Chapter 15 – Control Strategies
Multiple Choice Questions
1. The planning, implementation, evaluation, and correction of performance to ensure that international organizational objectives are achieved is:
a. control. (moderate, page 442)
b. the mission.
c. a planning loop.
d. strategic intent.
2. Control is needed so that a company:
a. has a common direction or strategy.
b. prevents employees from making decisions that endanger the entire company.
c. allocates resources to those markets where it prefers to grow.
d. all of the selections are correct (difficult, page 442)
3. Which of the following is a concern shared by all international companies?
a. where decision-making power resides
b. how foreign operations should report to headquarters
c. how to ensure the company meets its global objectives
d. all of the selections are correct (difficult, page 442)
WHY IS FOREIGN CONTROL GENERALLY MORE DIFFICULT THAN DOMESTIC CONTROL?
4. All of the following are factors that make control more difficult internationally than domestically EXCEPT:
a. management demographics (easy, page 443)
5. Because most companies handle their international operations through subsidiaries:
a. they are most apt to control them through international divisions.
b. their legal independence creates an additional control consideration. (moderate, page 443)
c. the corporate board of directors must deal directly with them.
d. they must rely more on corporate culture as a control mechanism than if they were branches.
6. Which of the following statements regarding international control difficulties is FALSE?
a. The geographic distance and cultural disparity separating countries increase the time, expense, and possibility of error in cross-national communications.
b. When market size, type of competition, nature of the product, labor cost, and currency differentiate operations among countries, the task of evaluating performance or setting standards to correct or improve business functions is extremely complicated.
c. Because most foreign operations are handled through branches, companies cannot effectively evaluate foreign performance. (difficult, page 443)
d. Evaluating employees’ and subsidiaries’ performance is of little use in maintaining control unless there is some means of taking corrective action.
7. An objective that will hold the organization together over a long period while the organization builds its global competitive viability is:
b. a long-range plan.
c. corporate culture.
d. strategic intent. (moderate, page 446)
8. In formulating international plans, companies should include which of the following?
a. evaluation of internal capabilities and resources
b. examination of local environments where the company may operate.
c. all the answers are correct (moderate, page 446)
d. setting means to evaluate and correct performance.
9. Which of the following best describes the choice of operating through wholly owned facilities, partially owned facilities, or contract arrangements?
a. Location of value-added functions
b. Level of involvement (moderate, page 446)
c. Location of sales target
d. Product/services strategy
10. The extent to which a worldwide business offers the same or different products in different countries is known as:
a. location of value-added functions.
b. location of sales target.
c. product/services strategy. (moderate, page 446)
d. level of involvement.
11. A major benefit of the international division structure is:
a. that it is well suited to firms with diverse product lines.
b. that it is located abroad.
c. the creation of incentives for domestic divisions to contribute resources for international operations.
d. the creation of a critical mass of international expertise. (difficult, page 447)
12. As product lines become more diverse, a company is apt to shift from a(n) _______________ to a(n) _______________ structure.
a. functional; product (difficult, page 447)
b. international; geographic
c. functional; international
d. functional; matrix
13. Which of the following organizational structures is particularly popular among companies that make a variety of diverse products, especially those that have become diverse through acquisitions?
a. international division structure
b. product division structure (moderate, page 449)
c. functional division structure
d. geographic division structure
14. Group interdependence (e.g. product, functional, and/or geographic groups) and the increased exchange of information are attributes of _______________ organizations.
a. geographic division
b. functional division
c. matrix (moderate, page 449)
d. international division
DESCRIBE, GIVE EXAMPLES, AND EXPLAIN THE GROWTH OF NETWORK ORGANIZATIONS INTERNATIONALLY
15. Heterarchies and keiretsus are types of:
a. geocentric structures.
b. lead subsidiary organizations.
d. network organizations. (difficult, page 451)
16. A heterarchy is:
a. an organizational relationship without clear-cut superiors and subordinates. (difficult, page 451)
b. characteristic of monopolies.
c. the opposite of a keiretsu.
d. a governmental system with both a parliament and a monarchy.
