Management of Multinational Corporations

Control is the process of setting standards, monitoring performance and identifying and correcting deviations from standards so that the organizational objectives are met. In the case of MNCs, which have diverse businesses across countries, the parent company (principal) needs to control the operations of the subsidiary companies (agent) to ensure that overall organizational objectives are met. Some management thinkers believe that the pattern of ownership has an influence on the level of control. Control does not necessarily mean retention of decision making power with the parent company.

The decision to centralize or decentralize decision-making depends on the amount of standardization or customization required in products. The ability to respond faster to changes in market demand can be a source of competitive advantage to the firm. It is easier for firms to achieve this in a decentralized environment. Strategic Business Unit (SBU) and world wide product structure are some forms of an subsidiary with lesser control from parent company. Parent companies can exercise control over SBUs by influencing their financial and strategic decisions.