The Concern over Control
The Concern over Control
Governmental Concern
Why should anyone care whether an investment is controlled from abroad? Many critics are concerned that the national interest will not be best served if a multinational firm makes decisions from afar on the basis of its own global or national objectives. For example, General Motors (GM) owns 100 percent interest in Vauxhall Motors in the United Kingdom. The control of Vauxhall by GM in this direct investment means that GM's corporate management in the United States is concerned directly with and makes decisions about personnel staffing, export prices, and the retention versus payout of profits in Vauxhall. The British public also is concerned in this case because decisions that directly affect the British economy are being made (or at least can be made) in the United States. The British government, on the other hand, owns slightly less than 1 percent of GM. Since this is not enough for control, the British government does not expend time and effort in making management decisions for GM. Nor is the U.S. populace concerned that vital GM decisions will be made in Britain. This does not mean that noncontrolled investments are unimportant, however. They may substantially affect a country's balance of payments and they may play an important part in a firm's financial management and strategy. These points will be discussed in depth in later chapters.
Investor Concern
Control is also very important to many investors who
are reluctant to transfer certain vital resources to another domestic or foreign
organization that can make all its operating decisions independently. If valu-
able patents, trademarks, and management know-how are transferred, they
can then be used to undermine the competitive position of the original hold-
ers jnis desire to deny rivals access to competitive resources is referred to as
the appropriability theory.5 In the introductory case, for example, Bridge-
stone was hesitant to transfer either product technology, such as its Super-Filler radials, or process technology, such as its mold changeover methods, to other companies. Bridgestone's management is well aware of how acquired technology can be used to catch a leader. Between the end of World War II and 1979, much of Bridgestone's technology came from Goodyear, which held a noncontrolling interest in Bridgestone. Another reason for control is to ensure that decisions serve global as opposed to national objectives.
Operating costs may also decrease when control is retained. This is because (1) the parent and subsidiary are likely to have a common corporate culture, (2) a company can use its own managers who understand its objectives, (3) protracted negotiations with another company are avoided, and (4) possible problems of enforcing an agreement are evaded. This self-handling, as opposed to contracts with other companies, is often referred to as internalization.6
This desire for control does not imply that the control of foreign operations is always preferable. There are many circumstances in which assets are transferred to noncontrolled entities, such as the transfer of trademarks and technology through licensing agreements.
Governmental Concern
Why should anyone care whether an investment is controlled from abroad? Many critics are concerned that the national interest will not be best served if a multinational firm makes decisions from afar on the basis of its own global or national objectives. For example, General Motors (GM) owns 100 percent interest in Vauxhall Motors in the United Kingdom. The control of Vauxhall by GM in this direct investment means that GM's corporate management in the United States is concerned directly with and makes decisions about personnel staffing, export prices, and the retention versus payout of profits in Vauxhall. The British public also is concerned in this case because decisions that directly affect the British economy are being made (or at least can be made) in the United States. The British government, on the other hand, owns slightly less than 1 percent of GM. Since this is not enough for control, the British government does not expend time and effort in making management decisions for GM. Nor is the U.S. populace concerned that vital GM decisions will be made in Britain. This does not mean that noncontrolled investments are unimportant, however. They may substantially affect a country's balance of payments and they may play an important part in a firm's financial management and strategy. These points will be discussed in depth in later chapters.
Investor Concern
Control is also very important to many investors who
are reluctant to transfer certain vital resources to another domestic or foreign
organization that can make all its operating decisions independently. If valu-
able patents, trademarks, and management know-how are transferred, they
can then be used to undermine the competitive position of the original hold-
ers jnis desire to deny rivals access to competitive resources is referred to as
the appropriability theory.5 In the introductory case, for example, Bridge-
stone was hesitant to transfer either product technology, such as its Super-Filler radials, or process technology, such as its mold changeover methods, to other companies. Bridgestone's management is well aware of how acquired technology can be used to catch a leader. Between the end of World War II and 1979, much of Bridgestone's technology came from Goodyear, which held a noncontrolling interest in Bridgestone. Another reason for control is to ensure that decisions serve global as opposed to national objectives.
Operating costs may also decrease when control is retained. This is because (1) the parent and subsidiary are likely to have a common corporate culture, (2) a company can use its own managers who understand its objectives, (3) protracted negotiations with another company are avoided, and (4) possible problems of enforcing an agreement are evaded. This self-handling, as opposed to contracts with other companies, is often referred to as internalization.6
This desire for control does not imply that the control of foreign operations is always preferable. There are many circumstances in which assets are transferred to noncontrolled entities, such as the transfer of trademarks and technology through licensing agreements.
Comments
Post a Comment