17. Keiretsus are:
a. horizontally integrated hierarchies.
b. a type of heterarchy with some cross-ownership. (difficult, page 451)
c. vertically integrated firms with cross-ownership of 70% to 100% in equity.
d. a brand of Japanese automobiles made for the Southeast Asian market.
18. The benefits of keiretsus include:
a. tightly defined superior-subordinate relationships.
b. high competition among members.
c. encouragement to take on long-term and high-risk investments. (difficult, page 451)
d. flexibility in switching suppliers.
WHAT IS A LEAD SUBSIDIARY?
19. When global operations for a specific product are headquartered abroad, the company has:
a. decentralized control.
b. a heterarchy.
c. an area division structure.
d. a lead subsidiary organization. (moderate, page 451)
20. Which of the following product competencies does NOT necessarily lie in the company’s home country?
d. all the answers are correct (moderate, page 451)
21. Which of the following statements regarding lead subsidiary organizations is FALSE?
a. Some companies have moved the headquarters of certain divisions to foreign countries.
b. All major competencies for designing, producing, and selling a product are done in the company’s home country. (difficult, page 451)
c. In situations where companies have moved the headquarters of certain divisions to foreign countries, other global operations, including those in the home country must report to them.
d. Companies using lead subsidiaries are basically trying to utilize the best competence in their organizations, regardless of where that competence is located.
22. The _______________ the managerial level at which managers make decisions, the more they are _______________.
a. higher; centralized (moderate, page 452)
b. higher; decentralized
c. lower; centralized
d. higher; unimportant
23. The choice of decision location (headquarters versus subsidiary level) should be based on the trade-off between balancing _______________
a. the capabilities of headquarters versus subsidiary personnel
b. the expediency versus the quality of decisions
c. pressures for global integration versus local responsiveness
d. all of the above (difficult, page 452)
24. The higher the pressure for _______________, the greater the need to _______________ decision making.
a. multidomestic integration; centralize
b. global integration; centralize (moderate, page 452)
c. global integration; decentralize
d. multidomestic integration; have bureaucratic
25. The higher the pressure for _______________, the greater the need to _______________ decision making.
a. multidomestic integration; centralize
b. national responsiveness; decentralize
c. using international divisions; depend on lead subsidiaries in
d. network organizations; use centralized hierarchies for
26. Which of the following statements regarding the capabilities of headquarters versus subsidiary personnel is FALSE?
a. Decentralization may seem called for when the local management team is large rather than lean, local managers have worked a long time with the company, and local managers have developed successful track records.
b. There are differences in capabilities between headquarters and local management.
c. Upper management’s perception of the competence of corporate versus local managers has no influence on the location of decision making. (difficult, page 454)
d. The subsidiary’s capability may increase or decrease over time, and this change may be caused by subsidiary manager’s initiatives.
27. Which of the following statements regarding decision expediency and quality is FALSE?
a. Although corporate management may be more experienced in advising or making certain decisions, the time and expense of centralization may not always justify the better advice.
b. Bringing corporate personnel to foreign locations to help with decision making may not be warranted unless the decision has large ramifications on the company.
c. Although meetings through digital communication links offer hope of eliminating the need to travel as much, there are still technical and behavioral barriers to their use.
d. A poor decision is never better than a good one that comes too late. (difficult, page 455)
28. Which of the following statements regarding an international business decision location is FALSE?
a. The lower the potential loss and less important the issue, the higher in the organization the level of control usually is. (difficult, page 455)
b. Any discussion of location of decision making must consider the importance of the particular decisions.
c. In the case of marketing decisions, local autonomy is not nearly as prevalent for product design as for advertising, pricing, and distribution.
d. Product design generally necessitates a considerably larger capital outlay than other functions; consequently, the potential loss from a wrong decision is higher.
