LOCATION OF DECISION MAKING
LOCATION OF DECISION MAKING
Any firm must determine where decisions will be made on such diverse questions as product policy, the acquisition of funds, and placement of liquid assets. The higher the level within the organization decisions are made, the more they are considered to be centralized; the lower the level, the more they are decentralized. The centralization-decentralization question may be addressed either from the standpoint of the company as a whole or from some part of it, such as within a particular subsidiary operation. This discussion will not cover the latter; rather, it will highlight the relationship of the country-level operations to other parts of the international company, such as headquarters, regional offices, or other subsidiaries. For purposes of this discussion, decisions made at the foreign subsidiary level are considered to be decentralized, whereas decisions made above the foreign subsidiary level are considered centralized. There are opposing pressures for centralization and decentralization; consequently, policies must be adapted to the firm's unique situation.
Complete centralization and decentralization may be thought of as the extremes. In actuality, companies neither centralize nor decentralize all decisions; instead, they vary policies according to the type of question and the particular circumstances involved. The location of decision making may vary within the same company by product, by function, and by country. In addition, actual decision making is seldom as asymmetrical as it may appear on the surface. In other words, although a manager may have decision-making authority, that manager may consult and reach consensus with other managers before exercising the authority. In spite of these differences and subtle-
ties, the following section focuses on the rationale for locating decision control at either the corporate or the subsidiary level. Once these motivations are clear, it is easier to comprehend such elements as organization structure, planning, and evaluation, which parallel the basic centralization or decentralization philosophy.
Corporate Efficiency Factors
Cost and Expediency Although corporate personnel may be more expe-
rienced in advising or actually making certain decisions, the time and expense
involved in centralization may not justify the so-called better advice. Many decisions cannot be put off. Some headquarters' decisions could not effectively be made without face-to-face communication with subsidiary managers or on-the-spot observation. Bringing in corporate personnel may not be warranted.
The distance of foreign operations from headquarters is also a factor to consider. For U.S. subsidiaries in either Canada or Mexico, the time and cost of communications with the parent are low in comparison with subsidiaries located in a more remote country such as the Philippines. The Philippine manager may be forced to make decisions on matters for which the Canadian and Mexican managers get corporate assistance.3 However, with advances in communications and transportation, the distance factor is becoming less important.
Resource Transference Both product and production factors may be moved from a company's operations in one country to its facilities in another.
The movement may be in the best interest of corporate goals, although indi-vidual subsidiaries may not do as well if resources are transferred. Decisions
involving these relationships usually are made centrally because they require information from all operating units and the ability to mesh the various data to achieve overall corporate objectives. These relationships may involve many different types of decisions, but a few examples should suffice to explain the need for centralization.
Frequently, corporate profits may be improved by moving production factors—capital, personnel, or technology—from one subsidiary to another. Without some central control point, reports would have to be disseminated from every unit to every other unit to determine the resource from one locale that could be used elsewhere. Similarly, if exports among subsidiaries are needed to maintain a continual production flow (e.g., vertical integration or interdependent components needed in the company's end product), centralized control may be required to assure this flow. Another centralized decision may be exports to nonaffiliated companies that involve jurisdictional questions. For example, if a firm has manufacturing facilities in the United States, Venezuela, and Germany, which facility will export to South Africa? By answering that question centrally, the firm may avoid price competition among the subsidiaries that could result in reduced corporate income. Furthermore, a number of different factors can be considered, including production costs, transportation costs, tax rates, exchange controls, and capacity utilization.
Economies and Interrelationships Through Standardization Even though worldwide uniformity of products, purchases, methods, and policies
may not be best for an individual operation, the overall gain may be more than sufficient to overcome the individual country losses. Standardization of machinery used in the production process, for example, may result in a more favorable purchasing price for the firm as a whole because of quantity discounts. This also may bring savings in the training of mechanics, in maintaining manuals, and in carrying inventories of spare parts. The firm may consider economies in almost any type of corporate activity, such as advertising programs, R&D, and purchase of group insurance. Uniformity of products also gives a firm greater flexibility in filling orders when supply problems arise because of strikes, disasters, or sudden increases in demand. Production can simply be expanded in one country to meet shortages elsewhere.
Another argument for adhering to like policies globally is to ensure that foreign operations do not veer so drastically from the overall line or method of business that control is completely lost. If units in different countries alter products, policies, and methods even gradually but in different directions, the eventual diversity may be so great that economies are no longer possible and the personnel, products, and ideas can no longer be interchanged easily.
