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A report from the Economist Intelligence UnitCommissioned by UK Trade & Investment
Global dreams, local realitiesThe challenge of managing multinationals
© The Economist Intelligence Unit 2006 1
Global dreams, local realities The challenge of managing multinationals
Global dreams, local realities: the challenge of managing multinationals investigates the tension between local autonomy and central control inherent within multinational firms.
The report was commissioned by UK Trade & Investment (www.uktradeinvest.gov.uk), the UK government’s international business development agency, which supports businesses seeking to establish in the UK and helps UK companies to grow internationally.
The Economist Intelligence Unit bears sole responsibility for the content of this report. The Economist Intelligence Unit’s editorial team executed the online survey, conducted the interviews and wrote the report.
The research drew on two main initiatives: ● The Economist Intelligence Unit conducted a wide-
ranging online survey of senior executives from around the world during July and August 2006. In total, 298 executives took part.
● To supplement the survey results, the Economist Intelligence Unit also conducted in-depth interviews with nine senior executives from a range of industries and regions. Winter Wright was the author of the report, and
James Watson and Andrew Palmer were the editors. The following researchers conducted interviews with executives around the world: Susan Arterian, Aviva Freudmann and Christopher Watts.
We would like to thank all the executives who participated in the survey and interviews for their time and insights.
October 2006
Preface
2 © The Economist Intelligence Unit 2006
Global dreams, local realities The challenge of managing multinationals
International markets are increasingly critical for the world’s corporations. According to a survey of 298 senior executives worldwide conducted
especially for this report, overseas markets will become more important to the vast majority of businesses over the next three years.
Operating in multiple countries requires a great sense of balance, however. Companies have to tailor their products to meet local tastes, needs and pricing structures. But in order to achieve efficiencies of scale and ensure consistent quality of products and services, certain elements of the business need to be centralised. More than 80% of the respondents to this survey agree that weighing local autonomy against central control is a critical management challenge.
The key findings from the research are highlighted below.
● More decentralisation is necessary ... A majority of respondents admit that they understand customers and employees in overseas markets less well than those in home markets. Almost twice as many survey respondents agree with the proposition that their organisation would perform better if more control was given to local markets as disagree. Executives believe that localisation’s key benefits are greater flexibility and better customer relationships.
● … but entails risks. Respondents also highlight a number of risks associated with increased localisation, ranging from inconsistent systems and product quality standards to higher costs and poorer standards of corporate governance. Governance and compliance concerns are seen as the biggest barrier to greater decentralisation.
● Don’t write off global head office. Few respondents strongly believe that the importance of their global headquarters is declining. HQs make most of the key strategic decisions at organisations, even those principally concerned with foreign markets. Business planning and certain back-office functions such as IT, compliance and finance are all earmarked for greater centralisation over the next three years.
● Companies are more willing to devolve control over customer-facing activities such as sales and marketing. Just as all politics is local, all sales are local as well, and respondents’ attitudes seem to acknowledge that reality. A majority of respondents believe customer support, sales and marketing are more suited to local rather than central control.
● The quality of local management talent is critical. Two-thirds of the organisations surveyed give their international operations varying levels of autonomy. The single most important driver of greater autonomy is the quality of local management. Human resources, the function charged with recruiting and developing people, is identified as the back-office function that needs to be most decentralised.
In practice, of course, most activities are neither wholly centralised nor wholly decentralised. Firms interviewed for this report are adopting a more collaborative approach to decision-making, in order to draw on the best of local knowledge and head office’s strategic overview. Others are simultaneously centralising and localising—putting call centres in a single location, for instance, and then investing considerable time and energy to train operators in
Executive summary
© The Economist Intelligence Unit 2006 3
Global dreams, local realities The challenge of managing multinationals
the language, accents and culture of specific national markets. Putting overseas managers into head-office roles is another way of increasing levels of local knowledge at the centre of organisations.
But if the local-global debate is not a zero-sum game, striking the right balance is still critical. As the importance of overseas markets continues to grow, this particular management concern is here to stay.
Which functions should we run where? Survey respondents were asked to identify which functions require the greatest level of either centralisation or decentralisation. The top three responses for each are represented here.
Central
Local
Marketing
FinanceBusiness planning/
growth strategy
Sales
Customerservice
IT
Central planning
Which attributes determine whether functions and activities should be tightly clasped at the centre or devolved down to local markets? Here are some guiding principles:
Centralise
✔ Strategic decisions. Activities that have an impact on the direc-tion of the entire organisation have to be taken at the centre. Almost nine out of ten executives polled for this report believe that strategic activities within the firm should be centralised.
