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Review
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Since the early 1950's the literature dealing with international management
creased tremendously, and yet our knowledge concerning the management practic
effectiveness of American subsidiaries abroad has increased very little. Except f
neglected studies of this sort. The recent efforts to study management in interna
perspective have been directed mainly toward the investigation of interaction b
environment-cum-culture and management practices. Although this, by itself, is
useful approach, many so-called comparative management theorists have focused
on environment, and in so doing have forgotten "management baby"2.
follows:
aries (Boston: Division of Researdi, Harvard Business Sdiool, 1953); and F. Harbison and
C. A. Myers, Management in the Industrial World (New York: McGraw-Hill Book Company,
1959).
2
See,
for
example,
R
Progress
(Homewood
see
S.
B.
Prasad,
"Com
nal
of
AIESEC
Inter
Management
Theory
81
97;
and
Jean
Bo
Scott,
Foresman
and
For
detailed
disc
Management
(New
Yo
4
For
a
research
desig
and
comparable
loca
Determine
the
App
and/or
Environment
319-323.
Based
on
th
For
the
findings
see
1971/4-5
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97
The main purpose of this paper is to report the findings of our study concerning the
developing countries. The study was undertaken in Argentina, Brazil, India, the Philippines, and Uruguay.
Sample and Method
A total of 92 industrial firms were studied. Of these, 47 were American subsidiaries and
45 were local firms comparable in size, technology, location, sales, volume, and product
lines. Semi-structured interview techniques were employed to collect necessary data from
the companies; five researchers were involved in conducting these interviews. On the
average, we interviewed 20 senior and middle-level executives and 25 supervisors and
blue-collar workers in each company studied. These interviews took some three to ten
working days for each company.
Research Findings
The paper reports the findings concerning the following management practices and
effectiveness:
a) Planning process
b) Organizing
c) Manpower management
d) Controlling
e) Leadership
f) Employee morale
g) Interpersonal relationships
h) Absenteeism
j) Turnover
Planning Process
Planning is considered a prerequisite to the company's growth and profitability. The
Stanford Research Institute, for example, found that ain cases of both high growth and
low growth companies, those that now support planning programs have shown a superior growth rate in recent years"5.
Formal comprehensive planning is still a comparatively new practice even among large
scale U.S. companies. As the recent research of Ringbakk indicates, formal long-range
planning is generally no more than aivory tower" planning by staff to which line
managers are unwilling to commit themselves6. Nevertheless, the studies by Holden and
5 Quoted from George A. Steiner, "Does Planning Pay Off?" California Management Review,
Vol. V, No. 2 (Winter, 1962), p. 37.
6 Kjell-Anne Ringbakk, Organized Corporate Planning Systems: An Empirical Study of Planning Practices and Experience in American Big Business, unpublished Ph. D. dissertation, University of Washington, 1968.
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his colleagues7 and George Steiner8, among others, suggest that an increasing number of
American firms do plan for a period of at least five years.
Planning Orientations of Companies Studied
The analyses of data concerning the nature and time-orientation of planning, as well as
the nature and review of plans among those 92 companies, suggest that the U.S. subsidiaries' plans are systematic, of long duration (five years or more), and comprehensive,
as compared to those of the local firms in the five countries studied. For example, of the
the diverse socio-economic, political, legal, and cultural factors, as well as the local
business orientations toward a short-range profit philosophy. Needless to say, the
To be sure, some of the environment factors in these countries create problems for
undertaking long-range planning. Many executives mentioned the following environmental factors affecting planning processes:
1. Economic and political instability
2. Runaway inflation
3. Governmental control on prices and the availability of raw materials
4. Unfavorable governmental attitudes towards the business community
5. Lack of competition
In spite of environmental constraints encountered in planning, executives felt that the
organization does need a sense of direction. For example, an American executive of a
U.S. subsidiary in India expressed:
It is true that our forecasts and targets will never be realized in India due to
the economic and price instability and uncertainties of the availability of raw
materials ... but if we don't plan for five or six years, our people will lose a
sense of direction; and as a company, we will never grow in a systematic
manner . . . our growth is largely due to our long-range planning. (The company
expanded its sales by 150 per cent during the five year period.) It gives us a
Book
Company,
1968),
p.
3-4.
__
_____
their
sales
by
three
1971/4-5
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to
99
four
Organizing
In the last decade or so, management concepts such as "decentralization**, "participative
management", "project management", and "theory Y" have become prevalent in managerial thinking and practices. In essence, all of these concepts convey the message to
delegate authority and push decision-making power down to the lower levels. The
to follow the authoritative pattern widely practiced by the local firms in under-
developed countries.
To determine the degree of decentralization and delegation of authority in U.S. subsidiaries and local firms in these countries, we investigated the following factors:
1. Layers of hierarchy
2. Locus of decision-making with respect to major policies
3. Authority definition
4. Decision-making with respect to the setting of standards
was 1.77 while the comparable local companies' index was 2.06. Although the dif-
ferences between these averages were not found statistically significant, the distribution
pattern shown in Table 1 indicates that the larger number of U.S. subsidiaries were
relatively decentralized as compared to the local Indian companies.
