Management Control in MNCs

Management Control in MNCsConcept of Multinational CorporationsGlobal OrganizationCentralized OperationsProduction in one or two countriesEconomies of scaleExports to other countries

Multinational/ Transnational CorporationOperates in addition to the country ofincorporationDecentralized and independent operationsOperates in more than one country

International CorporationFalls between the two. Depending upon the relative strengths of global and regional pull factorsGlobal pull-Competitive advantage in production, high volume required for cost cuttingRegional Pull-Restrictions on movement of raw materials, Cross Cultural and cross national differences

Cultural DifferencesIndividualism/CollectivismPower DistanceUncertainty Avoidance- budgeting should be more elaborateMasculinity/ FeminityDifferences in Business EnvironmentRisk and uncertainty factorsPolitical risksEconomic RiskExchange Rate InflationLabour AvailabilityLabour Mobility- Rewards may be introducedEvaluation of Managerial PerformanceCurrency FluctuationInflationSubsidies and Taxes

Transfer pricingTaxation A transfer system that results in profits to low- tax countries can reduce total worldwide income taxesGovernment RegulationsIn absence of government regulations, the firm would set prices to minimize taxable income in countries with high tax ratesTariffsThe incidence of tariff is opposite to the incidence of income taxesIncome taxes are of larger amount than tariffs which make income taxes the main driverForeign Exchange ControlsLimit on control of foreign exchange available to importFunds AccumulationSome countries may wish to accumulate funds in one currency rather than the otherJoint VenturesExchange RatesNominalSpotForward Rates