EXPLAIN HOW DECISIONS TO MOVE GOODS OR OTHER RESOURCES INTERNATIONALLY, STANDARDIZE OR DIFFERENTIATE ACTIVITIES FROM COUNTRY TO COUNTRY, AND DEAL SYSTEMATICALLY WITH STAKEHOLDERS INFLUENCE THE LOCATION OF DECISION MAKING IN INTERNATIONAL OPERATIONS.
29. Global standardization of an MNE’s products, such as GE’s jet engines, tend to:
a. favor multidomestic policies.
b. be considered primarily at the local level.
c. favor centralization of decision making. (moderate, page 452)
d. become less important over the product life cycle.
30. Which of the following statements regarding companies’ international resource transference is FALSE?
a. If a company needs to export output from its operations in one country to its operations in another, centralized control may help assure this flow.
b. Global product uniformity restricts a company by providing less flexibility in filling orders when supply problems arise because of strikes, disasters, or sudden increases in demand. (difficult, page 452)
c. When companies produce the same product in two countries, they may need centralized control to determine which country operation will export to a third country.
d. Companies may sometimes reduce their global costs substantially through centralized handling and mandated uniformity of purchases, even if some costs increase for a particular subsidiary.
31. Which of the following statements regarding international companies’ systematic dealings with stakeholders is FALSE?
a. With the growing mobility of consumers, especially industrial consumers, a good or bad experience with a product in one country may eventually affect sales everywhere.
b. If a company’s prices differ substantially among countries, consumers may find that they can import cheaper than they can buy locally.
c. Decentralized decision making is necessary to ensure that operations in different countries operate toward achieving global objectives. (difficult, page 453)
d. Global competition may cause a company to make decisions in one country to improve performance elsewhere.
WHAT DOES A TRANSNATIONAL STRATEGY IMPLY?
32. When new knowledge and capabilities are developed in both the domestic and foreign locations, both independently and jointly, and then transferred throughout the worldwide organization, the company is following:
a. multidomestic strategy.
b. matrix strategy.
c. global strategy.
d. transnational strategy. (difficult, page 454)
33. Which of the following statements regarding implementation of transnational strategies is FALSE?
a. There is evidence that performance improves significantly by mixing cultures on organizational teams. (difficult, page 454)
b. Some MNEs are attempting to weaken decision-making partitions so that more and better information flows through the organization.
c. As subsidiaries have become more interdependent, managers have tended to initiate informal contact with their peers in the other subsidiaries.
d. The ability to reach group consensus is often dependent on the groups’ enthusiasm and peer pressure, rather than on formal procedures.
34. Recently, the term _____________ has been used to describe a company that thrives on seeking out uniqueness globally that it might exploit elsewhere or that might complement its existing operations.
c. metanational (moderate, page 454)
d. cross cultural
HOW MIGHT CENTRALIZATION OF DECISION MAKING ADVERSELY AFFECT LOCAL MANAGERS (THOSE MANAGERS IN FOREIGN BRANCHES OR SUBSIDIARIES)?
35. Which of the following statements regarding the effect of decision centralization on local managers is FALSE?
a. When local managers are prevented from acting in the best interest of their own operation, they tend to think, “I could have done better, but corporate management would not let me.”
b. If local managers cannot participate in developing global strategies, they may lack the positive attitude to work hard to implement global strategic decisions.
c. Centralization increases the chances for foreign nationals to reach upper level headquarters positions. (difficult, page 455)
d. Local managers who are not given the opportunity to participate in developing global strategies, may not gain the experience needed to advance within the company.
WHY MIGHT COMPANIES CHANGE THE LOCATION OF DECISION MAKING (CENTRALIZATION VERSUS DECENTRALIZATION) OVER TIME?
36. The more important specific foreign operations becomes to total MNE performance:
a. the more likely they will become autonomous.
b. the more likely they will report to international divisions.
c. the less systematic their reporting will become.
d. the higher the level at headquarters they will likely report. (moderate, page 455)
37. As a company’s operations grow abroad:
a. headquarters management no longer needs to pay as much attention to those operations.
b. corporate managers tend to deal more effectively with day-to-day decisions and practices in those operations, especially if the company has entered many different foreign markets.
c. strategic decisions about those foreign operations tend to become more centralized. (difficult, page 455)
d. they are increasingly handled by international divisions rather than product divisions.
