Chap 15

Griffin and Pustay Third Edition
INTERNATIONAL
BUSINESS
A MANAGERIAL PERSPECTIVE
Chapter 15
Controlling the International Business
1
Prentice
Prentice
Hall ©Hall
2002©International
2002 International
Business
Business
3e 3e
Chapter Objectives
After studying this chapter you should be able to:
• Explain the general purpose of control and the levels of control in
international business.
• Describe how international firms manage the control function.
• Analyze the meaning of productivity and discuss how international
firms work to improve it.
• Explain how firms control quality and discuss total quality
management in international business.
• Analyze how international firms control the information their managers
need to make effective decisions.
2
Prentice Hall © 2002 International Business 3e
Daimler and Chrysler: A Dream
Partnership?
• In May 1998 Jurgen Schrempp, the president
of Mercedes-Benz, announced a merger with
the Chrysler corporation. Executives at Benz
and Chrysler called the deal a “marriage of
equals.” In reality, however, rather than a
merger the deal was more accurately an
acquisition, with Benz owning 58% of the new
company and retaining most of the senior
management positions.
3
Daimler and Chrysler: A Dream
Partnership? (cont.)
• Investors hailed the deal as a dream partnership
and a perfect match. Daimler engineers could
teach Chrysler about quality and technology, and
Chrysler could give the Germans lessons in
efficiency and speed to market.
• To successfully blend the two separate
companies into one and to then capitalize on the
potential benefits of the merger, managers would
have to effectively engage in another crucial
management function, control.
4
Control
Control is the process of

monitoring and regulating
activities in a firm so that some
targeted measure of
performance is achieved or
maintained.
5
Levels of Control in
International Business
• There are three main levels at which

control can be implemented and
managed in an international business:
– Strategic
– Organizational
– Operations
6
Strategic Control
• Strategic control is intended to monitor

both how well an international business
formulates strategy and how well it goes
about implementing it. Thus, strategic
control focuses on how well the firm
defines and maintains its desired
strategic alignment with its environment
and how effectively it is setting and
achieving its strategic goals.
7
Strategic Control (cont.)
• Often, the most critical aspect of strategic control is
control of an international firm’s financial resources.
• Financial control is generally a separate area of
strategic control in an international firm. Most firms
create one or more special managerial positions to
handle financial control.
• Another type of strategic control that is increasingly
important to international firms is control of joint
ventures and other strategic alliances.
8
Organizational Control
• Organizational control focuses on the

design of the organization itself.
International firms generally use one or
more of three types of organizational
control systems:
– Responsibility center control
– Generic organizational control
– Planning process control
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Responsibility Center Control
• The most common type of organizational

control system is a decentralized one called
responsibility center control.
• Using this system, the firm first identifies
fundamental responsibility centers within the
organization. It then evaluates each center
on the basis of how effectively it meets its
strategic goals.
10
Generic Organizational Control
• A firm may prefer to use generic

organizational control across its entire
organization; that is, the control systems used
are the same for each unit or operation, and
the locus of authority generally resides at the
firm’s headquarters.
• Generic organizational control is most
commonly used by international firms that
pursue similar strategies in each market in
which they compete.
11
Planning Process Control
• A third type of organizational control, which

could be used in combination with either
responsibility center control or generic
organizational control, focuses on the
strategic planning process itself rather than
on outcomes. Planning process control calls
for a firm to concentrate its organizational
control system on the actual mechanics and
processes it uses to develop strategic plans.
12
Operations Control
• The third level of control in an international firm is
operations control. Operations control focuses
specifically on operating processes and systems
within both the firm and its subsidiaries and
operating units.
• Strategic control often involves time periods of
several years, while organizational control may
deal with periods of only a few years or months.
But operations control involves relatively short
periods of time, dealing with components of
performance that need to be assessed on a regular
basis.
13
Establishing International
Control Systems
• Control systems in international