Increasingly, the people with whom a firm must deal (governmental officials, employees, suppliers, consumers, and the general public) are aware of what that firm does in other countries where it operates. Concessions that have been easily granted in one country may then be demanded in other countries, where they are not afforded as easily. Suppose that, for public-relations purposes, the management in one country decided to give preferential prices to the government and established a profit-sharing plan for employees. If the governmental officials and employees in a second country were to ask for similar treatment, the result may be reduced profits through compliance or poor public relations through noncompliance.
Even internal pricing and product decisions can affect demand in other countries. With the growing mobility of consumers, especially industrial consumers, a good or bad experience with a product in one country may eventually affect sales elsewhere. This is especially true if industrial consumers themselves want uniformity in their end products. If prices differ substantially among countries, consumers even may find that they can import more cheaply than they can buy locally.
Global Competitive Strategies A company needs to determine whether it is better off trying to emphasize country-by-country competitive positions or an integrated global position. In addition to the question of standardized versus differentiated products among countries, the firm must consider a number of other factors. One is whether large-scale production of components and finished goods can be exported so that costs can be reduced to buyers in various countries. The nature of the production process, transportation costs, and government import restrictions all affect the production integration advantages.
The present and potential existence of global customers and/or competitors also may dictate decisions to improve global performance at the expense of a particular country's operations. Price concessions to an automobile manufacturer in Brazil, for example, may help gain business for the supplier in other countries where the buyer manufactures automobiles. A company also may attack a competitor by producing and selling where that competitor gains its major resources to compete globally.
Competence Arguments
Since a condition for delegating authority is the belief that those selected will act responsibly, the perception of local managers' competence will determine to a great extent the courses of action they can pursue. Although there are rational factors affecting the belief of relative capability, it has been noted that too often unrealistic attitudes lead to excessive control delegated to either the corporate or the subsidiary managers. Unrealistic attitudes include, say, a belief that only the on-the-spot person knows the situation well enough to make a decision or a perception that corporate managers are the only individuals capable of handling decisions.
Caliber and Local Conditions Since the local management is usually in a much better position to know what will and will not work locally, they are normally given greater latitude when local conditions are perceived as being significantly different from conditions in the home country. For example, the corporate managers of a U.S. company will probably feel more competent about dictating practices to a Canadian subsidiary than to a Mexican subsidiary, since the former is presumed to parallel successful U.S. operations more closely. Yet local conditions may be more important for some functions than others. Nestle", for example, decentralizes most of its marketing decisions because they need to be adjusted to local needs; however, foreign-exchange decisions are centralized because of the importance of examining global conditions.
Other things would seem to dictate different approaches to local managers. Factors that would appear to favor decentralization include: when the local management team is large rather than lean, when local managers have worked a long time with the company, and when they have developed a successful track record. These factors seem to favor altering the location of decision making among country operations in different countries.4
Product Factors The product itself may determine the relative competence of the centralized staff versus the local managers. For technically sophisticated products there is usually little need for local adaptations; consequently, at least for marketing policy, decisions may be made that apply to a very broad spectrum of countries. A good contrast is between Nestle's food products, which depend on geographic differentiation, and G.E.'s power generation and jet engine businesses, which are big-ticket products that require very little adaptation to local needs. The former lend themselves much more to decentralization than the latter. Also, many products are first introduced in the largest market, and then later they are introduced to smaller markets when the country of original entry is in a later stage of the product life cycle. In such instances the centralized staff often asserts control in order to ensure that the same mistakes are not repeated in more than one country. If product technology changes rapidly, there is usually a much greater need for headquarters involvement than if the product technology remains stable for a long period of time.
Time and Size Variables Usually, the longer a company operates in overseas markets, the larger its foreign sales and the greater experience it has in dealing with foreign problems. The size of total foreign operations as well as the size of operations in individual foreign countries both exert influence on the location of decision making. Increased centralization is feasible when a corporate staff that is large enough and qualified enough has developed. The company with very limited foreign operations cannot afford this centralized expertise and must therefore delegate decisions to the operating managers abroad. However, if the specific foreign country operation is very large, such as Nestle's U.S. subsidiary, then that operation can afford to have its own specialized staff personnel and may be treated differently than smaller country operations, such as Nestle's subsidiary in Belize.
