Control in Multinational Enterprises (MNEs)

There are various methods of classification of management control in Multinational Enterprises (MNEs). By levels of control here it is meant whether the parent / corporate level managers or subsidiary/country-level managers are involved. The former might be called higher level and the later lower level control. Depending on the sphere of focus we have two types of control called Strategic control and Operational control. In the MNE’s context, strategic control is the responsibility of parent and operational control is the preserve of the subsidiary.

Another way puts ‘management control, tactical control and transactional control’ as the 3 levels of control respectively carried out by the corporate top management, collectively by corporate & subsidiary management and subsidiary management in the case of MNEs. Of course, whether an MNE’s structure is ethno-centric, geo-centric, multi-domestic/poly-centric or region-centric is another factor that influences the exact distribution of responsibility.

The forward looking information is provided by strategic control systems. It is ‘external response’ oriented. It gives managers timely ‘quantitative and qualitative’ information they need to ‘drive into the future’ with confidence and success. In dynamic and uncertain business environment with extended competitive challenges this system functions well. Sensing and responding to change, detecting changes in assumptions and coping with a dynamic environment are the specific issues in strategic control. Operational control is ‘internal response’ oriented to ensure targets are achieved. Managers use performance measurement and operational control measures to ensure fulfillment of targets.

The domains of ‘Management control, tactical control and transactional control’ respectively cover ‘Goals & strategy’, ‘Speed & rhythm to tune with field reality’ and ‘specific actions’.

Management controls keep a company’s Goals or Strategy on track. Strategic control adapts an organization over time to forces in its environment, such as changes in society, advances in technology, development of the economy, and shifts in policy. MNE managers must know that, although cost and innovation are important, the company’s major competitive advantage lies in the marketing of differentiated/undifferentiated consumer products. As such, it is better subsidiary’s managers concentrate on marketing-such as branding, advertising, and distribution-rather while corporate managers concentrate on capacity building through acquiring capital or business units or pursuing R&D. Corporate managers must have a clear-cut understanding of competitive entry strategies. They should look to acquire first-in advantages or companies with an established brand and significant market share. Corporate managers allocate resources to emphasize those product and geographic markets in which they prefer to grow more rapidly. It would be almost inconceivable for a subsidiary manager to launch a new product in his area or build a plant there without considerable scrutiny and approval from corporate management in the headquarters. But it is needed that country-level managers adjust to specific environmental and competitive conditions in their countries of operation. At the same time, the subsidiaries share information, fixed costs from new product development, and spillover advantages, which make it easier for the parent to sell to global distributors.

Tactical controls involve control with field reality in mind while acting within a set of policy and budgetary allocations. They cannot compromise on key results, but depending on the exigencies follow a different priority from the planned one. Tactical controls are budgetary control, authority/responsibility changes, procurement control, production control etc. Speed of execution, balancing diverse claims and the like involve. Sensitivity to the situation rather than strict adherence to rules and procedures, making navigational changes as circumstances warrant, etc are involved. The corporate and subsidiary level managers collectively do this, though the role of subsidiary level is more.

Transactional controls deal with individual tasks and processes within the envelope of available resources. While primarily aimed at ensuring that these individual efforts are efficient, operational control also maps these to the overall control goals. Inventory control, action against delinquent customers, procurement procedures, etc come here. These are the preserve of the subsidiary managers.

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