BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Strategic Compulsions Globalization is the major driver to go to global Companies want to survive in todays competition must put their products in the global market and win more customers, facing strategic competition Strategic management includes strategic planning, implementation and review/control of the organisation The present and future development of the field of Strategic management is driven by compulsions like contemporary developments in social and economic theory and recent changes in nature of business and economic context. Areas of Strategic Compulsions Orientation of Globalization - Global operations with MNC and other foreign business operations methods - New orientations such as International HRM and international Finance are emerging Emerging E-commerce and Internet Culture - wide expansion of WWW and technology business has moved to e-commerce - Online purchasing /Selling and Advertising Cut Throat Competition - Business has become hyper competitive where organizations can no longer survive without exectuive proper competitive strategy - general competitive intelligence to win the battle with competitors Diversification - increased uncertainty and business risk has increased -To diversity the risk the companies has the diversified operations - Focus on more than one business than, specialized in one business Active Pressure Groups - Modern world has various pressure groups like environmental activism and consumer protectionism - Identify and hear about the pressure groups Motive for Corporate Social Responsibility (CSR) -Ethics to keep-up their corporate reputation - Strategic Management should look into possible CSR and implement to the expectation of the society PURSUING COMPETITIVE ADVANTAGE BY COMPETING MULTINATIONALLY Achieving Locational Advantage Cost of the manufacturing or other activities are lower in geographical location Significant scale of economies Locations have superior resources, allow better coordination, offer other valuable advantages

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Transferring Competencies and Capabilities across borders -competing successfully in additional country markets and growing sales and profit in process

Helping a company to achieve dominating depth in some competitively valuable area Coordinating Cross border activities Companies that compete in multiple locations across the world can choose where and how to challenge the rivals May decide to capture the greater market share by having any short term loss with profit earned in other country markets Even the company can shift the production schedule can be coordinated world wide Accumulated expertise can be transferred via the internet ( knowledge sharing) STANDARDIZATION VS DIFFERENTIATION Two sides of debate of globalization Represent Local Marketing Versus Global Marketing Standardized(Global) Differentiated(Local) These are basically two distinguishable strategies applied in international marketing marketing standardization and differentiation Differences B/w Standardization and Differentiation

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Strategic Options Strategic Option/Choice is the final step in the strategy formulation phase in the strategic management It involves the selection of a strategy or set of strategies that helps in achieving organizational objectives. To assess the strength and weakness of Internal environment and opportunities of external environment Assessment presents a list of possible strategic alternatives Strategic Options in IB

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

FOUR STRATEGIES FOR DOING BUSINESS INTERNATIONALLY FACTORS AFFECTING STRATEGIC OPTIONS External Constraints - Survival prosperity of the firm depends upon interaction with its elements its owners (SH), customers, suppliers, competitors, government and community Intra-organizational forces and Managerial power relations - Major decisions are often influenced by power play among different interest groups - Strategic decisions are no exception - Strategic choice made by lower Mgt/Strategic mgt by top mgt Values and preferences and Managerial attitudes towards risk - Successful managers tend to prefer more pragmatic, dynamic, interactive and achievement oriented values - Who are risk takers for high returns in high growth less stable markets, they prefer to pioneers or innovators, seeking early entry into new high growth markets Factors affecting strategic options
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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Impact of the past strategy Choice of the current strategy may be influenced by earlier strategy Usually the starting point in the formulation of new strategies Change of strategy may call for replacement of the existing Time constraints in choice of strategy Time Pressure - Deadlines for making the decisions create time pressures Time frame - A aspect may be time dimension , i.e. short term or long term Time horizon - Period of commitment that goes with it - involves immediate action and has a short gestation gap Factors affecting strategic options Information constraints Choice of the strategy is the availability of information The degree of uncertainty and risk depends upon information Greater amount risk and lesser amount of information risk Competitors risk - Weighing strategic choices - Competitor adopt a counter strategy - Mgt must take into account the likelihood of the reaction, the competitors capability to react and its impact on the strategic choice

