Global dreams, local realities The challenge of …graphics.eiu.com/files/ad_pdfs/eiu_UKTI_Management_wp.pdfGlobal dreams, local realities The challenge of managing multinationals

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


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 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.



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



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



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




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)




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




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




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


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


Legal

R&D

Procurement


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


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




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


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


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




Finance

IT


Compliance

Risk management





Human resources

Public relations

Marketing


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)


Sales

Marketing

Human resources

Public relations

Compliance




IT

Risk management

Finance




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)




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




Risk management

IT

Compliance



Public relations

Marketing


Human resources

Sales


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



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


Finance


Compliance

Risk management



Human resources



Marketing

Public relations


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




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



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




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


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


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



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.

About UK Trade & InvestmentUK Trade & Investment is the UK Government’s international business development agency, supporting businesses seek-ing to establish in the UK and helping UK companies grow internationally. The services offered by UK Trade & Investment bring together a network of business sector specialists and support teams in British embassies and Foreign and Common-wealth Office (FCO) posts all around the world, as well as key experts in government departments across the UK. UK Trade & Investment works with a wide range of partner organisations in the UK, including Regional Development Agencies and the Devolved Administrations, Business Links, Chambers of Com-merce and trade associations. For more information, visit the web site at www.uktradeinvest.gov.uk.

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report.

LONDON26 Red Lion SquareLondon WC1R 4HQUnited KingdomTel: (44.20) 7576 8000Fax: (44.20) 7576 8476E-mail: [email protected]

NEW YORK111 West 57th StreetNew York NY 10019United StatesTel: (1.212) 554 0600Fax: (1.212) 586 1181/2E-mail: [email protected]

HONG KONG60/F, Central Plaza18 Harbour RoadWanchai Hong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: [email protected]

Documents

Global dreams, local realities The challenge of …graphics.eiu.com/files/ad_pdfs/eiu_UKTI_Management_wp.pdfGlobal dreams, local realities The challenge of managing multinationals