Imagine running a company with branches spread across the globe, each in a different cultural, economic, and regulatory environment. How do you ensure that all these branches align with your company’s strategic goals? This is where strategic control comes into play in multinational corporations (MNCs). In this blog, we’ll dive into the strategic control needs of MNCs and the crucial role of International Human Resource Management (IHRM) in maintaining control over international operations.

What is strategic control in multinational corporations?

Strategic control involves the processes and tools that MNCs use to ensure their international operations align with the overall corporate strategy. Unlike operational control, which focuses on day-to-day activities, strategic control is about steering the company towards its long-term objectives.

The role of IHRM in strategic control

International Human Resource Management (IHRM) is the backbone of strategic control in MNCs. IHRM ensures that the company’s global workforce is aligned with its strategic objectives. This involves recruiting, training, and managing employees across different countries while considering local cultures and regulations.

Traditional output-based control methods

Traditionally, MNCs have relied on output-based control methods to manage their international operations. These methods focus on measurable outcomes such as sales targets, production volumes, and financial performance. While effective to some extent, output-based control methods have limitations, especially in diverse international settings.

• Measurable outcomes: These include key performance indicators (KPIs) like sales, profit margins, and market share.
• Performance reviews: Regular assessments of subsidiaries’ performance against set targets.
• Incentives and penalties: Rewarding subsidiaries that meet targets and imposing penalties on those that don’t.

Beyond traditional methods: Cultural and behavioral control strategies

While output-based controls are essential, they may not suffice in navigating the complexities of international operations. This is where cultural and behavioral control strategies come in.

Cultural control strategies

Cultural control involves instilling a shared set of values, beliefs, and norms across the organization. This unified culture helps ensure that employees in different countries work towards common goals.

• Corporate culture: Developing a strong corporate culture that transcends geographical boundaries.
• Communication: Regular communication of the company’s vision, mission, and values to all employees.
• Training programs: Implementing training programs that emphasize the company’s culture and values.

Behavioral control strategies

Behavioral control focuses on monitoring and guiding employees’ actions to ensure they align with the company’s strategic goals. This can be achieved through various means:

• Standard operating procedures (SOPs): Establishing clear guidelines for tasks and processes.
• Code of conduct: Enforcing a code of conduct that outlines expected behaviors.
• Performance appraisals: Regularly evaluating employees’ adherence to company policies and procedures.

The use of expatriates in strategic control

Expatriates, or employees sent to work in foreign subsidiaries, play a vital role in maintaining strategic control in MNCs. They act as a bridge between the headquarters and the subsidiaries, ensuring that the corporate culture and strategic objectives are upheld.

Why expatriates are important

Expatriates bring several advantages to MNCs:

• Knowledge transfer: They transfer knowledge and skills from the headquarters to the subsidiaries.
• Cultural alignment: They help embed the corporate culture in the subsidiaries.
• Strategic oversight: They provide strategic oversight and ensure that subsidiaries align with the company’s goals.

Challenges of using expatriates

While expatriates are valuable, managing them comes with challenges:

• Cost: Expatriates are expensive due to relocation costs, higher salaries, and benefits.
• Adaptation: They may face difficulties adapting to the local culture and working environment.
• Family considerations: Expatriates’ families may struggle to adjust to the new location.

Integrating control mechanisms effectively

For MNCs to manage their global operations effectively, integrating various control mechanisms is crucial. Here’s how they can do it:

Balanced approach

Striking a balance between output-based, cultural, and behavioral controls is key to effective strategic control. Relying solely on one method may not yield the desired results.

Localized strategies

MNCs should tailor their control strategies to fit the local context. What works in one country may not work in another due to cultural, economic, and regulatory differences.

Continuous improvement

Control mechanisms should evolve with the company’s changing needs and the global environment. Regularly reviewing and updating control strategies ensures they remain effective.

Case study: Tata Group

Let’s take a look at how the Tata Group, an Indian multinational conglomerate, addresses its strategic control needs.

Output-based controls

Tata Group sets clear performance targets for its international subsidiaries. Regular performance reviews and financial assessments help ensure that subsidiaries meet these targets.

Cultural control

Tata Group places a strong emphasis on its core values, which are communicated to all employees. Training programs and regular communication help reinforce these values across its global operations.

Behavioral control

The group has established standard operating procedures and a code of conduct that guide employees’ actions. Performance appraisals ensure adherence to these guidelines.

Use of expatriates

Tata Group deploys expatriates to its international subsidiaries to transfer knowledge, embed the corporate culture, and provide strategic oversight. This helps maintain consistency across its global operations.

Conclusion

Addressing strategic control needs in multinational corporations is a complex but essential task. By integrating output-based, cultural, and behavioral control strategies, and effectively using expatriates, MNCs can ensure that their international operations align with their strategic objectives. The role of IHRM is crucial in this process, as it helps manage the global workforce and maintain consistency across different geographies.

What do you think? How can MNCs balance the need for control with the need for local autonomy? What challenges do you think IHRM faces in maintaining strategic control in diverse international settings?