Global Portfolio Management GPM, International Portfolio Mgt, Foreign Portfolio Mgt means a grouping of investment assets that focuses on securities form foreign markets rather than domestic ones. Examples of portfolio mgt: Purchase of shares in a foreign company Purchase of bonds issued by a foreign government Acquisition of assets in a foreign company

Factors affecting Global Portfolio Investment Tax rates on Interest or dividends: Investors prefer to invest in a country where taxes on the interest or dividend is low Assess their potential after-tax earnings from investment in foreign securities

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Interest rates: Money tend to flow to countries with high interest rates as long as the local currencies are not expected to weaken Exchange Rates: When investors invest in security in a foreign country, their return is affected by: The change in the value of security The change in the value of currency in which security is determined If a countrys home currency is expected to weaken, foreign investors may decide to purchase securities in other countries. Modes of Global Portfolio Management Buying foreign securities or depository receipts directly from the domestic stock exchange Portfolio Equity Portfolio bonds

Approaching Global Mutual Funds -Investor buys the shares of internationally diversified mutual funds - There are many open ended mutual funds available - They prefer liquidity and try to allocate portfolio in proportion to the market capitalization Approaching close-end country - Close end funds are different from open ended - former makes and investment in internationals securities against the portfolio Buying directly the securities of domestic companies having global operations - Indirect way of participating in global economy -Investor does not have ample scope for reaping diversification benefits, in so far as the systematic risk cannot be reduced to that extent Problems of Global Portfolio Management Unfavorable Exchange rate movement - Cannot ignore the possibility of exchange rate changes - Changes influence the value of foreign portfolio as well as the earnings - If the Indian rupee depreciates, the value of Indian securities in terms of U.S dollar will be lower Frictions in International Financial Market - Market frictions manifesting in Governmental control, varying tax laws and explicit and implicit transaction costs. - Government try to administer international financial flows, through different forms of control mechanisms such as taxes on international flows and restrictions on outflow of funds. Manipulation of Security Prices - In real world, it is government and also the big brokers that influence the security prices.

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

- government influence them through monetary and fiscal policy - Public sector institutions and bank big chunk of securities traded on stock exchange Unequal access to information - wide cross cultural differences that inhibit global portfolio investment - It is difficult to collect the information by the international investor - In the absence of desired information, it is difficult to act rationally MODES OF ENTRY INTO AN INTERNATIONAL BUSINESS:-The choice based on nations long run profit potential.-Look in detail at economic and political factors which influence foreign markets.-Long run benefits of doing business in a country depends on following factors:- Size of market (in terms of demographics)- The present wealth of consumer markets (purchasing power)- Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit. Timing of entry:It is important to consider the timing of entry. Entry is early when an international business enters a foreign market before other foreign firms. And late when it enters after other international businesses. The advantage is when firms enters early in the foreign market commonly known as first-mover advantages MODES OF ENTRY: 1. Exporting 2. 3. 4. Licensing Franchising Turnkey Project 5. Mergers & Acquisitions

6. Joint Venture 7. Acquisitions & Mergers 8. Wholly Owned Subsidiary

Exporting It means the sale abroad of an item produced, stored or processed in the supplying firms home country. It is a convenient method to increase the sales. Passive exporting occurs when a firm receives canvassed them. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export functions and for procuring foreign sales. Advantages Of Exporting -Need for limited finance Licensing: In this mode of entry, the domestic manufacturer leases the right to use its intellectual property (i.e.) technology, copy rights, brand name etc to a manufacturer in a foreign country for a fee. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. The cost of entering market through this mode is less costly. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership, managerial, investment etc. Advantages -Less Risks -Motivation for exporting