38. If a company contracts with only one supplier for an essential component,:
a. it is more likely to control that contract closer to and from higher in the organization than it would a contract of less significance. (moderate, page 455)
b. it is more likely to control a contract of less significance higher in the organization than it would for one in which it has only one supplier.
c. the company is more likely to begin investing in industrialized countries.
d. the company is more likely to repatriate profits back to headquarters.
39. The common values shared by a company's employees are known as:
a. corporate culture. (easy, page 458)
40. Written reports:
a. are a major means of promoting corporate culture.
b. are more important in an international than in a domestic setting. (difficult, page 458)
c. have recently become less important in MNEs.
d. are discouraged between headquarters and subsidiaries if they don't share a common language.
41. The performance of a subsidiary should be evaluated separately from the performance of the subsidiary's manager because:
a. subsidiary problems may have occurred during the manager's vacation.
b. tax authorities require much more information on the subsidiary.
c. the manager should be evaluated only on those things within his or her control. (difficult, page 460)
d. the subsidiary may be only partially owned by the parent.
42. An example of a something uncontrollable at the subsidiary level that can adversely affect subsidiary performance is:
a. sharp increases in demand for the subsidiary's product.
b. a competitor's decision to leave the market.
c. lackluster employees.
d. centralized decision making. (moderate, page 460)
WHAT SPECIAL CONTROL PROBLEMS OCCUR WHEN COMPANIES ACQUIRE OPERTIONS, SHARE OWNERSHIP, AND MOVE FROM MULTIDOMESTIC TO GLOBAL STRATEGIES INTERNATIONALLY?
43. A specific problem of controlling foreign acquisitions is:
a. the accustomed independence of management in the acquired operation. (difficult, page 461)
b. their operation as subsidiaries rather than branches.
c. that they usually come from less-similar cultures than where companies start up their foreign operations.
d. stipulations for golden parachutes in the acquisition contract.
44. Which of the following is least likely to occur when headquarters attempts to move from decentralization to centralization of international business control?
b. cooperation (easy, page 461)
45. When companies acquire foreign operations, which of the following statements regarding control problems is FALSE?
a. Acquisitions can result in overlapping geographic responsibilities and markets as well as new lines of business with which corporate management has no experience.
b. Attempts to centralize certain decision making or change operating methods may result in distrust, apprehension, and resistance to change on the part of the acquired company.
c. Resistance to change may come from management in the acquired company, but not from governmental authorities in the country of the acquisition. (difficult, page 461)
d. When companies acquire only part of the ownership, the flexibility of corporate decision making may be limited.
WHAT IS THE DIFFERENCE BETWEEN A FOREIGN BRANCH AND A FOREIGN SUBSIDIARY? WHAT ARE THE MAIN CONSIDERATIONS FOR CHOOSING ONE OVER THE OTHER?
46. A foreign branch is:
a. legally separated from the parent.
b. a subsidiary.
c. a minority interest in a foreign operation.
d. legally not a separate entity from the parent. (moderate, page 462)
47. When a foreign operation is legally separate from the parent, even if wholly owned by it, it is known as a:
a. subsidiary. (easy, page 462)
b. turnkey operation.
48. An advantage of a foreign subsidiary over a foreign branch is that it:
a. can use the same reporting system as the parent uses domestically.
b. ordinarily does not engage the parent in additional legal liability. (difficult, page 462)
c. is freer to respond to national market needs.
d. has to disclose less information to the host government.
49. What control questions face all companies operating internationally?
Control questions that face all companies operating internationally include: where decision-making power resides, how foreign operations should report to headquarters, and how to ensure the company meets its global objectives.
