Question

How might centralization of decision making adversely affect local managers in an MNE?

Answer 1

Centralization decision making is a hierarchical structure of decision making that can be based on the basis of rank, experience, seniority, etc of the company. It can result in cost-efficient, uniformity, better coordination and command along with enhanced work quality and goal-oriented command.

But at times centralization might affect the people who are at the receiver side or at the bottom of the pyramid. Local managers who are at the bottom of the chain are adversely affected by centralized decision making as

• It is not necessary that decision making is inclusive. As the local managers might face the lack of strategic action taken at ground-level according to their need as aspiration. Eg- If Walmart decided to introduce tuna fish in an area where demand is less then this may back-fire
• This leads to another problem of uniformity of decision making. MNC has a competitive advantage with a local product on the basis of its product quality at less price. But if they introduce a product which is not required in an area then it would result in loss.
• This loss further leads to dis-economies of scale as they might have gained a lot when they had area based specialization each local manager had the autonomy to report for its product.
• In fact at times of adverse impact, the experience and knowledge of local managers are useful.
• This further leads to the organisational burden which could have avoided if local managers have been involved. This will also lead to greater profit.

Although it has some criticism of duplication of cost, a problem in getting consistency.

But it is often said that diversity thrives in adverse time. Hence one should allow more inclusive policies in decision making for the holistic growth of MNCs.