✔ Back-office functions. Activities that can be highly standardised across markets are obvious candidates for central control, with finance and IT being prime examples. The big back-office exception is HR, where understanding of the local market is critical to many aspects of the role, making it a strong candidate for decentralisation.
✔ Cost-efficiency initiatives. Decentralisation can lead to cost savings too, of course, but centralisation increases purchasing power and reduces duplication.
Decentralise
✔ Operational decisions. Many firms define central parameters within which local markets can retain some flexibility—a majority of respondents give local country managers authority to set pricing levels within pre-determined price ceilings and floors, for example.
✔ Customer-facing activities. An enhanced ability to understand and meet the needs of local customers also explains why more than nine out of ten respondents believe that front-office activities, such as sales, marketing and customer service, should be decentralised.
4 © The Economist Intelligence Unit 2006
Global dreams, local realities The challenge of managing multinationals
When they first appeared in the mid-19th century, international corporations viewed overseas markets mainly as a source of raw
materials. Using what today would be called a hub-and-spoke model, they saw foreign markets as far-flung outposts leading back to a command centre. Headquarters was the brains of the operation and the locus of corporate strategy and leadership.
Attitudes had not changed much by the time the Harvard Business Review published an article in 1983 by Theodore Levitt, a Harvard professor. Mr Levitt argued that with globalisation “the world’s needs and
desires have been irrevocably homogenised”, and that the only practical response was for corporations to treat the whole world as a single market. “Instead of adapting to superficial and even entrenched differences within and between nations,” wrote Mr Levitt, “[the modern global corporation] will seek sensibly to force suitably standardised products and practices on the entire globe.”
Mr Levitt’s advice still has some merit. Certain corporate practices can be globally standardised and are better for it. But the relationship between head office and local markets is changing. Overseas markets are increasingly important sources of revenue as well as supply—one-third of the companies surveyed for this report derive more than half their income abroad. What’s more, these markets are far from homogenous—executives regard understanding customers in multiple territories as their greatest management challenge1 and believe that localised control enables greater adaptability and better customer relationships.
As a result, many respondents favour devolving control from headquarters to overseas managers. Almost half of those surveyed agree or strongly agree that giving more control to local markets would improve the performance of their organisations, while 52% say they do not understand customers and employees in overseas markets as well as they do at home.
Who took the survey?A total of 298 executives from across the globe responded to the survey. Only firms with established operations in multiple countries, not just licensees and distributors, were polled and one-third of respondents reported that their organisations earned more than half their annual revenue from markets outside their home countries.
Twenty-one percent of respondents were based in Asia-Pacific, 19% in North America and 50% in western Europe. Thirty percent of all participants were C-level executives, from a range of functional roles. These executives hailed from companies of all sizes: 45% had revenue in excess of US$1bn, while 46% had revenue under US$500m.
1 CEO Briefing 2006, Economist Intelligence Unit, sponsored by UK Trade & Investment
Introduction
© The Economist Intelligence Unit 2006 5
Global dreams, local realities The challenge of managing multinationals
Yet when asked if the role of headquarters was declining in importance, about 60% of respondents disagreed. One reason may be that
more than half of respondents (55%) were themselves based in their companies’ worldwide corporate headquarters. “It’s a human issue,” says Kent Kedl, an American business consultant based in Shanghai. “We want to outsource jobs, but not our own.”
But it’s also true that a degree of centralised control makes sense for international businesses in order to execute strategy, achieve consistent product quality, deliver economies of scale and facilitate communication across geographic regions. As one respondent from a UK-headquartered technology firm put it: “Central operation is all about standards, quality control and support.”
Deutsche Post has gone from being Germany’s state-owned postal service to a global provider of logistics and express delivery services (it now owns DHL and Exel). “In such a business, a high degree of centralisation is inevitable,” says Joachim Kayser, executive vice-president at the firm.
Unsurprisingly, most companies surveyed for this report believe that centralised control over strategy and planning functions is necessary. Almost three-quarters of survey respondents say decisions about regional or country strategy generally reside with the head office. Fewer than one in ten organisations devolve strategic decisions to individual country managers.
Business processes unrelated to contact with clients and customers are also usually centralised. Among back-office functions, respondents expect to see increased centralisation of compliance and risk management, finance and IT over the next three years. “We have a global distribution network
comprising more than 100 countries,” says Gary Willihnganz, director of marketing for Intel Asia Pacific. “A centralised IT function gives us a consistent IT infrastructure that results in better security.”