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

1. Low investment on the part of licensor. 2. Low financial risk to the licensor 3. Licensor can investigate the foreign market without many efforts on his part. 4. Licensee gets the benefits with less investment on research and development 5. Licensee escapes himself from the risk of product failure. Disadvantages 1. It reduces market opportunities for both 2. Both parties have to maintain the product quality and promote the product . Therefore one party can affect the other through their improper acts. 3. Chance for misunderstanding between the parties. 4. Chance for leakages of the trade secrets of the licensor. 5. Licensee may develop his reputation6. Licensee may sell the product outside the agreed territory and after the expiry of the contract. Franchising Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. The franchisor provides the following services to the franchisee. 1. Trade marks 2. Operating System 3. Product reputation 4. Continuous support system like advertising, employee training, and reservation services quality assurances program etc. Advantages: 1. Low investment and low risk 2. Franchisor can get the information regarding the market culture, customs and environment of the host country. 3. Franchisor learns more from the experience of the franchisees. 4. Franchisee get the benefits of R& D with low cost. 5. Franchisee escapes from the risk of product failure. Disadvantages 1. It may be more complicating than domestic franchising. 2. It is difficult to control the international franchisee. 3. It reduce the market opportunities for both 4. Both the parties have the responsibilities to maintain product quality and product promotion. 5. There is a problem of leakage of trade secrets.

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Turnkey Project A turnkey project is a contract under which a firm agrees to fully design, construct and equip a manufacturing/ business/ services facility and turn the project over to the purchase when it is ready for operation for remuneration like a fixed price, payment on cost plus basis. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. Eg nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence they are multiyear project. Mergers & Acquisitions A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. It provides immediate access to international manufacturing facilities and marketing network. Advantages 1. The company immediately gets the ownership and control over the acquired firms factories, employee, technology, brand name and distribution networks. 2. The company can formulate international strategy and generate more revenues. 3. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. This strategy helps the host country. Disadvantages: 1. Acquiring a firm in a foreign country is a complex task involving bankers, lawyers regulation, mergers and acquisition specialists from the two countries. 2. This strategy adds no capacity to the industry. 3. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies. 4. Labor problem of the host countrys companies are also transferred to the acquired company. Joint Venture Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. It involves shared ownership. Various environmental factors like social, technological economic and political encourage the formation of joint ventures. It provides strength in terms of required capital. Latest technology required human talent etc. and enable the companies to share the risk in the foreign markets. This act improves the local image in the host country and also satisfies the governmental joint venture. Advantages 1. Joint venture provides large capital funds suitable for major projects. 2. It spread the risk between or among partners. 3. It provides skills like technical skills, technology, human skills, expertise, marketing skills. 4. It makes large projects and turn key projects feasible and possible. 5. It synergy due to combined efforts of varied parties.

B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Disadvantages: 1. Conflict may arise 2. Partner delay the decision making once the dispute arises. Then theoperations become unresponsive and inefficient. 3. Life cycle of a joint venture is hindered by many causes of collapse. 4. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. 5. The decision making is slowed down in joint ventures due to the involvement of a number of parties. Acquisitions & Mergers A merger is a voluntary and permanent combination of business whereby one or more firms integrate their operations and identities with those of another and henceforth work under a common name and in the interests of the newly formed amalgamations. Motives for acquisitions 1. Removal of competitor 2. Reduction of the Co failure through spreading risk over a wider range of activities. 3. The desire to acquire business already trading in certain markets & possessing certain specialist employees &equipments. 4. Obtaining patents, license & intellectual property. 5. Economies of scale possibly made through more extensive operations. 6. Acquisition of land, building & other fixed asset that can be profitably sold off. 7. The ability to control supplies of raw materials. 8. Expert use of resources. 9. Tax consideration. 10. Desire to become involved with new technologies &management method particularly in high risk industries.

