Control Mechanisms - International Business Management

What are control mechanisms in International business?

For any business, control mechanisms are crucial. Control is very essential with respect to the role played by the manager, and for achieving the goals as desired and planned. The goals are being achieved as the decision-making process and performance of the organization is influenced by the instruments being provided by the control mechanisms. For all the organizational activities in attaining the expected results, certain regulations are applied, which is known as control.

With respect to the functions, attributes of the product and geographic, and strategic and financial objectives, control mechanisms can be set.

What are the different objectives of Control?

The main objectives behind incorporating a control mechanism are as follows -

• The top management can be provided with hints and ideas for better managing, evaluating and monitoring the objectives in order to achieve the goals of the organization.
• Hints and ideas can be obtained with which the units can coordinate properly and common objectives can be achieved.
• The performance of the managers can be evaluated.

Management Control defined in the words of Henri Fayol is –

Monitoring of the activities to ensure that the activities are as planned and the orders are properly given according to the laid out principles. The main objective of management control is to identify the mistakes if any and rectify and also prevent the recurrence of the mistakes.

What are the different types of Control Mechanisms?

The control can be performed by using various modes. Some of the most effective methods of control are as follows -

Personal Controls

By maintaining personal relations with the subordinates, the person control mechanism can be practices. Mostly small business practice these personal controls such that the operations of the employees can be managed by direct supervision. In Multinational companies, personal controls help in building the relationships between managers with other employees of the organization. The way in which the subordinates behave can be influenced by setting up the personal control policies.

Bureaucratic Controls

The international businesses which are inbuilt with bureaucracy usually follow the bureaucratic controls. The functioning and actions of the sub-units are being influenced by some of the rules and procedures laid out by this mechanism.

For spending of capital, certain rules have been formulated which requires the prior approval of the top management for the capital to be spent.

Output Controls

Certain goals have been formulated with respect to the subordinates in such a manner that subordinates working in different departments achieve the output as targeted. These goals set are known as output controls.

The output controls are measured on the basis of some of the parameters such as productivity, profitability, market share, product quality etc.

Cultural Controls

The output and profitability can be achieved by maintaining a proper corporate culture. Therefore it becomes very essential to measure the efficiency of the business and hence cultural controls become important.

The cultural control rules that are being set enable an employee to self-control the behaviour thus the work of the superiors with regard to supervision is reduced, thus reducing the requirement of other control mechanisms.

What are the different approaches to Control Mechanisms?

A business can be controlled by following different approaches. Some of such approaches to control the business are as follows -

Market Approach

The control mechanism is formed and the management behaviour depends on the external market forces. The business organizations which have a decentralized culture usually practice the market approach. Market approach facilitates in easy negotiations for the transfer prices. The different market forces direct and govern the decision-making process in this approach.

Rules Approach

The organization that is rules-oriented where the rules and procedures are followed for the purpose of decision-making applies this rules approach. This approach requires a developed plan along with a budget system. The combination of both the input and output controls are used by this rules approach.

Corporate Culture Approach

A set of values are being built for the employees to achieve the goals internationally by the business that follow the corporate culture approach. The operations of the business are mostly influenced by this corporate culture approach. Some of the organizations tend to be more informal and lack explicit in spite of practicing the corporate culture approach. The corporate culture approach does not accept the change quickly.

Reporting Culture

One of the most powerful control mechanisms is reporting culture. When the resources are distributed and when the performance of the business and employees has to be monitored and reviewed by the top management, reporting culture is used. This control mechanism usually involves rewards for the employees. But this control mechanism tends to be more successful only when the reports have correct and accurate information.

Visits to Subsidiaries

By visiting to subsidiaries, the control can be done but one major disadvantage is that all the required information cannot be exchanged y this control mechanism. In order to better under the local management the corporate staff usually practice this approach. By visiting, information about the business can be gathered and accordingly can be advised.

Management Performance Evaluation

The subsidiary managers are evaluated on their levels of performance by the management performance evaluation approach. The mina limitation of this approach is that only some of the aspects can be controlled and not all the aspects. This kind of approach is best suited for the economic and political environment which is more risky.

Cost and Accounting Comparisons

As different units differ in their pattern of expenditure, the cost and accounting comparison approach is being practiced. In order to meet with the local reporting requirements, the rules are set that are applicable to the home country.

What are the constraints of different control approaches?

The different mechanisms lack uniformity in different countries. The business that is going global need to modify the control mechanisms that best suits that particular country. Some of the major constraints which are being faced by the organizations by setting different control mechanisms are as follows -

• Distance – One of the major constraints for control mechanism is the geographical distance that leads to cultural differences. The human communication has been transformed into email and fax and thus the very definition of the distance is changed.
• Diversity – Diversity makes it impossible to apply a common control system throughout the country. The local needs can be addressed by the managers who have to be appointed locally. Diversity may be in the aspects of cost, currency, labour, business standards etc.
• Degree of Uncertainty – There are chances of data being incomplete and inaccurate. This makes the task of control mechanism more challenging. The uncertainty of data enables the control mechanisms in setting goals.