KEY CONCEPTCertain company and country factors determine whether decisions should be centralized at parent company headquarters or decentralized to the foreign subsidiary. Ignoring those factors will hurt parent and subsidiary financial performance. And fixing the inappropriate decision-making structure could prove costly. Show
IDEA SUMMARYA parent company can either centralize decision-making related to a foreign subsidiary at the parent company headquarters or decentralize those decisions to the subsidiary. Working with two decades worth of data from U.S. multinationals, Leslie Robinson and Phillip Stocken of the Tuck School of Business identified some key factors that determine which is the better choice. At the subsidiary level, the following factors would favor centralized decision-making:
The following factors suggest decentralized decision-making:
At the firm level, vertical integration and extensive parent company experience in the country of the subsidiary would suggest that centralization is a better option. On the other hand, the scale and scope of international business or the inexperience of the parent company in the foreign country would indicate that decentralized decision-making would be more effective. Finally, at the country level, centralized decision-making is recommended for markets with an unstable business environment, as well as a culture of authority. If there is extensive market competition at the lower level, however, decentralization would be called for. By comparing the above factors to the decision-rights allocation of the sample firms, they determined whether there was a mismatch between what the factors suggested would be the right choice on centralization or decentralization of decision-making and the actual choice of the firm. Once they had located such mismatches in their data, Robinson and Stocken used performance results to see if there was a correlation. In other words, they sought to determine if a mismatch translated into poor firm performance. The researchers also analyzed the data to see if or how companies fixed the problem of mismatches. Did they adjust the organizational structure to better fit the environments as defined by the factors listed above? The results of their research show that firm performance is impacted by inappropriate decision-rights allocation. The impact is especially high when decisions are inappropriately decentralized. Whether firms fix the problems, the research reveals, depends on whether the problem is a question of centralization or decentralization. Firms are willing to decentralize decision-making down to the foreign subsidiaries when decisions had been wrongly centralized. The reverse, however, is less common; firms are less likely to take back decision-making from a subsidiary. This is especially true if the subsidiary, despite the mis-allocation, is performing adequately; in this case, the costly medicine may not be worth the cure. BUSINESS APPLICATIONWho makes the decisions is a vital issue for a firm with foreign subsidiaries. Managers must pay close attention to factors, such as vertical integration or high levels of competition in the foreign markets, that suggest whether centralization or decentralization of decision-making is the optimal organizational structure. The wrong structure, especially if decisions are inappropriately decentralized, can be very costly. The research shows, in fact, that while inappropriately centralizing decisions can impact firm performance, decentralizing decisions down to subsidiaries when they should be centralized is a much greater mistake. Not only would the impact be greater on the bottom line, but it is also much more costly to reverse the mistake. Bringing decisions back to the parent company is not easy, and may involve renegotiation of employment contracts, restructuring the location of institutional knowledge, and adjusting accounting and internal control systems — not to mention the organizational political fallout. The ultimate lesson is, therefore, that multinational firms must make their decision-rights allocations carefully, but must tread especially cautiously if they are ready to allow foreign subsidiaries to make the major decisions.
December 02, 2022  Logistics is one of the most sensitive parts of global ecommerce, especially when brands work across borders. Global markets have become accessible thanks to technology, but a truly international supply chain is
easier in theory than reality. Although global e-commerce sales are expected to hit $6.5 trillion in 2023, the challenges of operating an e-commerce business across borders are cumbersome enough to threaten progress drastically. What Are the Advantages of a Decentralized Warehouse Network?Global
events and an unstable economy have put further stress on developing cross-border e-commerce trade. In many cases, retailers have been forced to switch strategies, pivot, and rethink the best uses of their budgets. Pandemic- and politics-driven shifts have been rapid and unpredictable — including transportation delays, customer service deficiencies, new government regulations, and inflation. How Can You Use Decentralized Warehouses for Success?Decentralized warehouses can serve your business well as you embark on a global e-commerce strategy, but how can you utilize this option for the best results? 1. Select your highest-demand locationsStart by reviewing which countries have the highest demand for your current products and where you most need to excel in terms of delivery and customer service. These are the regions in which you should set up a local warehouse. 2. Perform a cost comparisonYour decentralized warehouse network will incur additional storage costs, but you can get ahead by balancing the books now. You can start by obtaining estimates of potential costs across locations and comparing them to your shipping savings. Then, you can also work out your SKU-to-shipping volume ratio to form the best strategy for storing goods across multiple warehouses. 3. Take compliance seriouslyOne of the disadvantages of a decentralized warehouse is that you'll have to take time to understand the government regulations in each location you choose. A more diverse network means you have less control over the daily management of logistics, but if you can set up a great quality control system and processes to ensure compliance, you can take back some of that control. For example, a good first step would be registering for VAT to ensure compliance in VAT-regulated areas. 4. Focus on the human sideCommunication and service will be fundamental in getting your decentralized warehouses to work effectively.
Invest in figuring out the communication channels that are most popular in your chosen location and how consumers use them. You should also invest in the speed and personalization of your customer service content and responses. How many distributors does Regal Marine have?The company, which deals with 150 dealers and distributors worldwide, began exporting its boats in 1976. With the addition of Korea, Morocco and the Philippines this year, Regal Marine has now established a presence in 35 countries.
Which strategy uses subsidiaries franchises or joint ventures with substantial independence?Multidomestic strategy - Uses a decentralized organization, which provides substantial autonomy through the forms of subsidiaries, franchises, or joint ventures with substantial independence. The advantage is maximizing a competitive response for the local market.
Which of the following is the purpose or rationale for an organization's existence Part 2?2. Mission and Strategy. Mission is the purpose or rationale for an organization's existence.
Which of the following is not an advantage of outsourcing quizlet?Advantages of outsourcing do NOT include: gaining outside expertise. cost savings. accessing outside technology.
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Which of the following international operations strategies uses decentralized
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