Production processes and standards are also ripe for central control. Because many companies have shifted their production to low-cost locations, manufacturing may no longer be centralised in a single physical location. But the standards to which local operations must adhere are usually set by central headquarters, and are, for the most part, inflexible. “We build software systems used on a global basis,” says Graham Kill, CEO of Irdeto, a Dutch maker of encryption software used in TV set-top boxes and mobile devices. “Our business is characterised by large fixed costs. The power of software engineering from an economic standpoint is to make it once, then
To centralise …
In three years’ time, do you think these functions at your company will be more centralised, more decentralised or about the same as now?(% respondents; bars represent the net difference in favour of either centralisation or decentralisation)
Source: Economist Intelligence Unit survey, 2006
More centralised
Business planning/growth strategy
Finance
IT
Compliance
Production processes and standards
Risk management
13
11
11
5
5
3
More decentralised
Customer service/support
Sales
Marketing
Public relations
Human resources
Information and research
Research & development
M&A/partnering activity
Supply-chain management
1
1
2
9
12
17
24
30
32
6 © The Economist Intelligence Unit 2006
Global dreams, local realities The challenge of managing multinationals
deploy it many times for small incremental costs with as few changes for individual situations as possible.”
… or not to centralise If companies should centralise strategic activities and back-office functions, which business activities should be decentralised? Customer-facing, front-office activities are clearly the strongest candidates. According to survey respondents, customer service and support leads the way, with 61% of respondents saying decentralisation should go furthest in this area. Sales (55%) and marketing (44%) are also areas where a more localised approach is favoured.
“Intel’s product line is fairly standardised and not customised by region,” says Mr Willihnganz. “But the sales and marketing strategy is extensively localised. In each country, you’ve got corporate customers, big
businesses, small businesses, clients in education and government, and end-users ranging from students to the elderly. Our local teams analyse the data, determine which segments are growing fastest, which are most important, and then allocate resources to maximise revenue growth and develop the potential of each market segment.”
While switching over to a new computer chip architecture, Intel emphasised different user benefits in different locations. In Singapore, the product launch centred on gaming, a wildly popular activity in the island-state. In other markets such as Australia, Intel emphasised the new architecture’s performance per watt, a measure of energy efficiency.
“Core brand values must remain the same in all markets, but a different approach is required in markets as culturally diverse as Asia,” says Serge Dumont, president for Asia Pacific at Omnicom, a
People problems
Different types of activity are more suited to local control than others. But it’s also true that different markets enjoy varying degrees of latitude—two-thirds of respondents agree that autonomy varies by region and country and the most important determinant of greater autonomy by far is the quality of local management.
Improving quality of management is not entirely in the gift of companies. Some markets and sectors naturally have greater pools of talent than others. Just under 39% of survey respondents in financial services say that local staff form a growing percentage of their companies’ overseas management teams. In IT, however, more than 55% of respondents say this is true, probably because there is a greater availability of qualified technical staff in large emerging markets such as China and India.
But companies can do a lot to help themselves by recruiting and training the right people, and it is striking that of all back-office functions, human resources is the one that respondents most want to decentralise. Rotating talented local managers through international assignments, including at head office, also helps to build experience and instil trust.
What factors determine whether certain overseas marketshave a higher level of autonomy?Select up to three enablers of autonomy.(% respondents)
Management talent is of high quality
Local market is too important to be run from global HQ
Level of cultural similarity with headquarters is high
Operations in the local market are complex
Quality of regional HQ is high
Market is geographically close to global HQ
Local market is too small to warrant central control
Operations in the local market are simple
Don’t know
Other
50
29
28
25
23
18
13
13
9
6
Source: Economist Intelligence Unit survey, 2006
© The Economist Intelligence Unit 2006 7
Global dreams, local realities The challenge of managing multinationals
holding company for advertising and PR agencies. “To some extent, Europe is diverse, but its cultural gaps aren’t as vast as those in Asian countries. Compare Japan with Pakistan, for example.” This cultural diversity may help explain why the benefits of localisation seem more accentuated in some regions: in Asia-Pacific, one in five respondents believes localisation can boost revenue, while just one in ten European executives thinks the same.
FedEx also varies its marketing slogans around the world: “Relax, It’s FedEx” in Canada; “Whatever It Takes” in Europe; and “We Live to Deliver” in Asia. “The cornerstone of the FedEx brand is reliability,” says Rajesh Subramaniam, senior vice-president of international marketing at FedEx headquarters in Memphis, Tennessee. “The manifestation of that brand might be slightly different in different markets, but ultimately the core message is very similar no matter where you go.”
