describe the main elements in the managerial control process.

Compare and contrast output control, behavior control and input
control.
Discuss problems of control that are particular to international
companies.
Discuss the different categories of parent-subsidiary relationship
and the strategic control mechanisms appropriate to each.
Identify the effects of various host country environments on a
firm’s international control system.
 10-4

Learning Objectives (contd.)

Describe the key attributes of an effective international control

system.
Distinguish among a foreign subsidiary that is dependent vs.
independent vs. interdependent in its relationship with its
headquarters organization.
 10-5

Chapter Topics

Global Strategy, Structure and Organizational Control

The Managerial Control Process
Types of Control Systems
Problems of Control in an International Company
International Environments and Control Systems
Designing an Effective International Control System
 10-6

Elements in the Managerial Control Process

1) The setting of standards

2) The development of methods to monitor the performance of
an individual or an organizational system
3) The comparison of actual performance measures to planned
performance in order to determine if current performance is
sufficiently close to what was planned
4) The employment of effectuating or action devices that can be
used to correct significant deviations in performance
 10-7

Budget

… is a detailed listing of the resources or

money assigned to a particular project or
unit
 10-8

Parts to the Control Process

There are two distinct parts to the control process:

a) The antecedent conditions
b) The various forms of control
The antecedent conditions include:
1) The availability of output measures
2) The knowledge of the transformation process
 10-9

Strategic Control Options

Input Control
Behavior Control
Output Control
 10-10

Input Control

A control system that emphasizes

employee selection, training, and
socialization of those employees
within the organization and its values,
vision and objectives
 10-11

Behavior Control

A control system that emphasizes top-

down control in the form of
articulated operating processes and
procedures
 10-12

Organizational Attributes that Support Behavior

Control

The degree to which a firm weighs evaluations based on

behavior
Whether an employee is held accountable regardless of the
outcome
The degree to which there is concern for procedures or methods
The degree to which performance programs are imposed from
the top down
The frequency in which employees receive feedback or
performance information
 10-13

Output Control

A control system that sets and

measures actual targets, such as
financial results and productivity
 10-14

Dimensions of Output Control

The degree to which a firm uses evaluations with significant

weightings on results
Pay based on performance
Pre-established targets used for evaluating personnel
Numerical records as indices of effectiveness
Performance linked to concrete results
Appraisals based on goal achievement
 10-15

Fig 10-1: A Model of MNC Control Selection

Host Country
Cultural Distance
from Home Control System MNC
Country “Fit” Control
 Knowledge of System
Input- Selection
Host Country Output
Transformation
Political Restrictions - Input
And Risk > Output -
Measurability Behavior
-
Output
Host Country
Economic and Foreign Subsidiary
Exchange Instability Operating
Strategies
(e.g.;
Inventory
Levels,
Profit

Repatriation)
 10-16

Developing Performance Measurement and

Control Systems: Host Country Factors

1) The cultural distance between the headquarters home country

and the country hosting the international firm’s subsidiary
2) The degree of host country political risk as reflected in host
government restrictions on the international firm’s operations
3) Economic factors such as the volatility of a host country’s
foreign exchange rates and host country inflationary pressures
that are linked to foreign exchange movements
 10-17

Fig 10-2: Controlling International Political

Linkages

International I Host Country

Firm Government

II
International
International Host Country Firm
Firm Society

III
Host County Home Country
Host Country Government Government
Host Country
Business
Government
Community
 10-18

Fig 10-3: Host Country External Environments and

International Control Systems

4
(Economic 8

High 2 6
Instability)

Host Country
Economic
Instability 3 7
( Political Restrictions/Risk)

h
al e)

ig
r
u c

H
ult an
t
1 (C is 5
Low D

n l
ta ra
w

ce
Low Hig Lo

is u
D ult
Host Country Political Restrictions/Risk
h

C
 10-19

Table to Support Figure 10-3

Position Cultural Political Risk Economic CONTROL

Distance Instability SYSTEM

1 Low Low Low Output or Behavior

2 Low Low High Behavior
3 High Low Low Output
4 High Low High Input
5 Low High Low Output
6 Low High High Behavior & Input
7 High High Low Output & Input
8 High High High Input
 10-20

Fig 10-4: Foreign Subsidiary Roles

High
II. I.

Foreign Contributor Strategic Leader

Subsidiary
Distinctive
Competencies
III. IV.

Implementer Black Hole

Low

Low High
Strategic Importance of Host Country
 10-21

Strategic Control

The extent of influence that a head office has over a subsidiary

concerning decisions that affect subsidiary strategy
Methods of Strategic Control
Substantive Control
Restricting the flow of strategic resources
Organizational Context
A blending of organizational structure, measurement and reward systems,
career planning, a common organizational culture, which would create
the type of relationship between the parent and the subsidiary that would
facilitate the continued influence of the former over the latter
 10-22

Fig 10-5: Parent-Subsidiary Relationship and Strategic

Control Mechanisms

High

De
gr
ee
Co of
Degree of In
Co mb te rd
Dependence nt ina ep
ro ti en
l on de
St nc
ra e
Substantive te g
ic
Control

Organizational
Context
Low
Degree of High
Independence
 10-23

Key Terms and Concepts

Output measure availability

Knowledge of transformation process
Output control
Behavior control
Input control
Host country environmental factors
Foreign subsidiary roles
Substantive control
Organizational context