10 For details see A. R. Negandhi and B. Reiman, "Task Environment, Decentralization and
Organizational Effectiveness", Forthcoming.
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Table 1
Decentralization Index for the U.S. Subsidiaries and Local Firms in India
to
1.5
1.6
to
2.0
2.1
to
2.5
2.6
to
3.0
Average
Index
1.77
2.06
among
subordinates
manager
of
large
as
well
company
as
in
the
Urugu
ment
guided
tralized
decision-making
Manpower
Manpower
as
ways
of
im
Management
Policies
1971/4-5
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ample, of the 17 U.S. subsidiaries and 17 comparable local companies in India, 8 of the
former and 12 of the latter have formally stated policies. Generally, American subsidiaries paid more attention to such policies. This was somewhat clearer when we examined data concerning the locus of such policy-making. We found that the U.S. subsidiaries had had extensive discussions among committee members for formalization of
manpower management policies.
Formalization of manpower policies in the other four countries did not necessarily
follow this pattern. In Latin American countries only 5 out of 20 U.S. subsidiaries and
5 of the 17 local companies seemed to have formalized policies. In the Philippines the
proportion was still less; only 3 of the 10 U.S. subsidiaries and 1 of the 11 local companies formalized these policies.
Selection, Compensation and Development
Selection procedures, however, received greater attention among the U.S. subsidiaries.
Although the selection of managers was based on group-decision making in the U.S.
companies and local companies in all five underdeveloped countries, U.S. subsidiaries
seemed more "objective" about such decisions.
Formal training and development schemes, particularly for managerial and technical
personnel, were not prevalent among the companies studied. Only in a few progressive
companies was there some formalized training and development facilities.
The available data on compensation and promotion policies indicate that only a few
companies pursued a policy of maintaining salaries and wages above the going rate.
A majority of these companies followed the practice of compensating employees at
going rates.
Data on the following factors were collected to evaluate control systems utilized by
the American subsidiaries and local firms:
a) Quality control
b) Cost and budgetary controls
c) Equipment maintenance
d) Feedback and reporting systems
Analyses of these data reveal that the majority of the American subsidiaries in all five
developing countries undertook the quality control, cost and budgetary controls, and
equipment maintenance in a systematic manner. These functions were carried out by
well-qualified and trained personnel in the American subsidiaries. The feedback and
reporting systems were also well-developed in these companies. Among the local companies, only a few of the progressive firms instituted systematic control mechanisms.
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Leadership Style
Management scholars, as well as practitioners, have devoted considerable attention to the
leadership concept and style. In earlier days, attention was focused mainly on identifying "born" attributes of the leader. Since then, however, researchers have endeavored
to develop comprehensive theories of leadership. Although some researchers tend to
equate the leadership concept with that of management, we are among those researchers
who are inclined to consider leadership as one of the important aspects of management.
b) Democratic
c) Bureaucratic
The usual management literature definitions are ascribed to these styles of the leadership11.
We also attempted to learn something about the superiors' perceptions of their subordinates. These data were classified into three categories: (a) subordinates regarded as
confident and trustworthy; (b) subordinates regarded as somewhat confident and trustworthy; and (c) subordinates regarded as not trustworthy and confident.
As one would expect, a larger number of U.S. subsidiaries practised a democratic form
of leadership. Specifically, there were 23 of the 47 subsidiaries, as compared to 13 of the
45 local companies, using this form of leadership.
Data collected from companies in India concerning the superiors' perceptions of subordinates support the above findings. Here we found that in a large majority of the
U.S. subsidiaries, superiors perceive their subordinates as trustworthy and confident,
while in a large proportion of the Indian companies, superiors did not feel this way.
Management Effectiveness
In operationalizing effectiveness criteria, we differentiated between management effectiveness and enterprise effectiveness. The former refers to a firm's effectiveness in managing its human resources; the latter deals with the traditional economic and financial
measures.
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c) Turnover
Employee Morale
Employee morale in a large majority of the U.S. subsidiaries and local companies was
much less than "desirable". For example, of the 47 U.S. subsidiaries studied, only 11
were able to attain high employee morale. These companies were more successful than
their counterpart local companies in fostering good employee morale largely by paying
higher relative wages and maintaining better working conditions. Still, worker morale
was substantially lower than that of their States-side work forces.
Interviews with some 500 blue-collar workers and supervisors revealed the following
environmental factors as causes: governmental attitudes toward the business community
tions; health and physical well-being; unstable political and economic situations; and
movements. However, in doing so, they have greatly increased the expectations and
aspirations of the industrial worker - in some cases far beyond practical considerations.
Chronic inflation has further widened the gap between the worker's expectations and
actual realizations.
Caught between rising living costs and falling purchasing power, the industrial worker
in underdeveloped countries has become prey to any and every outside force promising
him a better deal. He is exploited by local political parties, governments, and politically
oriented labor unions. Well aware of this, he has lost faith to the point of alienation
from all sides and no longer belongs to any particular reference group.
Under such circumstances, American companies find it difficult, if not impossible, to
attain high employee morale, good interpersonal relationships, and higher productivity.