Companies that have grown through acquisitions often face the biggest branding headaches of all. BNP Paribas, whose acquisitions include Banca Nazionale del Lavoro (BNL) in Italy and Bank of the West in the United States, typically adds the logo of the parent company to those of the brands it acquires. “We try to keep the local brand identities intact as much as possible,” says Jean-Paul Dochez, head of risk at BNP Paribas in Germany. “It would be foolish to give up the advantages that come with such well-known brands.”
Handing over the keysDecentralisation won’t stop clashes between country offices and headquarters, of course. Although marketing is flagged by executives as one of the business activities that most requires decentralisation within firms, respondents also identify brand and marketing inconsistencies as a key risk associated with localised control. Other risks include reduced knowledge-sharing across markets and inconsistencies in quality standards and internal systems.
After Irdeto’s China operations sold 1 million smart cards, the company’s Beijing office wanted to issue a news release publicising the milestone. Mr Kill recalls his concern that publicity might spark a backlash if Chinese regulators felt a foreign company had acquired too large a piece of the market.
“It was clearly an intractable discussion, pure conjecture on both our parts as to the positive and negative effects,” recalls Mr Kill. Ultimately he gave Beijing permission to issue the release if they thought it wise to do so. “I said to be mindful of my concerns, but you’re there on the ground, and ultimately it’s your call,” says Mr Kill. The Beijing office eventually decided to announce the information in a publication
Inconsistencies in quality standards
Brand and marketing inconsistencies
Reduced knowledge-sharing across markets
Inconsistent internal systems (eg, IT)
More complex risk management
Higher costs
Poorer standards of corporate governance
Fewer economies of scale
Less realistic business plans and growth strategies
Inconsistent/inappropriate pricing
Product inconsistency
Less ambitious budget targets
Lower revenue
Poorer customer relationships
Other
42
32
32
31
24
22
22
18
13
13
7
13
6
6
1
Which of the following do you consider to be the keydisadvantages or risks of localised control?Select up to three options.(% respondents)
Source: Economist Intelligence Unit survey, 2006
8 © The Economist Intelligence Unit 2006
Global dreams, local realities The challenge of managing multinationals
released outside of China to avoid potential friction with regulators.
Sometimes differences centre directly on issues of trust. “[We can deliver] more realistic business plans and growth strategies to meet the local market requirement,” observes one country manager. Others counter that local operations naturally tend to shoot for lower sales targets and reduced pricing for their markets. “[There is a] conflicting commercial
approach, including diverse pricing which is not always required by local conditions, although [local] salespeople would claim it is,” argues another respondent.
“There’s an inherent tension in emerging markets which naturally gravitates toward price,” says Mr Willihnganz. “Headquarters will try to get teams focused on value, while sales teams may tend to sell down, emphasising price over performance.” He says
Building a global culture
As companies do business across bor-ders, they need to build a common culture that unites all members of the organisation, regardless of location. But where is culture created, and how is it transmitted from one place to another? Many multinationals try to disseminate culture through worldwide training programs, or by offering high-potential employees the chance for international second-ments that foster the values of headquarters among international managers and staff.
Thierry Raymaekers, a managing director at Irdeto, a technology
firm, uses standardised employment practices to build a common culture and to improve morale by demonstrating fairness. In hierarchical Asian societies, this is often seen as one of the benefits of working for a foreign employer. “If we travel more than four hours, everyone flies business class,” says Mr Raymaekers. “Junior people are treated the same as senior people.”
Even something as simple as the chance to speak one-on-one with a superior can help build a common culture. “A Chinese employee below the level of general manager would never dream of speaking with the CEO,” says Graham Kill, Irdeto’s CEO. “That’s not true here. We don’t take the hierarchical approach that
many Chinese companies do. Senior managers walk around the office and talk to people, so employees have a common understanding of corporate goals.”
Deutsche Post says it strives for a hybrid culture that incorporates local elements—roughly the same approach it takes to branding. “When we make an acquisition, it is not the case that the Deutsche Post culture invades the operations in all countries,” says executive vice-president, Joachim Kayser. “We try to create a mix, try to pick the best from each country. In part, we have a single corporate culture. But in part, you also have to give the operating divisions the freedom to identify under a sub-brand.”
0 20 40 60 80 100
Our company name and brand name are the same across all our markets
We apply the same product/service quality standards across all our markets
We have one official language across all our markets
We have the same marketing/promotional activities across all our markets
Performance bonuses are the same across all our markets
We apply the same prices across all our markets
60
17
65
23
11
61
39
9
1
75
84
74
233
2
5
36 3
Do you agree or disagree with the following statements about your company’s global business?(% respondents)
Agree Disagree Don’t know/Not applicable
Source: Economist Intelligence Unit survey, 2006
© The Economist Intelligence Unit 2006 9
Global dreams, local realities The challenge of managing multinationals
Intel has struggled with that tension in China and India. “In India, we’ve done well; brand recognition of Pentium there is great. In markets like China where there’s a strong emphasis on price, we haven’t seen as much success, but we have seen phenomenal market growth. So in India, where we’ve established the brand, we now emphasise market growth. In China, where the market’s growing, we want to make sure people appreciate the value of the brand.”
