International Management
International
Ninth Edition
Management
Ninth Edition
Chapter 11
Management Decision and Control
Luthans | Doh
Fred Luthans
Jonathan P. Doh
International Management
Ninth Edition
Luthans | Doh
Management Decision and Control
• The specific objectives of this chapter are to
1. PROVIDE comparative examples of decision- making in
different countries.
2. PRESENT some of the major factors affecting the degree
of decision-making authority given to overseas units.
3. COMPARE and CONTRAST direct controls with indirect
controls.
4. DESCRIBE some of the major differences in the ways that
MNCs control operations.
5. DISCUSS some of the specific performance measures
that are used to control international operations.
International Management
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Decision-Making Processes
and Challenges
• Managerial decision-making process
– Involves choosing a course of action among
alternatives
• Process is often linear.
• Looping back is common.
• Managerial involvement in procedure depends on
structure of subsidiaries and locus of decision
making.
– Centralized: decisions made at the top
– Decentralized: decisions delegated
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Factors Affecting Decision-Making
Authority
• A number of factors will influence international
managers' conclusions about retaining or
delegating decision-making to a subsidiary.
• A major concerns for organizations: How efficient
are the processes which are put in place?
• The protection of goods and services is also
important to an MNC.
• The right degree of centralized or decentralized
decision making can be critical to the success of
the MNC.
International Management
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Decision-Making Process
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Factors That Influence Centralization
or Decentralization of Decision Making
in Subsidiary Operations
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Cultural Differences and Comparative
Examples of Decision Making
• Decision-making philosophies and practices from
country to country: Do international operations
use similar decision-making norms?
– French and Danish managers used different
approaches to decision-making; each more adept at
different stages of the process.
– French do not value time as much as counterparts.
– Germans focus more on productivity and quality of
goods/services than on managing subordinates
• Co-determination: a legal system that requires
workers and their managers to discuss major
decisions
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Cultural Differences and Comparative
Examples of Decision Making
• Japanese terms related to decision making:
– Ringisei: decision-making by consensus
– Tatemae: doing the right thing according to norm
– Honne: what one really wants to do
• Other cultural differences:
– How managers view time in the decision-making
process
– Level of team orientation
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Total Quality Management Decisions
• Total quality management (TQM)
– An organizational strategy and the accompanying techniques that
result in the delivery of high-quality products or services to customers
• TQM is critical to achieve world-class competitiveness
– Manufacturing is primary area.
• Concurrent engineering/interfunctional teams
– Designers, engineers, production specialists, and customers work
together to develop new products.
• Empowerment
– Give individuals and teams resources, information, and authority
needed to develop ideas and implement them.
– Rewards and recognition: merit pay, discretionary bonuses, pay-forskills and knowledge plans, plaques, and public recognition
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Total Quality Management Decisions
• ISO 9000 Certification
– Indirectly related to TQM
– International Standards Organization (ISO) to ensure
quality products and services
– Areas examined include design, process control,
purchasing, service, inspection and testing, and training.
• Ongoing Training
– Wide variety of forms such as statistical quality control and
team meetings―designed to generate ideas
– Objective is to apply kaizen
• Japanese term for continuous improvement.
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The Emergence of New Beliefs
Regarding Quality
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Decision and Control Linkages
• Decision making and controlling are interlinked
functions
– The process of evaluating results in relation to plans
or objectives and deciding what, if any, action to take.
• MNCs use different methods to control overseas
operations
– Most combine direct and indirect controls
– Some prefer heavily quantifiable methods; some
prefer qualitative approaches
– Some prefer decentralized approaches; others greater
centralization
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The Controlling Process
• MNCs may experience control problems
– The objectives of the overseas operation and the MNC
may conflict.
– The objectives of joint venture partners and corporate
management are not in accord.
– The degree of experience and competence in planning
varies widely among managers running overseas
units.
– Basic philosophic disagreements about objectives and
polices of international operations exists, largely
because of cultural differences.
International Management
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Models of PC Manufacturing
Traditional Model
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Models of PC Manufacturing
Direct Sales Model
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Models of PC Manufacturing
Hybrid Model
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Types of Control
• Two common complementary types:
1. Internal or external control in devising overall
strategy
2. Looking at ways organization uses direct and
indirect controls
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Types of Control
External and Internal Control
• Internal and external control
– One is often given more attention than the other.
• An external control focus is needed to find out
what customers want and to be prepared to
respond appropriately
– Management wants to ensure market for goods
and services exist
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The Impact of Internal- and ExternalOriented Cultures on the Control Process
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Types of Control
Direct Controls
• Direct control
– Involves the use of face-to-face personal meetings for
purpose of monitoring operations.
• Examples
– CEO runs meetings to discuss problems, set goals,
evaluate, decide on actions
– Top executives visit overseas affiliates to learn of
problems and challenges
– Staffing practices: Who will manage, etc.?
– Design structure that makes unit highly responsive to
home-office requests and communications
International Management
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Types of Control
Indirect Controls
• Indirect controls
– Involve the use of reports and other written forms of
communication to control operations at subsidiaries.