Importance of the Decision Any discussion of location of authority must consider the importance of the particular decisions. The question sometimes asked is, "How much can be lost through a bad decision?" The greater the potential loss, the higher in the organization the level of control usually is. In the case of marketing decisions, for example, local autonomy over product design is not nearly as prevalent as over advertising, pricing, and distribution. Product design generally necessitates a considerably larger capital outlay than the other functions; consequently, the potential loss through a wrong decision is higher. Furthermore, advertising approaches, pricing, and distribution decisions may be more easily reversed if an error in judgment is made. Rather than delineation of the type of decision that can be made at the subsidiary level, limits may be set instead on expenditure amount, thus allowing local autonomy on small outlays while requiring corporate approval on larger transactions.
Decentralization Considerations
Using Subsidiaries Effectively The development of standardized practices headquarters should generate all the information nec-essary for decision making. In fact, if the subsidiaries' viewpoints are ignored,
the company may not develop the best types of cross-national or standardized programs. Furthermore, good local managers may gravitate to other firms where they feel they can play a more important role. Procter & Gamble (P&G), for example, had allowed its European country operations nearly total autonomy in adapting technology, products, and marketing approaches. In order to capture Europewide scale economies, P&G put one office in charge of the strategy for all of Europe, ignoring local knowledge, underutilizing subsidiary strength, and demotivating subsidiary managers. P&G has since moved to greater standardization with other brand-management activities; however, this has been led by teams representing the subsidiary operations. In another case, EMI, a U.K.-based company, used feedback only from the U.K. market to determine how its central laboratory would seek to improve its CAT scanners—through better image resolution. This ignored the larger U.S. market, where a different improvement, shorter scan times, was preferred. When GE came out with a shorter scan time, it captured the U.S. market and got better scale economies than EMI. EMI started losing money and had to accept a takeover bid.5
National Rather Than International Strategies Although the development of a global strategy offers many advantages, there are circumstances in which subsidiaries cannot reasonably be brought into this scheme. This occurs, for example, in products associated with uniquely national taste preferences.6 In other situations, subsidiaries may be prevented from being a full part of a global network because governmental protectionism isolates them from competitive threats.7 In such situations, corporate strategic control may be less appropriate than national control.
Local Performance Considerations Although some decisions clearly can be made efficiently at the corporate level, this technical efficiency must be ,, weighed against morale problems created when responsibility is taken away
from the local management team. When local managers are prevented from acting in the best interest of their own operation, they tend to think, "I could have done better, but corporate management would not let me." These managers may lose commitment to their jobs and may not gain the experience needed to move into jobs of even greater responsibility. Lack of commitment may be overcome through development of a reward system that does not penalize managers for decisions that are outside of their control. In fact, a compensation system that rewards local managers partially on the basis of the corporation's total worldwide performance may enhance the development of global thinking at each country level.
Dependency Many critics within the LDCs have contended that the cen- tralization of decision making by MNEs is leading to an ever-increasing move-
ment of management and technical functions to the home country, leaving
the menial and low-skilled jobs in the LDCs. The critics recall colonial eras in which their own people were forbidden responsible positions and were dependent on the colonial powers for the control of their destinies.8 They have been particularly disparaging about the facts that very little R&D by MNEs is done outside of their home countries and that of that portion, almost all is done in other industrial countries.9 This presents dilemmas for MNEs. There are some potent arguments for
centralizing most R&D in home countries, such as the availability of large
numbers of people to work directly for the company, the proximity to private
research organizations and universities doing related work, and the general advantages of centralized authority for less duplication of efforts.
Recall that in the Nestle case new product R&D was done in Switzerland to reduce duplication and to be close to the strategic planners who projected product needs further into the future than could country managers, who were more concerned with day-to-day operations. Nestle" did allow country areas the freedom to conduct adaptive R&D but controlled this carefully by requiring corporate approval of the adaptations. Thus even when the corporation allows adaptive or new product R&D to be carried out abroad, the corporate management may exert substantial influence on it. MNEs with substantial R&D outside the home country seldom allow the foreign affiliate complete autonomy. The corporate management may allocate budgets, approve plans, and offer suggestions. At the same time there may be substantial input from affiliates for R&D conducted centrally.10
By giving groups of overseas employees a great deal of autonomy in certain areas, an international company may be able to attract a high calibre of personnel who might not wish to work in the firm's home country. For example, IBM scientists at its small Zurich laboratory won the Nobel prize for physics in two consecutive years. There are many ways that certain subsidiaries may be given autonomy over certain activities, such as the development of a specific product, a specific technology, or the conduct of certain market testing.