Interestingly, executives in some markets appear to trust country managers to do things right, while in others they insist on tighter central control. In North America, for example, 40% of survey respondents disagreed with the statement, “Our organisation would perform better if we gave more control to local markets.” Globally, only 24% of respondents disagreed with that statement, while just 18% dissented in Asia-Pacific.
The right blendIn practice, no function or process should or can be either wholly centralised or wholly decentralised. A majority of survey respondents strike a balance between local and central control by allowing their country managers to operate within parameters set by head office—giving them authority to set prices within pre-determined price bands, for example, or to develop marketing strategy subject to central brand guidelines.
Take risk management in financial services, for example. BNP Paribas allows its worldwide branches a large degree of autonomy in assessing credit risk. “The standards for risk exposure of the bank have to differ from country to country,” says Mr Dochez. “We cannot apply the same standard, for example, to corporate borrowers in Tunisia as we apply to borrowers in Germany. So there is a lot of leeway for managers at the country level to make decisions about credit in their countries, respecting the global risk and rating policy of the bank.”
Nevertheless, the bank has an overall credit rating to maintain. For that reason, the bank is structured to maximise the number of local decisions, but lending decisions made by headquarters account for the biggest part of BNP Paribas’s global risk exposure. The aim, says Mr Dochez, is to be responsive to local markets without increasing the bank’s total risk exposure worldwide.
A collaborative approach can also be applied to strategy decisions. Take FedEx’s approach to China, one of the company’s fastest-growing markets worldwide. The company expects airfreight from China to Europe to grow by 9% a year, with traffic from China to the United States growing by 10% annually. “Strategic recommendations are made by people on the ground,” says Mr Subramaniam. “Recommendations on China made by the local management team are reviewed at headquarters. A final decision gets made in a fact-based environment, not at either extreme but right in the middle.”
It helps that advances in technology and standardisation of data transfer mechanisms
Which of the following statements best describes the levelof autonomy of individual country managersat your organisation? (% respondents)
They have nearly completeautonomy from head office 3
They have nearly completeautonomy from headoffice, within a set ofglobally set parameters 17
They have some degreeof autonomy from headoffice, but require globalor regional head officeapproval on key decisions 53
They have limited autonomy,requiring global or regional headoffice approval on most decisions 20
They have almost no autonomy,requiring global or regional headoffice approval on nearly alldecisions 6
Source: Economist Intelligence Unit survey, 2006
10 © The Economist Intelligence Unit 2006
Global dreams, local realities The challenge of managing multinationals
are making communication ever easier—IBM’s InnovationJam, an ambitious online initiative to solicit new ideas for products and services from the company’s worldwide employee base and beyond, is one high-profile example of more open collaboration.
“These uniform technologies and business standards [also] open up possibilities for senior executives as to where they locate parts of the company,” says George Pohle, global leader of IBM’s Institute for Business Value. This new flexibility has allowed many companies to site global roles outside head office. General Electric, for example, has based its head of worldwide sourcing in Asia. If other companies follow suit, the traditional dynamic between central control and local autonomy will change. “You locate functions where you get them best and cheapest,” says Mr Pohle. “Managers have more alternatives now.”
Nor does localisation of a function necessarily have to mean geographic proximity. Take customer service and support, a function that respondents from every geographic region and every industry said lent itself to decentralisation. Many companies go to extraordinary lengths to localise the service that offshore call centres provide for the tastes and cultural norms of their customers, training staff about the preferences of the people they’re speaking with, even to the extent of changing their accent and pronunciation.
Devolution, not revolutionPrevious research has identified rising demand in emerging markets and globalisation as two of the main forces executives expect to have the greatest impact on the global marketplace over the next three years.2 “Put China and India in the mix, and there’s no question it is true,” says Mr Subramaniam of FedEx. “We’re just trying to get in front of the parade and it’s a very big parade.”
This shift in demand is also having a material impact on the shape of the corporation as organisations increasingly decentralise front-office activities such as marketing, sales and customer service. A majority of executives agree that their organisations seek to devolve decision-making power down to the local level as far as possible.
But delegation has its limits. Companies need to respond flexibly to changing realities on the ground while ensuring that core standards of governance and compliance are met. They need to respond to local tastes and preferences while safeguarding the integrity of the brand. And they need to ensure that operating in multiple markets does not come at the expense of cost efficiency. The successfully managed multinational enterprise will balance these imperatives, not choose between them.