business are established through four
basic steps:
– Set control standards for performance
– Measure actual performance
– Compare performance against standards
– Respond to deviations
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Essential Control Techniques
• Accounting Systems
– Accounting is a comprehensive system for
collecting, analyzing, and communicating data
about a firm’s financial resources. Accounting
procedures are heavily regulated and must follow
prescribed methods dictated by national
governments.
– International firms face more difficulties in
establishing their accounting procedures than do
purely domestic firms.
15
Essential Control Techniques
(cont.)
• Procedures
– Firms also use various procedures to maintain
effective control. Policies, standard operating
procedures, rules, and regulations all help
managers carry out the control function.
• Performance Ratios
– A performance ratio is a numerical index of
performance that the firm wants to maintain. A
common performance ratio used by many firms is
inventory turnover.
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Behavioral Aspects of
International Control
• Managers must understand that human
behavior plays a fundamental role in how well
control works.
• Resistance to Control
– People in international firms may resist control for
various reasons. By definition, control regulates
and constrains behavior.
– People may resist control because it may be
inappropriately focused; that is, the firm may be
trying to control the wrong things.
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Behavioral Aspects of
International Control (cont.)
• Overcoming Resistance to Control
– A method to reduce resistance that works
well in most cultures is to create a control
system that has a clearly appropriate focus
and creates reasonable accountability
without overcontrolling.
– A firm may also overcome resistance to
control by providing a diagnostic
mechanism for addressing unacceptable
deviations.
18
Productivity
Productivity is an economic
measure of efficiency that
summarizes the value of
outputs relative to the value of
the inputs used to create them.
19
Productivity (cont.)
• Overall productivity (also called total

factor productivity) is determined by
dividing total outputs by total inputs.
• Labor productivity, a measure of how
efficiently the firm is using its work
force, is determined by dividing output
by direct labor (either hours or dollars).
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Managing Productivity
• There are several general strategies a

firm can pursue in its efforts to maintain
and/or boost productivity. Three
approaches in particular often help firms
become more productive:
– Spend more on R&D
– Improve operations
– Increase employee involvement
21
Spend More on R&D
• Through R&D, firms identify new

products, new uses for existing
products, and new methods for making
products. Each of these outcomes, in
turn, contributes directly to higher
productivity.
22
Improve Operations
• Another important way to increase productivity

is to improve operations. This is where control
comes in; a firm seeking to increase productivity
needs to examine how it does things and then
look for ways to do them more efficiently.
Replacing outmoded equipment, automating
selected tasks, training workers to be more
efficient, and simplifying manufacturing
processes are all ways to improve operations
and boost productivity.
23
Increase Employee
Involvement
• Productivity can be improved by increasing
employee involvement, particularly in power-
tolerant cultures. The idea is that if managers
give employees more say in how they do their
jobs, those employees will become more
motivated to work and more committed to the
firm’s goals. Also, because they are the ones
actually doing the jobs, the employees
probably have more insights than anyone
else into how to do them better.
24
Quality
The American Society for Quality

Control has defined quality as the
totality of features and
characteristics of a product or
service that bear on its ability to
satisfy stated or implied needs.
25
The Eight Dimensions of
Quality
• Performance
• Features
• Reliability
• Conformance
• Durability
• Serviceability
• Aesthetics
• Perceived
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Total Quality Management
Total quality management

(TQM) is an integrated effort to
systematically and continuously
improve the quality of an
organization’s products and/or
services.
27
Quality Improvement Tools
• Firms using TQM have a variety of tools

and techniques they can draw on:
– Statistical process control
• A family of mathematically-based tools for
monitoring and controlling quality
– Benchmarking
• The process of legally and ethically studying
how other firms do something in a high-quality
way and then either imitating or improving on
their methods
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Managing Information
• In an international firm, information is

likely to be in different languages and
subject to different legal contexts.
Computer software and hardware
configurations are not always
compatible. Thus, managing information
is not only very important for an
international firm. It is also more
complex than for a domestic firm.
29
Chapter Review
• Control is the process of monitoring and regulating

activities of a firm so that some targeted
component of performance is achieved or
maintained.
• Most MNCs usually address control at three levels.
What are they?
• When international firms establish control systems,
they first set control standards, then measure
actual performance. Next, they compare
performance against the standards and respond to
deviations.
30
Chapter Review (cont.)
• Productivity is an economic measure of efficiency

that summarizes the value of outputs relative to the
value of inputs used to create them. Productivity can
be assessed at a variety of levels and in many
different forms.
• Quality is the total set of features and characteristics
of a product or service that bears on its ability to
satisfy stated or implied needs.
• Information is data in a form that is of value to a
manager. It plays a major role in international
business.
31

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Griffin and Pustay Third Edition

Control is the process of

• There are three main levels at which

• Strategic control is intended to monitor

• Organizational control focuses on the

• The most common type of organizational

• A firm may prefer to use generic

• A third type of organizational control, which

• Control systems in international

• Overall productivity (also called total

• There are several general strategies a

• Through R&D, firms identify new

• Another important way to increase productivity

The American Society for Quality

Total quality management

• Firms using TQM have a variety of tools

• In an international firm, information is

• Control is the process of monitoring and regulating

• Productivity is an economic measure of efficiency

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