The Control Function in

International Business
 Control
◇ the process of monitoring ongoing
performance and making necessary
changes to keep the organization moving
toward its performance goals

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 Levels of International Control:

◇ Strategic Control
◇ Organizational Control
◇ Operations Control

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4
 Strategic Control

◇ Intends to monitor both how well an

international business formulates strategy
and how well it goes about implementing
that strategy

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 Strategic Control
Focuses on:
◇ how well the firm defines and maintains its
desired strategic alignment with the firm’s
environment; and

◇ how effectively the firm is setting and

achieving its strategic goals

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 Example:

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 Strategic Control

◇ Also plays a major role in the decisions

firms make about foreign-market entry and
expansion

◇ The most critical aspect of strategic control

is control of an international firm’s
financial resources

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 Organizational Control

◇ Responsibility ◇ Generic ◇ Planning

Center Control Organizational Process Control
Control

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 Organizational Control

◇ Focuses on the design of the organization

itself

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 Responsibility Center Control

◇ The firm first identifies ◇ Once the centers are

fundamental responsibility identified, the firm then
centers within the evaluates each on the basis
organization of how effectively it meets
its strategic goals

◇ These systems are tailored to meet local accounting and reporting

requirements, the local competitive environment, and other
circumstances.
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12
 Generic Organizational Control

◇ The control systems used ◇ Most commonly used by ◇ Responsibility center

are the same for each unit international firms that control would be
or operation, and the locus pursue similar strategies in inappropriate since there is
of authority generally each market in which they no strategic variation
resides at the firm’s compete between markets
headquarters

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14
 Planning Process Control

◇ Concentrate its ◇ This approach is based on

organizational control the assumption that if the
system on the actual firm controls its strategies,
mechanics and processes desired outcomes are more
the firm uses to develop likely to result.
strategic plans

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 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 a few years or months

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 Operations Control
◇ Involves relatively short periods of time, dealing
with components of performance that need to be
assessed on a regular—perhaps daily or even
hourly—basis.

◇ More specific and focused than strategic and

organizational control systems

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Managing the Control Function in
International Business
 Managers need to understand to
effectively manage control:
◇ Establishing International Control
Systems
◇ Essential Techniques for Control
◇ Resistance to Control
◇ Overcoming Resistance to Control
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1 Establishing International
Control Systems
 4 Basic Steps in Establishing Internal
Control Systems
Set control Compare
Measure actual performance Respond to
standards for performance against Deviations
performance standards

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 Control Standard
◇ a target, or a desired level of the
performance component the firm is
attempting to control

◇ needs to be objective and consistent

with the firm's goals

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Step 1: Set Control Standards For Performance
 Example: Manufacturing
Facility
Control Standards involved are the
following:
1. Productivity and quality in the new plant
will exceed the levels in the firm’s
existing plants.
2. After an initial break-in period, 90
percent of all management positions in
the plant will be filled by local managers.
3. The plant will obtain at least 80 percent
of its resources from local suppliers.
4. The plant will produce and sell 100,000
units per month.

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 Step 2: Measure Actual
Performance
Easy and straightforward to More difficult to measure:
measure: ◇ Advertising campaign to
◇ Actual output improve firm’s public
◇ Productivity image
◇ Ethical managerial conduct
◇ Product quality
◇ Employee attitudes and
◇ Unit sales
motivation
◇ Material waste

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 Example: Manufacturing
Facility

Performance will be measured in the

following elements:
◇ Sales
◇ Productivity
◇ Quality
◇ Hiring and purchasing practices

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 Step 3: Compare Performance against
Standards
◇ Easier comparison if the ◇ More complicated comparison
control standards are if control standards and
straightforward and objective performance measures are less
and performance is relatively concrete
easy to assess

◇ Managers are advised to use specific and objective

standards and performance measures whenever possible

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 Example: Manufacturing
Facility

Straightforward Comparison
◇ Control Standard: 19 Thai managers
◇ Actual Performance: hiring of 20 Thai
managers

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 Example: Market Share

More Complicated Comparison

◇ Control Standard: “significantly
increasing market share”
◇ Actual Performance: the market share
has increased by 4 percent

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 Step 4: Respond to Deviations
◇ The control ◇ The control ◇ The control
standard has standard has not standard has
been met been met been exceeded
(maintain status (correct (change
quo) deviation) standard)

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 Example: Manufacturing
Facility
Response: (too costly)
If the manager believes that it is because
of performance deficiencies by employees
accountable for the performance:

◇ Mandate higher performance

◇ Increase incentives to perform at a
higher level
◇ Discipline

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 Example: Manufacturing
Facility
Response: (higher production level)
Possible explanations:
◇ Managers and employees may have
expended extra effort,
◇ The original standard may have been
too low, or
◇ Competitors may have bungled their
own opportunities.

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2 Essential Control Techniques
 Essential Control Techniques

◇ Accounting ◇ Performance
◇ Procedures
Systems Ratios

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 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.

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 Accounting Systems

◇ International businesses must develop

accounting systems to control and monitor
the performance of the overall firm and
each division, operating unit, or
subsidiary. These systems enable
managers to keep abreast of the financial
performance of every part of the firm.

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 Procedures

Policies, standard operating procedures, rules,

and regulations all help managers carry out the
control function.
◇ They guide managers in making decisions
and allocations.
◇ They would serve as an ongoing and easily
referenced measure of what is expected.
◇ Firms often alter their procedures in the
face of adversity

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 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
3 International Control

 Resistance to Control
 Overcoming Resistance to Control
 Resistance to Control

OVERCONTROL INAPPROPRIATELY
the firm tries to FOCUSED
exert more control
Control
the firm
over individuals may inadvertently be
increases their
than they think is trying to control the accountability
appropriate wrong things.

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 Overcoming Resistance to Control
(Variation of Culture)
Create a control
Providing a
system that has a
diagnostic
Promote clear appropriate mechanism for
Participation focus and that creates addressing
reasonable unacceptable
accountability without deviations
overcontrolling

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