2 CEO Briefing 2006, Economist Intelligence Unit, sponsored by UK Trade & Investment
© The Economist Intelligence Unit 2006 11
Appendix Global dreams, local realities
The challenge of managing multinationals
AppendixDuring July and August 2006, the Economist Intelligence Unit conducted a survey of 298 executives from across Europe, Asia-Pacific and the Americas. Please note that not all answers add up to 100%, because of rounding or because respond-ents were able to provide multiple answers to some questions.
In which part of your company’s organisation are you personally based? (% respondents)
Global head office 55
Regional office 20
Country office 23
Other, please specify 1
Strategy and business development
General management
Marketing and sales
Finance
Risk
Operations and production
Customer service
IT
Human resources
Information and research
Legal
R&D
Procurement
Supply-chain management
Other
41
31
27
23
12
10
10
9
9
9
6
6
3
3
4
What are your main functional roles? Please choose no morethan three functions.(% respondents)
Which of the following best describes your job title?(% respondents)
Manager
SVP/VP/Director
CEO/President/Managing director
Head of Department
Head of Business Unit
Other C-level executive
CFO/Treasurer/Comptroller
Board member
CIO/Technology director
Other
23
18
11
11
8
7
5
5
2
10
12 © The Economist Intelligence Unit 2006
Appendix Global dreams, local realitiesThe challenge of managing multinationals
In which region are you based? (% respondents)
Asia-Pacific 21
Latin America 1
North America 19
Eastern Europe 6
Western Europe 50
Middle East & Africa 4
What is the size of your overall enterprise (in US dollars) in itslast fiscal year? (% respondents)
Under US$100m 28
US$100m – US$250m 12
US$250m – US$500m 7
US$500m – $1bn 9
Over US$1bn 45
Financial services
IT and technology
Professional services
Manufacturing
Telecoms
Healthcare, pharmaceuticals and biotechnology
Energy and natural resources
Automotive
Consumer goods
Chemicals
Defence and aerospace
Education
Entertainment, media and publishing
Transportation, travel and tourism
Government/public sector
Retailing
Agriculture and agribusiness
Construction and real estate
Other
22
14
12
9
6
6
5
4
4
3
2
3
2
2
1
1
1
3
1
What is your primary industry?(% respondents)
In which country are you personally based?(% respondents; top 10 listed)
United Kingdom
United States of America
Germany
Spain
India
China
Italy
Belgium
Canada
France
17
15
6
5
4
4
4
3
3
3
© The Economist Intelligence Unit 2006 13
Appendix Global dreams, local realities
The challenge of managing multinationals
In how many countries outside of its home market does yourcompany employ staff (ie, not just operate through a licenseeor distributor)? (% respondents)
1-5 36
6-10 13
11-20 11
21-50 15
More than 50 25
Approximately what proportion of your company’s revenue isgenerated in its home market (rather than overseas markets)?(% respondents)
Less than 10% 18
11-20 11
21-30 14
31-40 11
41-50 10
More than 50% 33
Don’t know 3
How does your company generally make key strategicdecisions affecting overseas markets? (% respondents)
At our global head office 72
At a regional level 14
At an individual country level 8
Don’t know 2
Other, please specify 5
How does your company generally make key operationaldecisions affecting overseas markets? (% respondents)
At our global head office 27
At a regional level 41
At an individual country level 28
Don’t know 1
Other, please specify 3
0 20 40 60 80 100
Please state whether you agree or disagree with the following statements regarding your company(% respondents)
Overseas markets will become more important to our business over the next three years
Balancing local autonomy against central control is a critical management challenge
The percentage of local staff, rather than expatriate workers, within our overseas management teams is increasing
We do not understand customers and employees in our overseas markets as well as we understand these stakeholders in our home market
Our organisation would perform better if we gave more control to local markets
As far as possible we seek to devolve decision-making down to the local level
Our global head office is declining in importance
36
40
9
31
3
13
15
13
29
43
35
51
15
39
47
29
22
11
29
12
22
15
23
29
2
1
4
1
17
8
2
9
10
4
22
4
42
24
9
13
1
1
1
1
2
4
6
Don’t know/not applicableStrongly disagree Strongly disagreeAgree Neutral Disagree
14 © The Economist Intelligence Unit 2006
Appendix Global dreams, local realitiesThe challenge of managing multinationals
Business planning/growth strategy
Finance
IT
Research & development
Compliance
Risk management
M&A/partnering activity
Production processes and standards
Information and research
Supply-chain management
Human resources
Public relations
Marketing
Customer service/support
Sales
None of these
Other
61
41
29
26
20
20
19
14
10
10
8
8
3
7
1
2
1
Which business activities require the greatest level ofcentralisation, in your view?Select up to three options.(% respondents)
