Centralization versus decentralization in transnational corporations
A key determinant of the way international operations are organized is the degree to which the environment calls for global integration (centralization) versus regional responsiveness (decentralization). Centralization reaps economies of scale and provides an integrated marketing profile to channel intermediaries who themselves may be international, and customers who are increasingly geographically mobile. Confusion over production formulations, advertising approaches, packaging design and labelling, and pricing is eliminated by a coordinated approach. (However, too much centralization can lead to the not invented here syndrome, where managers in one country are slow to introduce products that have been successful in others, or fail to fully support advertising campaigns that have been conceived elsewhere.)
Decentralization maximizes customization of products to regional tastes and preferences. Since decentralized decision-making is closer to customers, speed of response to new opportunities is quicker than with a centralized organizational structure. Relationships with the trade and government are facilitated by local decision-making.
Many companies feel the pressure of both sets of forces, hence the development of the transnational corporation. European integration has led many companies to review their overseas operations with the objective of realizing global economies wherever possible. European centralized marketing teams carry the responsibility for looking at the longer-term strategic picture alongside national marketing staff who deal less with advertising theme development and brand positioning and more with handling retailer relationships. The result is loss of responsibility and power
for national marketing managers. This is a sensitive issue and many companies are experimenting with the right blend of centralization and national power. Desire to preserve national identity and resentment of centralized European interference can run deep.
One British company, owned by a German parent for more than a decade, still battled to preserve its national identity by holding its own formal board meetings and publishing its own separate annual report. When Pampers was launched across Europe by Procter & Gamble, an employee found that “as soon as it was known that I was from the European Technical Centre, my local support dried up.”
COMPREHENSION: TRUE/FALSE EXERCISE
Circle the correct choice and justify your answer
1)In a centralized organization, the coordination of business activities and encourages inefficiencies. T □ F □
2)In a decentralized business, local managers can react to changes in customer behaviour more quickly. T □ F □
3)In a multinational enterprise, there is a need for a centralized rather than a decentralized approach. T □ F □
4)In some European multinational companies, marketing managers deal with long-term strategies on advertising for example, while national marketing managers deal with day-to-day contacts with local retailers. T □ F □
5)To avoid losing control of their subsidiaries, European multinational firms are reinforcing their power of centralization. T □ F □
6)Some European subsidiaries refuse being centrally controlled by their parent companies. T □ F □
7)When the idea of launching a new product comes from head office, managers in the subsidiaries are always enthusiastic in marketing the product. T □ F □
8)In a centralized business, there is more responsibility and power for local managers. T □ F □
9)Formal board meetings are normally held at headquarters. T □ F □
10)Achieving a fair balance between centralization and decentralization is the best recommendation for MNEs.T □ F □
VOCABULARY
Which terms in the text do the following sentences or expressions refer to?
1)It is a document large companies publish once a year which consists of a chairman’s statement, statement of profit and loss account and an auditor’s report.=
2)Directors gather on these occasions and discuss matters of importance to the company. =
3)Individuals or firms operating between producers and ultimate consumers. They can be wholesalers or retailers. =
4)Reluctance by local managers to introduce policies or products made elsewhere. =
5)Subsidiaries, branches, offices or other activities MNEs have far away from the home country=
6)Ability to react or make decisions locally in line with developments in the local environment. =
7)Ensuring that company activities across frontiers are standardized and harmonized. =
8)Designing, developing and marketing products.=
9) A delicate topic to talk about. =
10) Feeling of anger or dislike. =
GRAMMAR: NOUN FORMATION
Complete the following sentences with nouns formed from the following verbs: cannibalise, centralise, commercialise, customise, decentralise, globalise, harmonise, organise, specialise, standardise
1) ...... are developed around the principle that work is done more efficiently when employees specialize.
2) Companies can put in case some sort of ...... by region or type of customer.
3) Many MNEs implement policies of ...... hoping that they can recruit more capable employees.
4) The ...... costs of the means of production and services are sometimes high.
5) The development of Information Technology has shifted the balance towards ...... as improved communications have enhanced coordination amongst staff.
6)The...... of products is a luxury most customers cannot afford.
7) The trend towards increased integration of business activities throughout the world is known as ......
8) ...... is achieved when managers succeed in publishing instructions that workers must follow.
9) Companies expanding extensively such as Richard Branson's Virgin company run the risk of...... , a situation in which a new brand gains sales to the detriment of an established brand.
10) The marketing department of the company is in charge of developing effective ...... strategies for new products.
ASSIGNMENT: The sentences below are arguments for centralization or decentralization. Sort them out. Write C in the space provided if you think the argument is in favour of centralization andD if it is for decentralization.
1)prevents parts of a company from becoming too independent and thus making decisions which might not fit in with the firm's policies ( )
2) provides staff with more authority ( )
3) makes coordination and management control easier ( )
4) makes it possible for a company to have a common policy ( )
5) gives employees a chance to broaden their experience ( )
6) improves economies of scale and reduces overheads. ( )
7) improves the speed of decision-making ( )
8) improves the morale and motivation of staff who havegreater ability to make decisions affecting their activities ( )
9) enables decisions to be made at a level which is closer to the point where they are needed ( )
10) allows more flexibility ( )
IN THE NEWS: Cultural diversification
In hiring for the top spot,Europeans are going global
1)What is the traditional policy of European MNEs on the appointment of top managers?
2)Why is the appointment of José Luis Duran typical of a change in this policy? What other examples are found across Europe?
3)How do you understand the words “diversification” and “tropicalization” as used in the text?
4)What role can cross-cultural managers play in European MNEs as they face the challenges of globalization?
5)Does the appointment of cross-cultural managers by European MNEs help or hinder the policies of centralization and/or decentralization?