• Financial statements
– Examples: monthly operating reports; supplements to the
operating report, include financial statements, such as balance
sheets, income statements, cash budgets, and financial ratios
– Usually required from subsidiaries:
• Financial statement prepared to meet national accounting standards
prescribed by host country
• Statements prepared to comply with accounting principles and
standards required by home country
• Statements prepared to meet financial consolidation requirements of
home country
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The Controlling Process
Approaches to Control
• Some major differences across countries
• Great Britain
– Financial records are sophisticated and heavily
emphasized.
– Top management tends to focus on major problem
areas, and are not involved in specific matters of
control.
– Control used for general guidance more than
surveillance.
– Operating units have large amount of marketing
autonomy.
International Management
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The Controlling Process
Approaches to Control
• Germany
– Managers employed very detailed control and focused
attention on all variances; they placed heavy control
on production and stressed efficiency.
• France
– Managers employ control systems closer to that of
German than British.
– Control is used more for surveillance than guidance.
– Process is centrally administered.
– Less systematic and sophisticated than in German
companies
International Management
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The Controlling Process
Approaches to Control
• U.S. vs. Europeans
– U.S. firms rely much more on reports and other
performance-related data.
– Americans make greater use of output control, while
Europeans rely more heavily on behavioral control.
– Control in U.S. MNCs focuses more on quantifiable,
objective aspects of foreign subsidiary, while control
in European MNCs measures more qualitative aspects.
– Control in European MNCs requires more
decentralization of decision making than in U.S.
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Performance Evaluation
as a Mechanism of Control
• Three common performance measures
1. Financial performance
• Typically measured by profit and loss and return on
investment.
2. Quality performance
• Often controlled through quality circles.
3. Personnel performance
• Typically judged through performance evaluation
techniques.
International Management
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Performance Evaluation
as a Mechanism of Control
Financial Performance
• Financial performance
– The most important part of ROI calculation is profit which
is often manipulated by management.
• The amount of profit is directly related to how well or poorly a unit
is judged to perform.
• Bottom line performance of subsidiaries can be
affected by currency fluctuations.
– If a country devalues its currency, subsidiary export sales
will increase.
• Price of goods will be lower for foreign buyers with currencies that
have greater purchasing power.
– If a country revalues its currency, export sales will decline.
• Price of goods for foreign buyers rises since currencies now have
less purchasing power in subsidiary’s country.
International Management
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Performance Evaluation
as a Mechanism of Control
Quality Performance
• Quality performance
• Why are Japanese goods of higher quality than goods
of many other countries?
–
–
–
–
Quality control circle (QCC)
Japanese firms train people carefully
Staying on technological cutting edge
Focus on developing and bringing to market competitively
priced goods
– Design, engineer, and supply people to ensure product
produced at prices customers can bear
– “Training overkill”
– Fostering continuous cost-reduction efforts (kaizen)
International Management
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Performance of Suppliers When Serving
U.S.- and Japanese-Owned Auto Plants
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Performance Evaluation
as a Mechanism of Control
Personnel Performance
• Personnel performance
• Periodic appraisal of work performance
– Differences in performance appraisals across
countries
• Rewards and employee monitoring
– Japanese use a more social or group orientation.
– Americans use a more individualistic approach.
• Assessment centers
International Management
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Ninth Edition
World’s Most Reputable
Companies, 2012
continues
International Management
Ninth Edition
World’s Most Reputable
Companies, 2012
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International Management
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Personnel Performance
World’s Most Admired Firms
• Common Themes
– Top managers at the most-admired companies take their
mission statements seriously and expect everyone else to do
the same.
– Success attracts the best people—and the best people sustain
success.
– The top companies know precisely what they are looking for.
– These firms see career development as an investment, not a
chore.
– Whenever possible, these companies promote from within.
– Performance is rewarded.
– The firms are genuinely interested in what their employees
think, and they measure work satisfaction often and thoroughly.
International Management
Ninth Edition
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Review and Discuss
1. A British computer firm is acquiring a smaller
competitor located in Frankfurt. What are two
likely differences in the way these two firms
carry out the decision-making process? How
could these differences create a problem for the
acquiring firm? Give an example in each case.
2. Which cultures are more likely to focus on
external controls? Which cultures would
consider direct controls more important than
indirect controls?
International Management
Ninth Edition
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Review and Discuss
3. How would you explain a company’s decision to use
centralized decision-making processes and
decentralized control processes, considering the two
are so interconnected? Provide an industry example
of where this may occur.
4. How are U.S. multinationals trying to introduce total
quality management into their operations? Give two
examples. Would a U.S. MNC doing business in
Germany find it easier to introduce TQM concepts
into German operations, or would there be more
receptivity to them back in the United States? Why?
What if the U.S. multinational were introducing these
ideas into a Japanese subsidiary?
International Management
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Review and Discuss
5. In what ways could an accelerated decision-making
process harm a company? Using Figure 11–1, which
stage(s) do you think would be most in danger of
being overlooked?
6. A company practices personnel performance
evaluation through reviewing financial decisions
management has made, specifically focusing on ROI.
How is this approach beneficial to the company?
Which aspects could the company be neglecting?
Which cultures are most likely to employ this
method? Which cultures would avoid this tactic?