Customer service/support
Sales
Marketing
Human resources
Public relations
Compliance
Business planning/growth strategy
Production processes and standards
Supply-chain management
IT
Risk management
Finance
M&A/partnering activity
Research & development
Information and research
None of these
60
55
44
28
24
12
12
7
7
6
5
5
5
5
1
4
Which business activities require the greatest level ofdecentralisation, in your view?Select up to three options.(% respondents)
© The Economist Intelligence Unit 2006 15
Appendix Global dreams, local realities
The challenge of managing multinationals
0 20 40 60 80 100
In your opinion, do the following activities better lend themselves to decentralised or centralised control?(% respondents)
Customer-facing activities
Operational activities
Revenue-generating activities
Human resources activities
Cost-saving activities
Back-office activities
Strategic activities12
86
36
63
58
92
74
87
12
56
31
38
6
23
1
2
7
6
4
4
2
Should be decentralised Should be centralised Don’t know
0 20 40 60 80 100
How are the following functions run within your business now? Please indicate the level of control for each function.Select one in each row.(% respondents)
Finance
M&A/partnering activity
Business planning/growth strategy
Research & development
Risk management
IT
Compliance
Production processes and standards
Information and research
Public relations
Marketing
Supply-chain management
Human resources
Sales
Customer service/support
49
38
9
51
24
32
41
51
20
35
31
47
45
51
48
42
49
45
40
45
39 10
40
49
42
26
50 16
13
32 6
53
18
20 47 20 13
10 36 54
22 2
4
10
7
1
2
59
26
7
1
11
5
Don’t know/Not applicableStrongly centralised Strongly decentralisedA mixture of local and central control
16 © The Economist Intelligence Unit 2006
Appendix Global dreams, local realitiesThe challenge of managing multinationals
0 20 40 60 80 100
In three years’ time, do you think these functions at your company will be more centralised, more decentralised or about thesame as now?(% respondents)
IT
Business planning/growth strategy
Finance
Production processes and standards
Compliance
Risk management
Research & development
Supply-chain management
Human resources
M&A/partnering activity
Information and research
Marketing
Public relations
Customer service/support
Sales
25
20
7
25
16
15
30
16
11
21
10
17
18
12 361
59
52
53
49
54
59
58 19
62
39 2
1460
28
57 24
19
58 17
51
16
17 52 18 14
5 57 35 3
27 3
6
15
2
2
3
615
35 3
9
3
9
4
Don’t know/Not applicableMore centralised More decentralisedAbout the same as now
0 20 40 60 80 100
Our company name and brand name are the same across all our markets
We apply the same product/service quality standards across all our markets
We have one official language across all our markets
We have the same marketing/promotional activities across all our markets
Performance bonuses are the same across all our markets
We apply the same prices across all our markets
60
17
65
23
11
61
39
9
1
75
84
74
233
2
5
36 3
Do you agree or disagree with the following statements about your company’s global business?(% respondents)
Agree Disagree Don’t know/Not applicable
© The Economist Intelligence Unit 2006 17
Appendix Global dreams, local realities
The challenge of managing multinationals
Greater flexibility and adaptability
Better customer relationships
Faster operational processes (eg, delegated decision rights)
More relevant local branding or marketing
Lower costs
More realistic business plans and growth strategies
More appropriate products and services
Better motivated employees
Increased revenue
Speed to market for new products
Improved regulatory compliance
Diversification of risk
More ambitious budget targets
Other
65
58
26
26
22
21
20
15
14
10
4
5
1
3
Which of the following do you consider to be the keybenefits of localised control as opposed to centralised control?Select up to three options.(% respondents)
Inconsistencies in quality standards
Brand and marketing inconsistencies
Reduced knowledge-sharing across markets
Inconsistent internal systems (eg, IT)
More complex risk management
Higher costs
Poorer standards of corporate governance
Fewer economies of scale
Less realistic business plans and growth strategies
Inconsistent/inappropriate pricing
Product inconsistency
Less ambitious budget targets
Lower revenue
Poorer customer relationships
Other
42
32
32
31
24
22
22
18
13
13
7
13
6
6
1
Which of the following do you consider to be the keydisadvantages or risks of localised control?Select up to three options.(% respondents)
Which of the following statements best describes the levelof autonomy of individual country managersat your organisation? (% respondents)
They have nearly completeautonomy from head office 3
They have nearly completeautonomy from headoffice, within a set ofglobally set parameters 17
They have some degreeof autonomy from headoffice, but require globalor regional head-officeapproval on key decisions 53
They have limited autonomy,requiring global or regional head-office approval on most decisions 20