Wholly Owned Subsidiary Subsidiary means individual body under parent body. This Subsidiary or individual body as per their own generates revenue. They give their own rent, salary to employees, etc. But policies and trademark will be implemented from the Parent body. There are no branches here. Only the certain percentage of the profit will be given to the parent body. A subsidiary, in business matters, is an entity that is controlled by a bigger and more powerful entity. The controlled entity is called a company, corporation, or limited liability company, and the controlling entity is called its parent (or the parent company).

Organizational Issues in IB

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Organization Issues in International business: 1. Centralization versus Decentralization: When designing its organization, an MNC must make a particularly crucial decision, one that involves the level of autonomy, power, and control it desires to grant to its subsidiaries. Decentralization allows managers of subsidiaries to make decisions which serve host country needs best, but overall interests of the firm are compromised. Centralization of decision-making helps the firm retain control at headquarters and protect the overall interests of the company, but the ability of subsidiary managers to respond quickly and effectively to changes in their local market conditions in curbed. 2. Use of subsidiary Board of Directors: Subsidiary of any international firm, particularly fully owned, will have its own board of directors to oversee the activities of the top level managers in that subsidiary. Four major areas in which MNCS use subsidiary boards have been identified: a) To advice, approve, and appraise local management b) To help the unit in responding to local conditions. c) To assist in strategic planning. d) To supervise the subsidiarys ethical conduct. 3. Non-traditional organizational Arrangements: In recent years. MNCs have increasingly expanded their operations in ways that differ from those used in the past. These includes acquisitions and joint ventures. 4. Role of Information technology : International businesses rely heavily on information technology because it lends competitive advantage to them. In fact, it is the search for competitive advantage that is driving the rapid development and adoption of IT. IT reduces the need for hierarchy and this helps bring down bureaucratic cost. 5. Integrating Mechanism:
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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

One of the issues relating to international business relates to the need for co-ordination among different subsidiaries and all of them with the parent company. The need for co-ordination is not felt much in multi-domestic companies as they are basically concerned with responding to local needs. The firm look towards integrating mechanism, both formal and informal, to help achieve co-ordination: i. Formal integrating Mechanisms: a) Direct contact b) Liaison Roles c) Teams d) Matrix structures ii. Informal integrating mechanisms: Many international firms also rely heavily on informal co-ordination mechanisms. Informal management networks can be very effective. 6. Control system: A major task of an MNCs leadership is to control the various subsidiaries whether they are defined on the basis of function, product division, or geographical area to ensure their actions are consistent with the firms overall strategic and financial objectives. a) Distance b) Diversity c) Degree of uncertainty d) Differences in Approach 7. Culture in International Business : Corporate culture is the set of shared values that defines for its members what the organization stands for, how it functions, and what it considers important. 8. Managing Change in International business: Change is common in any business, more so in overseas business. Change takes place because of environmental changes and change in technology and cultural values and mores.
ORGANISATIONAL STRUCTURES

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Initial Division Structures Subsidiary Common for financial and other service firms where main export is expertise

Export Arrangements Common among manufacturing firms, especially those with technologically advanced products

On-site Manufacturing Operations Responds to local government pressures and competition Reduces transportation costs

Division Structure International Description Handles all international operations out of a division created for this purpose

Advantages Assures that international focus receives top management attention Unified approach to international operations Often adopted by firms still in the developmental states of international business operations

Disadvantages Separates domestic from international managers May find it difficult to think and act strategically, or to allocate resources on a global basis

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Global Product Division Description Domestic divisions given worldwide responsibility for product groups Global product divisions operate as profit centers

Advantages Helps manage product, technology, customer diversity Ability to cater to local needs Marketing, production and finance can be coordinated on a product-by-product global basis

Disadvantages Duplication of facilities and staff personnel within divisions Division manager may pursue currently attractive geographic prospects and neglect others with longterm potential Division managers my spend too much time tapping local rather than international markets

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Global Area Division Description Global operations are organized on a geographic rather than a product basis

Advantages International operations are put on the same level as domestic operations Global division managers are responsible for all business operations in their designated geographic area Often used by firms in mature businesses with narrow product lines By manufacturing in a region, the firm is able to reduce cost per unit and price competitively

