Question

Subject Name:Multinational management
Why MNCs vary their control over their foreign subsidiaries?
As mentioned in this lesson, MNCs vary their control over their foreign subsidiaries.
Please say something about your views on this issue. Under what circumstances will the MNC control its foreign subsidiaries more tightly?
Under what circumstances will the MNC have loose control over foreign subsidiaries?

Answer 1

An MNC is a company that has established its operations in at least one country apart from its own. They have production facilities as well as retail stores in other countries. Multinationals usually make the decision to own or form smaller companies or subsidiaries in other countries because of various reasons. It may be due to the ease in doing business in those countries or the ease in the production of certain goods.

An MNC has to take many factors into consideration before deciding the extent of control that it needs to exercise on its subsidiary. It is often difficult to successfully penetrate and run operations in a foreign market due to differences in the social, cultural, economic, and political environment of the foreign country. In a risky business environment, an MNC tends to lessen its control as the subsidiaries are better informed about the business environment of their country and are better equipped to tackle such instabilities. Hence before exercising tight control on a subsidiary, the MNC should introspect its international experience and its capabilities. An MNC that doesn’t have sufficient experience in the international market finds it better to exercise less control over its subsidiaries while an experienced firm generally chooses to tighten its control.

Apart from experience, another factor that a firm considers before exercising control is its Brand value and reputation. A huge brand has an equally huge responsibility of maintaining its reputation in the global marketplace. Hence it cannot afford to give full control of its operations to the subsidiaries, as any error or incompetence from the subsidiary will reflect on the parent company. Therefore, a formidable brand with its reputation at stake will refrain from taking any risks and will exercise tight control over its subsidiaries.