CONTROLLING OF INTERNATIONAL BUSINESS
There are three main levels at which control can be implemented and managed in an international business. These three key levels of control are as follows:
Strategic control in intended 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.
Strategic control also play a major role in the decisions firms make about foreign-market entry and expansion and most critical aspect of strategic control is control of an international firm’s financial resources.
Organizational control focuses on the design of the organization itself. There are many different forms of organizational design an international firm can use. But selecting and implementing a particular design does not necessarily end the organization design process.
International firm generally use one or more of three types of organizational control systems:
Responsibility Centre Control:
The most common type of organizational control system is a decentralized one called responsibility centre control. Using this system, a firm first identifies fundamentals responsibility centers within the organization. Strategic business units are frequently defined as responsibility centers, as are geographical regions or product groups.
Generic Organizational Control:
A firm may prefer to use generic organizational 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.
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 its uses to develop strategic plans.
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. Thus a firm needs an operation control system within each business unit and within each country or market in which it operates.
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
Set Control Standards for Performance
The first step in establishing an international control system is to define relevant control standards. A control standards in this context is a target, a desired level of performance component the firm is attempting control.
Control standards need to be objective and consistent with firm’s goals. Suppose a firm is about to open its first manufacturing facility in Thailand. It might set the following three control standards for the plant:
Productivity and quality in the new plant will exceed the levels in the firm’s existing plants.
After an initial break-in period, 90% of all key management positions in the plant will be filled by local managers.
The plant will obtain at least 89% of its resources from local suppliers.
Measure Actual Performance
The second step in creating an international control system is to develop a valid measure of the performance component being controlled. For the firm introducing a new product in a foreign market, performance is based on the actual number of units sold. For the new plant in Thailand used as an example earlier, performance would be assessed in terms of productivity, quality, and hiring and purchasing practices.
Compare Performance Against Standards
The next step in establishing an international control system is to compare measured performance against the original control standards. Again, when control standards are straightforward and objective and performance is relatively easy to asses, this comparison is easy. But when control standards and performance measures are less concrete, comparing one against the other is considerably more complicated.
Responding to Deviations
The final step in establishing an international control system is responding to deviations observed in step 3. Three different outcomes can result when comparing a control standard and actual performance:
The control standard has been met.
It has not been met.
It has been exceeded.
Depending on the circumstances, managers have many alternative responses to these outcomes. If a standard has not been met and the manager believes it is because of performance deficiencies on the part of employees accountable for the performance, the manger may mandate higher performance, increase incentives to perform at a higher level, or discipline or even terminate those employees.
Essential Controlling Techniques
Because of the complexities of both the international environment and international firms themselves, those firms rely on a wide variety of different control techniques. We do not describe them all here but introduce a few of the most important ones.
Accounting is a comprehensive for collecting, analyzing, and communicating data about firm’s financial resources. Accounting procedures are heavily regulated and must follow
prescribed methods dictated by national government. Because of these regulations and systems accounting process can be a good controlling techniques.
Firms also use various procedures to maintain effective control. Policies, standard operating procedures, rules, and regulations all help managers carry out the control function.
International firms also use various performance rations to maintain control. A performance ratio is a numerical index of performance that the firm wants to maintain. A common performance ration used by many firms is inventory turnover. Holding excessive inventory is dysfunctional because the inventory ties up resources that could otherwise be used for different purposes and because the longer materials sit in inventory, the more prone they are to damage and loss.
Controlling Quality in International Business
Control also helps firms maintain and enhance the quality has become such a significant competitive issue in most industries that control strategies invariably have quality as a central focus.
Quality is a vital importance for several reasons:
Many firms today compete on the basis of quality.
Quality is important because it is directly linked with productivity.
Higher quality helps firms to develop and maintain customer loyalty.
Quality consist of eight dimensions:
Performance: comprises the product’s primary operating characteristics, such as, an automobile’s ability to transport its driver.
Features: include supplementary characteristics, such a power window on an automobile.
Reliability: refers to the dependability of a product, such as the probability of an automobile’s starting.
Conformance: is how well the product meets normal standards.
Durability: refers to the product’s expected lifespan.
Serviceability: refers to how fast and easily the product can be repaired.
Aesthetics: refers to how the product looks, feels, tastes, and/or smells.
Perceived quality: is the level of quality as seen by the customer.
Quality Improvement Tools
Statistical process control: is a family of mathematically-based tools for monitoring and controlling quality. Its basic purpose is to define the target level of quality, specify an acceptable range of deviation, and then ensure that product quality is hitting the target.
Benchmarking: is the process of legally and ethically studying how other firms do something in high-quality way and then either imitating or improving on their methods.
Total Quality Management (TQM): is an integrated effort to systematically and continuously improve the quality of an organization’s products and /or services. The components of TQM are – strategic commitment to quality, employee involvement, high-quality materials, up-to-date technology, and effective process.
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