They have almost no autonomy,requiring global or regional head-office approval on nearly alldecisions 6
How much recruitment authority do individual countrymanagers have at your organisation? (% respondents)
Full authority to recruitor dismiss staff 33
Some authority to recruitor dismiss staff, subject tohead-office parameters onbudgetary constraints and/orapproval of candidates 57
No authority to recruitor dismiss staff 9
Don’t know 1
18 © The Economist Intelligence Unit 2006
Appendix Global dreams, local realitiesThe challenge of managing multinationals
How much pricing authority do individual country managershave at your organisation? (% respondents)
Full authority to set pricinglevels in their market 23
Some authority to setpricing levels in theirmarket, subject to head-office parameters on pricingfloors and ceilings 53
No authority to set pricinglevels in their market withouthead-office approval 21
Don’t know 3
Other 1
How much marketing authority do individual countrymanagers have at your organisation? (% respondents)
Full authority to developand implement theirown marketing strategy 17
Some authority to developand implement theirown marketing strategy,subject to head-officeparameters on brandguidelines and/or budget 71
No authority to developand implement their ownmarketing strategy 11
Don’t know 1
How much business planning authority do individualcountry managers have at your organisation? (% respondents)
Full authority to develop andimplement their own businessplans and growth strategy 10
Some authority to developand implement their ownbusiness plans and growthstrategies, subject to head-office budget targets 76
No authority to develop andimplement their own businessplans and growth strategies 11
Don’t know 1
Are all individual country managers at your company giventhe same degree of latitude in their operations, regardless ofwhat country/region they are in? (% respondents)
Yes, all local managers have thesame degree of autonomy 28
No, autonomy varies byregion/country 66
Don’t know/Not applicable 6
What factors determine whether certain overseas marketshave a higher level of autonomy?Select up to three enablers of autonomy.(% respondents)
Management talent is of high quality
Local market is too important to be run from global HQ
Level of cultural similarity with headquarters is high
Operations in the local market are complex
Quality of regional HQ is high
Market is geographically close to global HQ
Local market is too small to warrant central control
Operations in the local market are simple
Don’t know
Other
50
29
28
25
23
18
13
13
9
6
© The Economist Intelligence Unit 2006 19
Appendix Global dreams, local realities
The challenge of managing multinationals
2 3 4 5No
confidence
1Complete
confidence
6Don’t know/
Not applicable
0 20 40 60 80 100
To what extent do you have confidence in your global head office to get the following things right in your regional/country offices?Rate from 1-5, where 1=Complete confidence and 5=No confidence.(% respondents)
Branding strategy
M&A/partnering
Compliance and risk management
Product development
Pricing
HR policies
Marketing strategy
Supply-chain management
24
10
26
9
17
21
10
9
35
30
35
34
36
36
28
30
22
34
25
35
28
28
31
31
3
6
2
4
2
2
9
3
7
18
11
18
15
10
19
11
10
3
1
1
2
3
2
16
2 3 4 5No
confidence
1Complete
confidence
6Don’t know/
Not applicable
0 20 40 60 80 100
To what extent do you have confidence in your company’s individual country managers to get the following things right intheir market(s)? Rate from 1-5, where 1=Complete confidence and 5=No confidence.(% respondents)
Pricing
Marketing strategy
HR policies
Compliance and risk management
Branding strategy
Product development
Supply-chain management
M&A/partnering9
19
10
15
10
11
15
10
29
45
35
49
33
30
36
32
27
23
32
26
29
31
30
32
6
1
1
2
3
6
2
1
18
7
17
9
17
17
14
10
11
5
4
3
7
5
4
16
20 © The Economist Intelligence Unit 2006
Appendix Global dreams, local realitiesThe challenge of managing multinationals
What do you think are the main barriers to greaterdecentralisation within your organisation?Select up to three options.(% respondents)
Governance and compliance concerns
Desire on the part of managers at head office to retain control
Cross-cultural differences
Regulatory issues
Lack of skills/relevant business experience in local markets
Lack of trust in overseas country managers
Cost implications of greater decentralisation
Small pool of international management talent
Increasing importance of overseas markets
Reluctance on the part of local managers to take responsibility
Other
49
37
33
28
26
23
20
20
12
3
4
About the Economist Intelligence UnitThe Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of over 500 analysts, we continu-ously assess and forecast political, economic and business conditions in 200 countries. As the world’s leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.
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