(easy, page 442)
50. Why is foreign control generally more difficult than domestic control?
Four factors make control more difficult internationally than domestically:
a. Distance—The geographic distance (especially when operations span multiple time zones) and cultural disparity separating countries increase the time, expense, and possibility of error in cross-national communications.
b. Diversity—When market size, type of competition, nature of the product, labor cost, currency, and a host of other factors differentiate operations among countries, the task of evaluating performance or setting standards to correct or improve business functions is extremely complicated.
c. Uncontrollables—Evaluating employees’ and subsidiaries’ performance is of little use in maintaining control unless there is some means of taking corrective action. Effective corrective action may be minimal because many foreign operations must contend with the dictates of outside stockholders in the foreign company, whose objectives may differ somewhat from those of the parent, and with government regulations over which the company has no short-term influence.
d. Degree of certainty—Economic and industry data are much less complete and accurate for some countries than for others. Furthermore, political and economic conditions are subject to rapid change in some locales. These factors impede planning, especially long-range planning.
(difficult, page 443)
51. What elements should companies include in their international plans?
The various alternatives include the following:
a. Location of value-added functions—The choice of where to locate each of the functions that comprise the entire value-added chain, from research to production to after-sales servicing.
b. Location of sales target—The allocation of sales among countries and the level of activity in each, particularly in terms of market share.
c. Level of involvement—The choice of operating through wholly-owned facilities, partially owned facilities, or contract arrangements and whether the choice varies among countries.
d. Product/services strategy—The extent to which a worldwide business offers the same or different products in different countries.
e. Marketing—The extent to which a company uses the same brand names, advertising, and other marketing elements in different countries.
f. Competitive moves—The extent to which a company makes competitive moves in individual countries as part of a global competitive strategy.
g. Factor movements and start-up strategy—Whether production factors are acquired locally or brought in by the company and whether the operation begins through an acquisition or start-up.
(moderate, page 446)
52. Explain the major types of organization structures and the advantages and disadvantages of each for international operations.
a. International division structure—Grouping international business activities into their own division puts internationally specialized personnel together to handle such diverse matters as export documentation, foreign exchange transactions, and relations with foreign governments. This prevents duplication of these activities in more than one place in the organization. It also creates a large enough critical mass so that personnel within the division can wield power within the organization to push for international expansion.
b. Functional division structure—Divide personnel functionally so that marketing people report to other marketing people, finance to other finance people, and so on. Functional divisions are popular among companies with a narrow range of products, particularly if the production and marketing methods are undifferentiated among them. However, as they add new and different products, this structure becomes cumbersome.
c. Product division structure—Product divisions are particularly popular among companies that make a variety of diverse products, especially those that have become diverse through acquisitions. Because these divisions may have little in common, they may be highly independent of each other. As is true for the functional structure, the product division structure is well suited for a global strategy because both the foreign and domestic operations for a given product report to the same manager, who can find synergies between the two, such as by sharing information on the successes and failures of each.
d. Geographic division structure—Companies use geographic divisions if they have large foreign operations that are not dominated by a single country or area. This structure is more common to European MNEs than to U.S MNEs, which tend to be dominated by the strong domestic market. The structure is useful when maximum economies in production can be gained on a regional rather than on a global basis because of market size or the production technologies for the industry. A drawback is possibly costly duplication of work among areas.
e. Matrix division structure—Due to the problems inherent in either integrating or separating foreign operations, many companies are moving toward matrix organizations. In this organizational structure, a subsidiary reports to more than one group. This structure is based on the theory that because each group shares responsibility over foreign operations, the groups will become more interdependent, exchange information, and exchange resources with each other. One drawback, however, concerns how groups compete for scarce resources and to enact their preferred operating methods.
(difficult, page 447)
53. Describe, give examples, and explain the growth of networked organizations internationally.
No company is fully independent. Each is a customer of and a supplier to other companies. Such interdependence is known as a network alliance. Each company must decide what products, functions, and geographic areas it will own and handle, and what it will outsource to others. Many Japanese companies are linked in keiretsus, networks in which each company owns a small percentage of other companies in the network.
(easy, page 451)
54. Why do companies’ international organizational structures evolve over time?
As companies grow in size, product lines, and dependence on foreign operations, control becomes more complex. New structures continue to evolve to deal with this complexity.
