An international firm’s control system must not only support the firm’s strategy; it must

produce behavior and flexibility by subsidiary managers to manage within various host-
country environments. Thus control systems and the problems associated with them are
far more complex in multinational company than in one that is purely domestic, because
the multinational operates in more than one cultural, economic, political, and legal
environment. Let us examine a new of the most important international variables having a
major negative impact on the flow of information between headquarters and subsidiaries.
These variables, in turn, influence the effectiveness of the international company’s
control system.
Despite the sophistication and speed of contemporary communication systems, the
geographic distance between a parent company and a foreign affiliate continues to cause
communication distortion. Differences in language between the parent company and its
foreign affiliates are also responsible for distortions in communication. Language
barriers caused by language differences involve both the content and the meaning of
messages. Many ideas and concepts are not easily translatable from one language to
another sages. Many ideas and concepts are not easily translatable from one language to
another. Moreover, geographic distances prevent most facet-to face communication, so
the message of nonverbal communication are lost.
Problems are also caused by misunderstanding the communication habits of people in
other cultures. Managers of different cultures may interact and yet block out important
messages, because the manner in which the message is presented many mean something
different in the sending and receiving cultures. For example, a manager may specific
host-country environmental factors could increase market variation and must be
considered when developing performance measurement and control systems.
The factors include:
1) the cultural distance between the headquarters home country and the country
hosting the international firm’s subsidiary.
2) The degree of host-country political risk as reflected in the host governments
restrictions on the international firm’s operations
3) Economic factors such as the volatility of host country’s foreign exchange rates
and host-country inflationary pressures that the are linked to foreign exchange
movements.
The influence of these three factors on the international firm’s control system is
discussed in the following sections. In general as the host country moves further
away from the origin in terms of cultural distance, political risk, and economic
instability, the control system will tend more towards input control.