Cultural and Geographical distances between parent companies and their international subsidiaries will bring uncertainties on whether local management will always align their decision towards the general corporate objectives. Effective global operations require an ‘Equidistance’ of perspective15 from head office managers, i. e. treating customers equally regardless of their geographical location. I. e. The primary rule of equidistance is to see-and to think-global.
This equidistance can be hard to develop and maintain and therefore certain management controls related to structure. There are three management controls suggested; Behavioural, Output and Cultural16 and correspond to three main categories of structure and strategy. The first being that of the global company with a dependant relationship with head office, i. e. an ethnocentric orientation. The parent company uses behavioural control over the subsidiary to influence management decisions.
The predominant source of control is expatriate managers or head office systems. In more recently established subsidiaries, as operations begin to go well, H. Q begins to pay close attention. Functionaries of all types itch to intervene. Corporate heavyweights and all the powers that be want a say in what has become a critical portion of the overall company’s operations. When minor difficulties arise, no one is willing to let local managers continue to handle things themselves.
Overeager and overanxious headquarter managers by trying to supervise things in a regular ‘corporate’ fashion can destroy the very profitably of the business because of their lack of knowledge of the host market. Persistence and perseverance are the keys to long-term survival and success when it comes to local unit managers. 17 This is the major danger of ethnocentricity leading to organisations looking to alternative approach. The multidomestic organisation has a polycentric approach and emphasises the autonomy of the subsidiary.
Therefore head office implements an output control using targets for profit and turnover. Polycentric organisations move towards a employing host country nationals. The Transnational organisation with interdependent structure and geocentric approach uses cultural control of the equally important subsidiaries. The more geocentrically orientated the organisation becomes, the criteria for appointment becomes to select the best person whatever their nationality, and as a result third country national appointments become more common. The Transfer of Information
The structure of the organisation has bearing on the way in which information is moved about the organisation, and the type of information that is moved. Whilst new subsidiaries rely on information about how certain processes and operations are carried out and tend to give very little feedback. More established subsidiaries take part in two-way dialogue with head office and perhaps pass on information to other subsidiaries making the transfer three-way. I. e. Transnational organisations take part in a multidimensional approach to the transfer of knowledge.
This type of subsidiary will be involved in the development of new processes and may learn “why” rather than “how”. In the more established global firms the transfer of information should be free flowing and unhindered. The multidomestic structure however, experiences little or no communication in either direction. The information that is transferred is likely to be about “how” parent company systems are used and the learning is unlikely to benefit the organisation. The Evolution of the Global Firm.
Product or Geography? The multidomestic, polycentric style of firm may be successful if the structure is appropriate for the industry. Increasing international competition point to the increasing pressure on multidomestic firms to turn to global product standardisation in order to achieve economies of scale and thus, competitive advantage. As customers continue to look for the most cost effective suppliers, looking abroad is putting pressure on firms to converge practices to maintain consistent levels of quality.
The consequence is that global firms are switching from an organisation based on countries to one that emphasises product divisions. This is a knee-jerk reaction to the concept of globalisation. Globalisation is considered as marketing to customers regardless of their geographical location, thus leading to the view that customers are based in industry sectors and not in countries. Secondly the concept that manufacturing should be integrated across countries to obtain scale economies and consistent quality.
The product-based subsidiary is epitomised by the automotive industry when factories are used for the manufacturing of all variations of a given model and then exported to the markets where they will be adjusted for local preference, for example Vauxhall Astra at Ellesmere Port, Cheshire. This at the expense of arbitrage practice such as production switching as it is not easy to move production if the production line is different. Furthermore, the organisation only obtains leverage opportunities in the host country, not necessarily in the all the markets where the product will be sold.