The challenge of controllingstrategies and operations abroad International Business I
OBJECTIVES• To understand what the managerial control process is.• To identify the different types of control.• To identify the problems of control in an international company.• To understand the relationship between the environments and control systems.• To be able to advice (and / or design) an effective international control system.
GLOBAL STRATEGY, STRUCTURE AND CONTROL• IC strength recognize and capitalize on opp. abroad and capacity to respond to global threats.• Control: Ensure that strategic, operational and tactical plans are implemented correctly. – Corrective actions if required.
THE MANAGERIAL CONTROL PROCESS• Used to ensure that operations and personnel adhere to plans.• Elements: – Setting Standards – Monitoring Performance – Performance Vs. Plan – Correction
SETTING STANDARDS• Based on objectives Hierarchy – degree of importance.• Realistic• Concrete• Specific – Note: some areas cannot be expressed in specific and concrete terms.
MONITORING PERFORMANCE• Establishment of measurement tools. – Budgets (assigned resources) • Supplemental (Support a plan) • Alternative (Plan B) • Variable (according to sales) – Financial Statements • Income statement • Balance Sheets
PERFORMANCE Vs. PLAN• Evaluate whether performance is sufficiently close to the company’s original plan. – What is “Sufficiently close”? – Feedback (Reactive) – Feed-forward (Proactive)
CORRECTION• Keep track: Positive actions – Promotions – Salary increase – Increased responsibility – Privileges• Get back on course: Negative actions – Salary reduction – Memos – Finish contracts
TYPES OF CONTROL SYSTEM• INPUT CONTROL• BEHAVIOR CONTROL• OUTPUT CONTROL
INPUT CONTROL• Employee selection and training. – Training before assuming responsibility – Multiple evaluations before hiring an individual
BEHAVIOR CONTROL• Takes into account the environment.• Regulates the transformation process.• Top-down control• Motivation: Close supervision
OUTPUT CONTROL• Regulates the results vs. the targets. – Financial results – Productivity – Sales• Evaluation and Comissions• Motivation: Incentives
CONTROL PROBLEMS• Geographic distance prevents face to face communication.• Cultural distance Language: spoken, silent and body language.• Different reference frames between PC and FA Hierarchy, Relevant matters.
HOST-COUNTRY ENVIRONMENTAL FACTORS• Cultural distance• Political Risk• Economic factors
CULTURAL DISTANCE• Initial expansion to a similar country.• It affects: – Behaviors – Decisions – Values – Patterns of negotiationInput control systemOutput and behavior system
POLITICAL RISK• Restrictions. – Profit repatriation limits – Price controls – Protectionist trade policies – Tax and monetary policies – Legal restrictions• Opportunistic behavior from the government.• Government or societal actions
DESIGNING AN EFFECTIVE CONTROL SYSTEM• No reliability of reported profits and ROI• HQ are responsible for the decisions.• Eliminate external factors (out of the subsidiary’s control)• Non financial measures only market share, productivity, public image, staff morale, unions, etc.
PC – FS RELATIONSHIP• Strategic Leader – Core competence of the subsidiary – Strategic importance of the Host Country • Contributor – Core competence of the subsidiary – Strategic importance of the Host Country • Implementer – Core competence of the subsidiary – Strategic importance of the Host Country • Black Hole – Core competence of the subsidiary – Strategic importance of the Host Country
PC – FS RELATIONSHIP• Dependent: the subsidiary is unable to generate strategic resources.(Ex. Operating in a competitor’s home market)• Independent: the subsidiary generates all the resources on its own.(Ex. Operating in a country with restrictions on IT)• Interdependent: PC and the subsidiary generate some of the resources.