Disadvantages Difficult to reconcile a product emphasis with a geographic orientation New R&D efforts often ignored because divisions are selling in mature market

Global Functional Division Description Organizes worldwide operations primarily based on function and secondarily on product Advantages Emphasizes functional expertise, centralized control, and relatively lean managerial staff Favored by firms that Need tight, centralized coordination and control of integrated production processes Are involved in transporting products and raw materials between geographic areas Disadvantages Approach not used except by extractive companies such as oil and mining firms Coordination of manufacturing and marketing often is difficult Managing multiple product lines can be very challenging because of the separation of production and marketing into different departments

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Mixed or Matrix Structures

Description Combination of global product, area, and functional arrangements Cross-cutting committee structures Matrix structures Advantages Structure can be designed to best meet needs Promotes an integrated strategic approach tailored to local needs and priorities Disadvantages As the matrix designs complexity increases, coordinating the personnel and getting everyone to work toward common goals often become difficult Too many groups go their own way

CONTROLLING OF IB For achieving the goals predefined processes and instruments are required which influences the performance of the organization Control is essentially concerned with regulating the activities within the organization so that they are accord with the expectations established in policies , plans and practices. A major task of the firms leadership is to control on various basis of function, product, geographical and overall strategic and financial objectives. Objectives of Control It supply data for top management for monitor, evaluate and adjust Provide the means for coordination of the units toward common objectives It provide the basis for evaluating the performance of the units and managers at each level

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Personal Controls: Personal contact with the subordinates Most widely used in the small firms, where direct supervision Also structures the relationships between managers at different levels in MNE CEO may use a deal of personal contact to influence the behaviour of his immediate subordinates.

Bureaucratic Controls A System of rules and procedure that directs the actions of sub-units Capital spending rules require headquarters management to approve exceed certain limit

Output Controls It involves setting goals for subsidiaries to achieve the objectives Objectives criteria Productivity, Profitability, Growth, Market share and quality

Cultural Controls It exists when employees buy into the norms and value systems of the firm Employees tend to control their own behaviour which reduces need for direct supervision In a firm with strong culture, self control reduces the need for other control systems

Approaches to Control Market Approach - External market forces allowed to control the behaviour of the management within the units of MNs - Organisation are decentralized and transfer prices are freely negotiated - The decisions are largely directed by the market Rules Approach - Rules oriented organization

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

- Greater reliance on strongly imposed rules and procedures - Highly developed planning and budgeting system with extensive formal reporting - This types of control uses both the input and output controls in highly formalized way. Corporate Culture Approach - The members of the organization internalize the goals by developing a strong set of beliefs and values which influence their operations - Though the orgn.have strong norms of behaviour they are informal and less explicit - Major changes naturally takes more time to bring the needed organizational changes or adjustments Reports - Powerful control mechanism - Allocate resources/monitor the performance - Reward personnel - Reports must be frequent, accurate and up-to-date Visit to Subsidiaries - Not all the information exchange through - Corporate staff often visit subsidiaries to confer and socialize with local managers - Visit can serve the goal of controlling foreign operations because they enable the visitors to collect information and offer advice and directives. Management Performance Evaluation - Evaluate subsidiary managers separately from their subsidiary performance - Because of decision making authority differences something are beyond the control - Slow growth and risky economical and political environment - The company should still reward the countrys managers for doing a good job in the face of diversity Cost and Accounting Comparisons - Different cost among subsidiaries - Meaningful comparison of their operating performance - Set of book that are consistent with home country principles another to meet local reporting requirements CONSTRAINTS IN CONTROL SYSTEM Distance - Geographical distance and cultural disparities - But advent of email and fax transmission has replaced the human in communication Diversity - Needs locally responsive adjusting needs of the country in which operates Labour, cost, currency, factors, setting standards etc. Degree of Uncertainty

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

- Data relating to that are inaccurate and incomplete - Control implies setting goals and developing plans to meet the goals Differences in approach - Approaches are different in different countries - They are not at par in the approaches to controls are concerned PERFORMANCE MEASUREMENT OF GLOBAL BUSINESS

Establish Standard of Performance Standard of performance apply to many aspect of the orgn. Such as cost, quality, and customer service Incorporate more than one standard since they reflect expected levels of Mfg. performance such as process yields, product quality, overhead spending levels etc.