(easy, page 451)
55. What is a lead subsidiary?
The major competency for designing, producing, and selling a product does not necessarily lie in the company’s home country. As a result, some companies have moved the headquarters of certain divisions to foreign countries. These divisions are known as lead subsidiaries. Although these divisional headquarters are still accountable to corporate headquarters, other global operations, including those in the home country, must report to them.
(moderate, page 451)
56. What are the three major trade-offs that companies need to consider when deciding where to locate decision making in international business?
The higher the managerial level at which managers make decisions, the more they are centralized, the lower the level, the more they are decentralized. The location of decision making may vary within the same company over time as well as by product, function, and country. An ethnocentric attitude would influence a company to develop competencies, such as knowledge and technology, in its home country and control how they are transferred aboard. A polycentric attitude would cause the company to delegate decisions to foreign subsidiaries because headquarters personnel believe only people on the spot know best what to do. A geocentric attitude would permit more openness to capabilities either at home or abroad and be conducive to a transnational strategy. Some conditions favor the location of decisions in one place or the other. Basically, companies should choose the location based on a combination of three trade-offs:
a.) Balancing pressures for global integration versus pressures for local responsiveness
b.) Balancing the capabilities of headquarters versus subsidiary personnel
c.) Balancing the expediency versus the quality of decisions
(moderate, page 452)
57. Explain how decisions to move goods or other resources internationally, standardize or differentiate activities from country to country, and deal systematically with stakeholders influence the location of decision making in international operations.
a. Resource Transference - A company may want to move its resources from its facilities in one country to its facilities in another. For example, it may decide to move capital to a country where the projected return is higher. Decisions about these moves usually occur centrally because making them requires information from all operating units. Such information is often available only at headquarters.
b. Standardization – worldwide uniformity of an MNE’s products, purchases, methods, and policies may reduce its global costs substantially, even if some costs increase for a particular subsidiary. such standardization is highly unlikely if each subsidiary makes its own decisions.
c. Systematic Dealings With Stakeholders – Increasingly, the people with whom a company must deal are aware of what that company does in other countries of operations. Concessions the company grants to stakeholders in one country may then be demanded in other countries. The company may face a dilemma if it can’t afford the same concessions elsewhere.
(difficult, page 452)
58. What does a transnational strategy imply?
A transnational company can be defined as one whose strategy takes advantage of different capabilities and contributions that may emanate from any part of the world by integrating them into its worldwide operations. The term metanational has been used to describe a company that thrives on seeking out uniqueness that it might exploit elsewhere or that might complement its existing operation. MNEs are attempting to weaken decision-making partitions so that more and better information flows through the organization. In doing so, headquarters can better use subsidiaries’ unique knowledge, and subsidiaries can better understand headquarters’ global needs and pertinent conditions in other subsidiaries.
(moderate, page 454)
59. How might centralization of decision making adversely affect local managers (those managers in foreign branches or subsidiaries)?
Although some decisions are better left to corporate management, doing so may cause morale problems among local managers who perceive their responsibility has been taken away. When local managers are prevented from acting in the best interest of their own operation, they tend to think, “I could have done better, but corporate management would not let me.” If local mangers cannot participate in developing global strategies, they may lack the positive attitude to work hard to implement global strategic decisions. These managers also may not gain the experience needed to advance within the company.
(easy, page 455)
60. Why might companies change the location of decision making (centralization versus decentralization) over time?
The more important the specific foreign operations are to total corporate performance, the higher the corporate level to which those units should report. The organizational structure or reporting system should therefore change over time to parallel the company’s increased involvement in foreign activities.
