Management of Multinational Corporations ( MNCS )

Chapter 7 : Control and Coordination in MNCs

Definition of Control and Implications
Establishing Control Systems
How much Control
Balance between HQ and Subsidiary
Degree of Centralization and Amount of Autonomy

Types of Control System in MNCs

Personal Control
Bureaucratic Control
Output Control
Cultural controls

Control Systems and Strategy
Synthesizing Strategy
Structure and Systems.

Chapter Summary

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.

Control of the subsidiaries can be at three levels: strategic, organizational and operational. Corporate strategy, organizational structure and control systems work in an integrated framework. An MNC's approach to globalization - ethnocentric, polycentric or geocentric - will determine the need for coordination among subsidiaries and consequently, the amount of standardization or customization required in the product and operations.

The SBU structure and the product division structure facilitate decentralized decision-making. On the other hand, international division and functional structures facilitate centralized decision making and consequent standardization of products and processes.

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