International Management

McGraw-Hill/Irwin International Management

Phatak, Bhagat, and Kashlak

2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter 10

Controlling International Strategies and Operations

McGraw-Hill/Irwin International Management

2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

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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 firms international control system.

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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.

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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

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Elements in the Managerial Control Process

1)

2)
3)

4)

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

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Budget
is a detailed listing of the resources or money assigned to a particular project or unit

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Parts to the Control Process

There are two distinct parts to the control process:
a) b)

The antecedent conditions The various forms of control

The antecedent conditions include:

The availability of output measures 2) The knowledge of the transformation process
1)

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Strategic Control Options

Input Control Behavior Control Output Control

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Input Control
A control system that emphasizes employee selection, training, and socialization of those employees within the organization and its values, vision and objectives

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Behavior Control
A control system that emphasizes topdown control in the form of articulated operating processes and procedures

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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

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Output Control
A control system that sets and measures actual targets, such as financial results and productivity

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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

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Fig 10-1: A Model of MNC Control Selection

Host Country Cultural Distance from Home Country

Control System Fit

Knowledge of InputOutput Transformation

MNC Control System Selection

- Input

Host Country Political Restrictions And Risk

> Output Measurability

- Behavior - Output Subsidiary Operating Strategies

(e.g.; Inventory Levels, Profit Repatriation)

Host Country Economic and Foreign Exchange Instability

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Developing Performance Measurement and Control Systems: Host Country Factors

1) 2) 3)

The cultural distance between the headquarters home country and the country hosting the international firms subsidiary The degree of host country political risk as reflected in host government restrictions on the international firms operations Economic factors such as the volatility of a host countrys foreign exchange rates and host country inflationary pressures that are linked to foreign exchange movements

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Fig 10-2: Controlling International Political Linkages

International Firm

Host Country Government

II
International Firm Host Country Society

International Firm

III
Host Country Government Host Country Business Community

Host County Government

Home Country Government

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Fig 10-3: Host Country External Environments and International Control Systems

(Economic Instability)

High

Host Country Economic Instability

( Political Restrictions/Risk)

1 Low Low High

Host Country Political Restrictions/Risk

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Table to Support Figure 10-3

Position 1 2 3 4 5 6 7 8 Cultural Distance Low Low High High Low Low High High Political Risk Low Low Low Low High High High High Economic Instability Low High Low High Low High Low High CONTROL SYSTEM Output or Behavior Behavior Output Input Output Behavior & Input Output & Input Input

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Fig 10-4: Foreign Subsidiary Roles

High

II. Contributor

I. Strategic Leader

Foreign Subsidiary Distinctive Competencies

III. Implementer

IV. Black Hole

Low Low High Strategic Importance of Host Country

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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

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Fig 10-5: Parent-Subsidiary Relationship and Strategic Control Mechanisms

High

Degree of Dependence

Substantive Control

Organizational Context

Low

Degree of Independence

High

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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