CHAPTER 15

CONTROL STRATEGIES


Case: Nestle

- About 98% of Nestle's sales are outside Switzerland
- 489 factories in seventy-five countries
- Its corporate management handles all acquisition decisions
- Nestle tries to move almost all cash to Switzerland
- Headquarters also researches conditions affecting commodities and mandates amounts and prices for purchases of supplies
- Despite the centralized directives, country and/or are managers have a great deal of discretion in certain matters, especially marketing.
- Nestle relies heavily not only on budgets and reports but also on information gathering visits to local operations
- Acquisition of Carnation




I - INTRODUCTION

Control questions facing all companies:

- Where are decisions made?
- How can the company optimize globally?
- How should country units report to headquaters?

International Companies have a wide variety of strategies as well as approaches for implementing these strategies.

Control is needed so that a company has a common direction or strategy

Control is the planning, implementation, evaluation, and correction of performance to ensure that organizational objectives are achieved.

Several Factors make control more difficult internationally than domestically:

a) Distance: takes more time and money to communicate
b) Diversity: country differences make it hard to compare operations
c) Uncontrollables: there are more outside stock-holders and governmental dictates
d) Degree of Certainty: there often are rapid changes in environment and data changes

Although these factors make control more difficult in the international context, companies follow procedural and structural practices in an effort to ensure that foreign operations comply with overall corporate goals and Philosophies.

A - PLANNING

A company must adapt its unique resources and objectives to different and changing international competitive situations

Without planning a company lacks long-range goals and means to achieve them.

Planning Loop:

Set Long-Range Strategic Intent:


I - Analyze Internal Corporate Resources

Financial Resources, Human Resources, product Resources, Environmental Effects.

II - Set International Corporate Objectives

Sales, Acquire resources, Diversification, Minimize Risk

III - Analyze Local Conditions

Financial Factors, Marketing Factors, Political and Economic Stability

IV - Select Alternatives

Location of value-added activities


V - Implement Strategy

Other Issues:

Location of value-added activities; Location of sales target; products/services strategy; marketing; factor movements and start-up strategy

B - ORGANIZATIONAL STRATEGY

No matter how good a plan is, it will achieve little unless there is appropriate means of implementing it.

Organization structure is a necessary means of implementation that should fit the strategy being pursued.

The formal structure depends on many factors including the following:

- Degree of multidomestic, global, and transnational policies employed
- Location and type of foreign facilities
- Impact of international operations on total corporate performance

1. International Division: creates a critical mass of international expertise; may have problems getting resources from domestic divisions

2. Functional Division: are popular among companies with narrow product lines

3. Product Division: are popular among international companies with diverse products
4. Geographic (area) Division: geographic divisions are popular
when foreign operations are large and are not dominated by a
single country or region.

5. Matrix: a matrix organization gives product, geographic, and
functional groups a common focus.

C - EVOLVING STRUCTURES

Network Organizations: because of the increase in alliances among companies control increasingly must come from negotiation and persuasion rather than from authority of superiors over subordinates

Keiretsus

Spin-Off Organizations: operations involving non core competencies may become separate companies

Lead Subsidiary Organizations: the major competency for a product does not necessarily lie in the company's home country.

D - LOCATION OF DECISION MAKING

Basically the choice of decision location should be based on a combination of three trade-offs:

A - Pressure for Global Integration versus Local Responsiveness

- Global Strategy; Resource Transference; Standardization; Systematic Dealings with Stakeholders
- Multidomestic Strategy
- Transnational Strategy (a hybrid of multidomestic and global strategies; gaining knowledge and capabilities from anywhere in the organization; information flows up and down, horizontal and vertical)

Centralization may hurt local managers because they:

a) Cannot Perform as well
b) Do not acquire training through increased responsibility

Companies must consider how long it takes to get help from heaquarters in relation to how rapidly a decision must be made

Decision Expediency and Quality:

a) Companies must consider how long it takes to get help from headquarters in relation to how rapidly a decision must be made

b) More important decisions are made at headquarters


IV - CONTROL IN THE INTERNATIONALIZATION PROCESS

a) The more important the foreign operations the higher in the organizational structure they report.

b) The larger the total foreign operations, the more likely it is that headquarters has specialized staff with international expertise

c) The larger the operations in a given country, the more likely it is that that country unit has specialized staff


V - CONTROL MECHANISMS

a) Corporate Culture: people trained at headquarters are more likely to think like headquarters personnel.

b) Coordinating Mechanisms:

- Strengthening Corporate Staffs
- Management Rotation
- Placing International and Domestic Personnel in closer proximity
- Developing teams from different countries
- Placing foreign personnel on the board of directors

c) Reports must be timely in order to allow companies to respond to their information

d) Types of Systems: reporting systems are intended first to evaluate operating units and second to evaluate management in those units

e) Cost and Accounting Comparability: It is hard to compare countries using standard operating ratios.


VI - CONTROL IN SPECIAL SITUATIONS

An acquired company usually does not achieve a complete fit with the existing organization

Share ownership usually makes control harder than with wholly owned operations, but there are mechanisms that can work

There are tax and liability differences for branches and subsidiaries

Each legal form has different operating restrictions

a) Ability to transfer ownership
b) Number of stockholders required
c) Percentage of foreigners who can serve on the board of directors
d) Amount of required public disclosure
e) Minimum Capital Required




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