Any firm must determine where decisions will be made on such diverse questions as product policy, the acquisition of funds, and placement of liquid assets. The higher the level within the organization decisions are made, the more they are considered to be centralized; the lower the level, the more they are decentralized. The centralization-decentralization question may be addressed either from the standpoint of the company as a whole or from some part of it, such as within a particular subsidiary operation. This discussion will not cover the latter; rather, it will highlight the relationship of the country-level operations to other parts of the international company, such as headquarters, regional offices, or other subsidiaries. For purposes of this discussion, decisions made at the foreign subsidiary level are considered to be decentralized, whereas decisions made above the foreign subsidiary level are considered centralized. There are opposing pressures for centralization and decentralization; consequently, policies must be adapted to the firm's unique situation.
Complete centralization and decentralization may be thought of as the extremes. In actuality, companies neither centralize nor decentralize all decisions; instead, they vary policies according to the type of question and the particular circumstances involved. The location of decision making may vary within the same company by product, by function, and by country. In addition, actual decision making is seldom as asymmetrical as it may appear on the surface. In other words, although a manager may have decision-making authority, that manager may consult and reach consensus with other managers before exercising the authority. In spite of these differences and subtle-
ties, the following section focuses on the rationale for locating decision control at either the corporate or the subsidiary level. Once these motivations are clear, it is easier to comprehend such elements as organization structure, planning, and evaluation, which parallel the basic centralization or decentralization philosophy.
Corporate Efficiency Factors
Cost and Expediency Although corporate personnel may be more expe-
rienced in advising or actually making certain decisions, the time and expense
involved in centralization may not justify the so-called better advice. Many decisions cannot be put off. Some headquarters' decisions could not effectively be made without face-to-face communication with subsidiary managers or on-the-spot observation. Bringing in corporate personnel may not be warranted.
The distance of foreign operations from headquarters is also a factor to consider. For U.S. subsidiaries in either Canada or Mexico, the time and cost of communications with the parent are low in comparison with subsidiaries located in a more remote country such as the Philippines. The Philippine manager may be forced to make decisions on matters for which the Canadian and Mexican managers get corporate assistance.3 However, with advances in communications and transportation, the distance factor is becoming less important.
Resource Transference Both product and production factors may be moved from a company's operations in one country to its facilities in another.
The movement may be in the best interest of corporate goals, although indi-vidual subsidiaries may not do as well if resources are transferred. Decisions
involving these relationships usually are made centrally because they require information from all operating units and the ability to mesh the various data to achieve overall corporate objectives. These relationships may involve many different types of decisions, but a few examples should suffice to explain the need for centralization.
Frequently, corporate profits may be improved by moving production factors—capital, personnel, or technology—from one subsidiary to another. Without some central control point, reports would have to be disseminated from every unit to every other unit to determine the resource from one locale that could be used elsewhere. Similarly, if exports among subsidiaries are needed to maintain a continual production flow (e.g., vertical integration or interdependent components needed in the company's end product), centralized control may be required to assure this flow. Another centralized decision may be exports to nonaffiliated companies that involve jurisdictional questions. For example, if a firm has manufacturing facilities in the United States, Venezuela, and Germany, which facility will export to South Africa? By answering that question centrally, the firm may avoid price competition among the subsidiaries that could result in reduced corporate income. Furthermore, a number of different factors can be considered, including production costs, transportation costs, tax rates, exchange controls, and capacity utilization.
Economies and Interrelationships Through Standardization Even though worldwide uniformity of products, purchases, methods, and policies
may not be best for an individual operation, the overall gain may be more than sufficient to overcome the individual country losses. Standardization of machinery used in the production process, for example, may result in a more favorable purchasing price for the firm as a whole because of quantity discounts. This also may bring savings in the training of mechanics, in maintaining manuals, and in carrying inventories of spare parts. The firm may consider economies in almost any type of corporate activity, such as advertising programs, R&D, and purchase of group insurance. Uniformity of products also gives a firm greater flexibility in filling orders when supply problems arise because of strikes, disasters, or sudden increases in demand. Production can simply be expanded in one country to meet shortages elsewhere.
Another argument for adhering to like policies globally is to ensure that foreign operations do not veer so drastically from the overall line or method of business that control is completely lost. If units in different countries alter products, policies, and methods even gradually but in different directions, the eventual diversity may be so great that economies are no longer possible and the personnel, products, and ideas can no longer be interchanged easily.