(easy, page 455)
61. In a short essay, discuss corporate culture as a control mechanism.
Every company has certain common values its employees share. These constitute its corporate culture and form a control mechanism that is implicit and helps enforce the company’s explicit bureaucratic control mechanisms. MNEs have more difficulty relying on a corporate culture for control because managers from different countries may have different norms and little or no exposure to the values prevalent at corporate headquarters. The incompatibility of organizational cultures is a detriment to the acceptance of knowledge, which MNEs need to transfer from operations in one country to operations in another to gain competitive advantage. To try to overcome this problem, many companies encourage a worldwide corporate culture by promoting closer contact among managers from different countries. The aim is to convey a shared understanding of global goals and norms for reaching those goals, along with the transference of “best practices” from one country to another. Corporate culture may be effective even if the operations are only partially owned or when the parent requires long-range planning assistance from the subsidiaries.
(moderate, page 458)
62. In a short essay, describe coordinating methods as a control mechanism.
Because each type of organizational structure has advantages and disadvantages, companies in recent years have developed mechanisms to pull together some of the diverse functional, geographic, and product perspectives without abandoning their existing structures. Some of these mechanisms are:
a. Developing teams with members from different countries for planning to build scenarios on how the future may evolve.
b. Strengthening corporate staffs so that headquarters and subsidiary managers with line responsibilities must listen to different viewpoints.
c. Using more management rotation, such as between domestic and international positions, to break down parochial views.
d. Keeping international and domestic personnel in closer proximity to each other, such as by placing the international division in the same building or city as the product divisions.
e. Establishing liaisons among subsidiaries within the same country so that different product groups can get combined action on a given issue.
f. Developing teams from different countries to work on special projects of cross-national importance, so that they share viewpoints.
g. Placing foreign personnel on the board of directors and top-level committees to bring foreign viewpoints into top-level decisions.
h. Giving all divisions and subsidiaries credit for business resulting from cooperative efforts so that they are encouraged to view activities broadly.
i. Basing reward systems partially on global results so that managers are committed to global as well as local performance.
(moderate, page 458)
63. In a short essay, describe using reports as a control mechanism.
Headquarters needs timely reports to allocate resources, correct plans, and reward personnel. Their decisions on how to use capital, personnel, and technology are almost continuous, so reports must be frequent, accurate, and up-to-date to assure meeting the MNE’s objectives. Headquarters uses reports to evaluate the performance of subsidiary personnel so as to reward and motivate them. Written reports are more important in an international setting than in a domestic one because subsidiaries’ managers have much less personal contact with managers above them. Corporate managers miss out on much of the informal communication that could tell them about the performance of foreign operations. Most MNEs use reports for foreign operations that resemble those they use domestically. The reasons for this are:
a. If the reports have been effective domestically, management often believes they also will be effective internationally.
b. There are economies from carrying over the same types of reports. The need to establish new types of reporting mechanisms is eliminated, and corporate management is already familiar with the system.
c. Reports with similar formats presumably allow management to better compare one operation with another’s
(moderate, page 459)
64. What special control problems occur when companies acquire operations, share ownership, and move from multidomestic to global strategies internationally?
A policy of expansion through acquisition can create some specific control problems. Acquisitions can result in overlapping geographic responsibilities and markets as well as new lines of business with which corporate management has no experience. Another control problem occurs when the acquiring company’s culture is very different from that of the acquired one. These differences may be due not only to company practices, but also to national practices. Still another problem is that existing management in an acquired firm is probably accustomed to considerable autonomy. When existing managers in the acquired company resists new control, there is some tendency to replace them with managers from headquarters, who may perform poorly because they don’t know the local competitive situation well enough.
(moderate, page 461)
65. What is the difference between a foreign branch and a foreign subsidiary? What are the main considerations for choosing one over the other?
When establishing a foreign operation, a company often must decide between making that operation a branch or a subsidiary. A foreign branch is a foreign operation not legally separate from the parent company. Branch operations are possible only if the parent holds 100 percent ownership. A subsidiary, however, is an FDI that is legally a separate company, even if the parent owns all of the voting stock. The parent controls a subsidiary through its voting stock and through various control mechanisms. Because a subsidiary is legally separate from its parent, legal authorities in each country generally limit liability to the subsidiary’s assets. This concept of limited liability is a major factor in the choice of the subsidiary form.
(moderate, page 462)