Of course, higher relative wages, better working conditions, opportunity for advancement and personal growth, proper training of the supervisors and workers, and fair and
equitable employment policies were helpful in improving employee morale and satisfaction in work. This is how some of the American companies have been able to maintain
a somewhat favorable level of morale among their employees. In terms of interpersonal
relationships among workers and supervisors, almost all companies studied were very
"low" in attaining cooperative relationships among the employees.
On the basis of such socio-cultural traits as the agrarian outlook, strong family ties, low
levels of education, respect for age and authority, and high degree of need dependency,
one would expect a higher level of cooperativeness among workers and supervisors in
underdeveloped countries. However, our data suggest quite the contrary. Interviews
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with managers, supervisors, and blue-collar employees revealed the following environmental factors affecting interpersonal relationships in industrial enterprises in the coun-
tries studied:
e) Inflation
These factors have been discussed in some detail elsewhere12. It is interesting to note,
however, that among the factors outlined above, the most frequently mentioned factor
affecting interpersonal relationships was unemployment. This was vividly expressed by
the workers an India and Argentina:
I dare not say anything to anybody . . . my uncle has taught me a good lesson . . .
not to trust anybody in the factory . . . and not tell my secrets to other ... I do
not wish to go back to my village ... (A worker in India)
Mr. . . . cooperation is for the birds ... we human beings talk a lot about it, but
when it comes to save your skin ... it evaporates ... I feel sorry for my friend
Absenteeism was found to be high among companies studied. In some of the U.S. subsidiaries and local companies surveyed, it was as high as 35 per cent. On the average,
absenteeism rates were 15 to 20 per cent.
Although absenteeism rates are high in these countries, the labor turnover is low, running from 1 to 3 per cent in most of the companies studied. Principal cause was the high
level of unemployment in these countries. Because of this, a worker is not likely to leave
his company - and there is nothing one can do to fire him, principally because of permissive labor legislation in most emerging nations.
An intensive inquiry among the closely matched pharmaceutical firms in India (n = 10)
indicated that the location of the firm, climatic conditions and poor health and wellbeing of workers, and permissive labor legislation were responsible for high rates of
absenteeism among these firms.
High-Level Manpower
All management effectiveness criteria concerning high-level manpower were within the
realm of management control. For example, more progressive firms, through such
mediating variables as higher relative wages, better working conditions and opportunities for advancement and self-growth, and clearer statements of objectives, goals and
procedures, were able to hire and retain high-level managerial and technical personnel.
12 A. R. Negandhi and S. B. Prasad, Comparative Management, op. cit., Chapters 7 and 8.
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tries studied were able to utilize modern management practices and achieve higher
management effectiveness. This, by itself, is not very astonishing; one would expect
this to be so. However, we also found that some comparable local firms in all five of
the underdeveloped countries studied are able to match the performance of the U.S.
subsidiaries.
As mentioned earlier, writings in the comparative management area suggest that the
environmental and cultural variables are dominant factors, and perhaps determinants,
recent international conference on social and cultural factors in management development observed: "Management subjects like administrative practices . . . are especially
It would be immature to suggest that environmental and cultural factors do not affect
management practices and effectiveness. However, the actual causal relationships among
environmental variables and management practices and effectiveness still must be determined. It is fair to say that, thus far, systematic attempts have not been made in this
direction.
Our findings suggest some caution in this regard. Although this study reveals the considerable impact of environmental and cultural factors on management effectiveness,
particularly on employee morale, absenteeism, turnover, and interpersonal relationships,
various elements of management practices and effectiveness were under the purview of
managerial control. More specifically, management practices concerning planning, organizing, staffing, and controlling, as well as management effectiveness in handling
high-level manpower, are not unduly constrained by the environmental and cultural
factors. In other words, in a given socio-economic and cultural world, there are a number of options open to managers of industrial enterprises.
A manager is not necessarily a passive agent. He actively interacts with his environment
and tries to mold environment to achieve desired results14. We thus visualize a constant
interaction between the manager and environment, each affecting the other. How well
he is able to mould the environmental constraints will have considerable bearing upon the
firm's effectiveness. By treating environmental variables as determinants, or explanatory
variables, in analysis of management practices and effectiveness in cross-cultural settings,
we may unnecessarily limit our horizon and understanding of other significant variables.
In other words, as Boddewyn has aptly remarked, "A real danger exists ... of letting
the environment crowd out the comparative analysis. Comparisons are somewhat precariously balanced between management itself and its environment"15. One needs, there13 Kamla Chowdhry, "Social and Cultural Factors in Management in India and the Role of
the Expert", International Labor Review, Vol. XCIV, No. 3 (August 1966), 132.
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fore, to take care, he adds, "not to throw out the management baby with environmental
The study reported in this paper was supported by the Ford Foundation Grant given
U.C.L.A. The Center for Business and Economic Research at Kent State University provided the support for this entire study. I wish to acknowledge and express my deep
gratitude to these organizations for their financial support. I am also thankful to my
co-author Dr. S. B. Prasad for his various comments.
- Rsum -
1971/4-5
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107