Decision Making and Controlling in International Operations Chapter 8

2 In International operations, decision making and controlling play critical roles. They are two vital and interlinked functions of international management. Selecting a course of action among alternatives. Evaluating results in relation to plans and taking corrective actions, if any. Decision Making Controlling

3 Philosophy of the Company Amount of Decision Making Authority given to Subsidiaries Amount of Competition in the Local Environment Decision Making authority & controlling techniques differ from one to other internationally.

4 Issues: 1. What is the way through which decisions are made in the international operations. 2. Do decision-making philosophies and practices differ from country to country? 3. How decision-making is used to help the subsidiary to respond to the economic and political demands of the country?

5 Decision-Making Process CentralizedDecentralized Decision Making Mostly important decisions are made at the top Decisions are delegated to operating personnel

6 Factors affecting Decision-making practices Level of confidence on the French Managers lack middle level managers(Centralized) Level of understandingBritish Managers lack technicalities of business(Decentralized) Focus on productivity, German Managers quality of goods and (Centralized & autocratic) services Existence of legal systemGerman MNCs (workers and managers to(Hierarchical) discuss major decisions- Codetermination)

7 Retaining or Delegating Decision-making to Subsidiary- Factors Affecting Company Size: Larger the size, the decision making will be centralized. Designed to increase the overall efficiency of operations. Creates the desired uniformity and coordination. Capital Investment:

8 Greater the MNCs capital investment, decision making will be centralized. Ensures that everything should run smoothly. Importance of Overseas Operations to MNC: With relatively high importance to MNCs, subsidiary managers normally are not allowed to make major decisions. Ensures better control and effective decision- making. Level of Competition: Centralization and Standardization of products in high level of competitive environment.

9 Helps to reduce cost. Ensures better profit. Volume-to-Unit-Cost Relationship: Centralize decision making when large quantities of production will have lower cost per unit. Ensures to reduce the subsidiary’s unit cost. Level of Technology: Greater degree of centralized decision making with high level of technology (high-tech, research intensive firms).

10 Prefers to control the technology at the home office rather than at local level. Importance of Brand name, Patent rights: Decision making is centralized, when high importance is given to brand name, patent rights. Ensures better protection of MNCs rights. Product Diversification: Decision making is decentralized with greater amount of product & service diversification. Ensures fast decision making suitable to the local need.

11 Helps to compete in the market. Geographic Distance between Home Office and Subsidiary: Decentralization is preferred if the subsidiary and home office are far apart. Ensures effective decision making with limited time. Interdependence among the firms: Centralization of decision making is preferred with greater degree of interdependence among the units.

12 Ensures better integration and coordination. Presence of Local Managers: Centralization in decision making is argued with the presence of fewer highly competent managers (less experienced) in host countries. Ensures effective decisions. Promotes efficiency and ensures delegation. Experience in International Business: Operations likely to be centralized, if the firm has wide international experience.

13 Controlling Concern: How companies attempt to control their overseas operations to become an integrated and coordinated unit? Problems in Controlling: 1. Objectives of the overseas operation and the corporation conflict. 2. Objectives of J-V partners and corporate management are not in accord.

14 3. The amount of experience and competence in planning are widely diverse among managers running the various overseas units. 4. Basic philosophic disagreements about the objectives and policies of international operations due to cultural differences. Types of Control Direct & IndirectInternal & External

15 Direct Controls: Face-to-face or personal meetings to monitor operations. Visits by top executives to overseas operations. Determining the staffing practices- who will manage overseas operations. Designing a highly responsive organizational structure. Discussions based on problems, setting of goals, evaluation and action taken for improving the effectiveness of the unit.

16 Mostly used semiannually or annually. Indirect Controls: Reports and other written forms of communication. Mostly used to monitor performance on a monthly basis, includes operating reports, financial statements etc. (Dual approach provides effective control of MNCs operations in most cost-effective manner.

17 Internal & External Controls: MNCs focus on the things that it does best. Management ensures the market for goods and services which will be offered. Needs to find out customers want/ need and to respond appropriately (external control focus). Approaches to Controlling: 1. MNCs philosophy of control. 2. Economic environment in which overseas unit is operating. 3. Needs and desires of the managerial personnel who staff the unit.

18 Ensures autonomy required to adapt to changes. Helps to attract competent local personnel. Coordinates operations with home office. Techniques in Controlling: Financial Performance Quality Performance Personnel (staff Performance) Market (performance)