Page 276 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 14: Management Control of MNC’s

decision-making. A company can also maintain control over some assets the subsidiary needs Notes
such as: a patent, a brand name or a raw material.
Changes in strategies: Changes in strategies may result because of shift from multidomestic to
trans-national or global operation or to shift control from subsidiary to headquarters or vice-
versa. Because of changes, there will be need for new reporting relationships, changes in the
type of information collected and a need for new performance appraisal systems. In addition,
there are human resource problems as well.

Types of Subsidiaries and How They Affect Control Strategies

A company establishing a subsidiary in a foreign country can choose a number of alternative
forms. Some distinctions are worth mentioning so that one can understand those considerations.
In addition to differences in liabilities, firms vary in terms of:

1. The activity of the parent to sell its ownership.
2. The number of shareholders required to establish the subsidiary.
3. The percentage of foreigners who can be on the board of directors.
4. The amount of required public disclosure.

5. Whether equity can be contributed by non-capital contribution such as goodwill.
6. The types of business (product) those are eligible.
7. The minimum capital required for establishing the subsidiary.

Notes Before making a decision on a legal operating form, an MNE should analyse all of
these differences in terms of its corporate objectives.

Self Assessment

Fill in the blanks:
7. In a multinational enterprise, the two dimensions of management that must be considered
in the design of the organization structure are …………………….. and ………………. .
8. Shared ownership limits the flexibility of corporate ……………………… .

14.6 Exchange Risk Management

Foreign exchange exposure results in foreign exchange risk due to anticipated variability in
exchange rates. As business becomes increasingly global, more and more firms find it necessary
to pay careful attention to foreign exchange exposure and to design and implement appropriate
strategies to handle such risks. Suppose, for example, that the US dollar substantially depreciates
against the Japanese yen, the change in exchange rate can have significant economic consequences
for both US and Japanese firms.

Example: It can adversely affect the competitive position of Japanese car makers in the
highly competitive US market by forcing them to raise dollar prices of their cars by more than
their US competitors do.

LOVELY PROFESSIONAL UNIVERSITY 271