Measure Actual Performance Measures the actual results of the process Manual or Automated data collection system are requied to gather information Standard cost system includes labour hours, machine hours, material usage etc.

Analyze the Performance and Compare it with standards Measures the actual results of the process Manual or Automated data collection system are requied to gather information Standard cost system includes labour hours, machine hours, material usage etc.

Construct and Implement an Action Plan Variance analysis will highlight potential problem areas Indentify the source of the problem and develop plans to correct or improve the situation Effectiveness of performance system depends upon managements ability to act on the information provided

Review and Revise Standards Modern organizations are in a constant state of change Update periodically to reflect these changes Standards are updated once in a year during the standard setting process However if the variances are significant, the performance standards should be revised during the interim periods
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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

Effective Performance Measurement System Must be integrated with overall strategy of the business Be a system of regular feedback and review of actual results against original plan and performance Must be comprehensive, needs t include the factors that contribute to the organizations success such as competitive performance, quality of services and innovation

Requires the range of financial and non-financial indicators

Effective Performance Measurement System Owned and supported throughout the organization, the implementation must be top-down Measures must be fair and achievable System and results reporting must be simple, clear and understandable Need to prioritize and focus so that only the key performance indicators for the business in strategic terms are measured Performance Evaluation System The periodic review of operations to ensure that the objectives of the enterprise are being accomplished The MNC must have an accounting information to evaluate domestic and foreign operations The proper measurement of the performance of an individual, a division, a subsidiary or even a company as a whole is not simple Objectives of Performance Evaluation To evaluate the economic performance of its international operations To evaluate the units management performance To monitor progress toward corporate objectives including strategic goals To assist the efficient allocation of resources Various Performance Indicators Financial Measures - ROI (Return on Investment) - ROI = Division return(Segment Margin) Investment In division - ROI = Division controllable return(Managers Contribution Controllable Investment Most common method to evaluate the return on investment Relation ship of profit to invested capital It encompasses all the important factors in a single measure Logical motivator of the managers since they are evaluated by ROI, they will act to maximize the ROI of their units Budget as Success indicator

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B.Narayanan, Assistant Professor, Shivani School of Business Management

BA6221- INTERNATIONAL BUSINESS MANAGEMENT

Unit 3

- Budget as a accepted tool for controlling operations and forecasting future operations - Clearly set out objectives of the entity - Budget gives the managers to set their own performance standards - Headquarters must rely to greater extent on good local or regional budgets which help facilitate the strategic planning process Non Financial Measure - Market Share - Percentage of Sales - Exchange Variations - Quality Control - Productivity Improvement Types of Performance Evaluation System Budget Programming - Prepared for planning and financial control - Easy to compute the variance - To measure current performance in relation to comparable performance in the past Management Audit - Extended financial audit system - Monitors the quality management decisions in financial operations - It appraises and audits the functioning of the management Types of Performance Evaluation System PERT(Programme Evaluation Review Technique)

- It is based on CPM(Critical Method) - It delineates a given project or program into network of activities or sub-activities with a view to optimize the time - The performance is measured by comparing the scheduled time and cost inputs with the actual time and cost inputs Management Information System - Ongoing information system designed to plan, operate, appraise, monitor, control and redirects the total management towards the determined targets and goals -MIS is all pervasive and encompass the financial, physical budgeting, management audit and control systems of the PERT

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B.Narayanan, Assistant Professor, Shivani School of Business Management