Increasingly, the people with whom a firm must deal (governmental officials, employees, suppliers, consumers, and the general public) are aware of what that firm does in other countries where it operates. Concessions that have been easily granted in one country may then be demanded in other countries, where they are not afforded as easily. Suppose that, for public-relations purposes, the management in one country decided to give preferential prices to the government and established a profit-sharing plan for employees. If the governmental officials and employees in a second country were to ask for similar treatment, the result may be reduced profits through compliance or poor public relations through noncompliance.
Even internal pricing and product decisions can affect demand in other countries. With the growing mobility of consumers, especially industrial consumers, a good or bad experience with a product in one country may eventually affect sales elsewhere. This is especially true if industrial consumers themselves want uniformity in their end products. If prices differ substantially among countries, consumers even may find that they can import more cheaply than they can buy locally.
Global Competitive Strategies A company needs to determine whether it is better off trying to emphasize country-by-country competitive positions or an integrated global position. In addition to the question of standardized versus differentiated products among countries, the firm must consider a number of other factors. One is whether large-scale production of components and finished goods can be exported so that costs can be reduced to buyers in various countries. The nature of the production process, transportation costs, and government import restrictions all affect the production integration advantages.
The present and potential existence of global customers and/or competitors also may dictate decisions to improve global performance at the expense of a particular country's operations. Price concessions to an automobile manufacturer in Brazil, for example, may help gain business for the supplier in other countries where the buyer manufactures automobiles. A company also may attack a competitor by producing and selling where that competitor gains its major resources to compete globally.
Competence Arguments
Since a condition for delegating authority is the belief that those selected will act responsibly, the perception of local managers' competence will determine to a great extent the courses of action they can pursue. Although there are rational factors affecting the belief of relative capability, it has been noted that too often unrealistic attitudes lead to excessive control delegated to either the corporate or the subsidiary managers. Unrealistic attitudes include, say, a belief that only the on-the-spot person knows the situation well enough to make a decision or a perception that corporate managers are the only individuals capable of handling decisions.
Caliber and Local Conditions Since the local management is usually in a much better position to know what will and will not work locally, they are normally given greater latitude when local conditions are perceived as being significantly different from conditions in the home country. For example, the corporate managers of a U.S. company will probably feel more competent about dictating practices to a Canadian subsidiary than to a Mexican subsidiary, since the former is presumed to parallel successful U.S. operations more closely. Yet local conditions may be more important for some functions than others. Nestle", for example, decentralizes most of its marketing decisions because they need to be adjusted to local needs; however, foreign-exchange decisions are centralized because of the importance of examining global conditions.
Other things would seem to dictate different approaches to local managers. Factors that would appear to favor decentralization include: when the local management team is large rather than lean, when local managers have worked a long time with the company, and when they have developed a successful track record. These factors seem to favor altering the location of decision making among country operations in different countries.4
Product Factors The product itself may determine the relative competence of the centralized staff versus the local managers. For technically sophisticated products there is usually little need for local adaptations; consequently, at least for marketing policy, decisions may be made that apply to a very broad spectrum of countries. A good contrast is between Nestle's food products, which depend on geographic differentiation, and G.E.'s power generation and jet engine businesses, which are big-ticket products that require very little adaptation to local needs. The former lend themselves much more to decentralization than the latter. Also, many products are first introduced in the largest market, and then later they are introduced to smaller markets when the country of original entry is in a later stage of the product life cycle. In such instances the centralized staff often asserts control in order to ensure that the same mistakes are not repeated in more than one country. If product technology changes rapidly, there is usually a much greater need for headquarters involvement than if the product technology remains stable for a long period of time.
Time and Size Variables Usually, the longer a company operates in overseas markets, the larger its foreign sales and the greater experience it has in dealing with foreign problems. The size of total foreign operations as well as the size of operations in individual foreign countries both exert influence on the location of decision making. Increased centralization is feasible when a corporate staff that is large enough and qualified enough has developed. The company with very limited foreign operations cannot afford this centralized expertise and must therefore delegate decisions to the operating managers abroad. However, if the specific foreign country operation is very large, such as Nestle's U.S. subsidiary, then that operation can afford to have its own specialized staff personnel and may be treated differently than smaller country operations, such as Nestle's subsidiary in Belize.
Importance of the Decision Any discussion of location of authority must consider the importance of the particular decisions. The question sometimes asked is, "How much can be lost through a bad decision?" The greater the potential loss, the higher in the organization the level of control usually is. In the case of marketing decisions, for example, local autonomy over product design is not nearly as prevalent as over advertising, pricing, and distribution. Product design generally necessitates a considerably larger capital outlay than the other functions; consequently, the potential loss through a wrong decision is higher. Furthermore, advertising approaches, pricing, and distribution decisions may be more easily reversed if an error in judgment is made. Rather than delineation of the type of decision that can be made at the subsidiary level, limits may be set instead on expenditure amount, thus allowing local autonomy on small outlays while requiring corporate approval on larger transactions.
Decentralization Considerations
Using Subsidiaries Effectively The development of standardized practices headquarters should generate all the information nec-essary for decision making. In fact, if the subsidiaries' viewpoints are ignored,
the company may not develop the best types of cross-national or standardized programs. Furthermore, good local managers may gravitate to other firms where they feel they can play a more important role. Procter & Gamble (P&G), for example, had allowed its European country operations nearly total autonomy in adapting technology, products, and marketing approaches. In order to capture Europewide scale economies, P&G put one office in charge of the strategy for all of Europe, ignoring local knowledge, underutilizing subsidiary strength, and demotivating subsidiary managers. P&G has since moved to greater standardization with other brand-management activities; however, this has been led by teams representing the subsidiary operations. In another case, EMI, a U.K.-based company, used feedback only from the U.K. market to determine how its central laboratory would seek to improve its CAT scanners—through better image resolution. This ignored the larger U.S. market, where a different improvement, shorter scan times, was preferred. When GE came out with a shorter scan time, it captured the U.S. market and got better scale economies than EMI. EMI started losing money and had to accept a takeover bid.5
National Rather Than International Strategies Although the development of a global strategy offers many advantages, there are circumstances in which subsidiaries cannot reasonably be brought into this scheme. This occurs, for example, in products associated with uniquely national taste preferences.6 In other situations, subsidiaries may be prevented from being a full part of a global network because governmental protectionism isolates them from competitive threats.7 In such situations, corporate strategic control may be less appropriate than national control.
Local Performance Considerations Although some decisions clearly can be made efficiently at the corporate level, this technical efficiency must be ,, weighed against morale problems created when responsibility is taken away
from the local management team. When local managers are prevented from acting in the best interest of their own operation, they tend to think, "I could have done better, but corporate management would not let me." These managers may lose commitment to their jobs and may not gain the experience needed to move into jobs of even greater responsibility. Lack of commitment may be overcome through development of a reward system that does not penalize managers for decisions that are outside of their control. In fact, a compensation system that rewards local managers partially on the basis of the corporation's total worldwide performance may enhance the development of global thinking at each country level.
Dependency Many critics within the LDCs have contended that the cen- tralization of decision making by MNEs is leading to an ever-increasing move-
ment of management and technical functions to the home country, leaving
the menial and low-skilled jobs in the LDCs. The critics recall colonial eras in which their own people were forbidden responsible positions and were dependent on the colonial powers for the control of their destinies.8 They have been particularly disparaging about the facts that very little R&D by MNEs is done outside of their home countries and that of that portion, almost all is done in other industrial countries.9 This presents dilemmas for MNEs. There are some potent arguments for
centralizing most R&D in home countries, such as the availability of large
numbers of people to work directly for the company, the proximity to private
research organizations and universities doing related work, and the general advantages of centralized authority for less duplication of efforts.
Recall that in the Nestle case new product R&D was done in Switzerland to reduce duplication and to be close to the strategic planners who projected product needs further into the future than could country managers, who were more concerned with day-to-day operations. Nestle" did allow country areas the freedom to conduct adaptive R&D but controlled this carefully by requiring corporate approval of the adaptations. Thus even when the corporation allows adaptive or new product R&D to be carried out abroad, the corporate management may exert substantial influence on it. MNEs with substantial R&D outside the home country seldom allow the foreign affiliate complete autonomy. The corporate management may allocate budgets, approve plans, and offer suggestions. At the same time there may be substantial input from affiliates for R&D conducted centrally.10
By giving groups of overseas employees a great deal of autonomy in certain areas, an international company may be able to attract a high calibre of personnel who might not wish to work in the firm's home country. For example, IBM scientists at its small Zurich laboratory won the Nobel prize for physics in two consecutive years. There are many ways that certain subsidiaries may be given autonomy over certain activities, such as the development of a specific product, a specific technology, or the conduct of certain market testing.
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