Control mechanisms of MNEs: an empirical study

Abstract

Purpose This purpose of this paper is to explore variations in the extent of control mechanisms, according to country of origin and organizational characteristics, in a challenging country of domicile. Design/methodology/approach A survey research design involving the use of a questionnaire as the primary data source was adopted. A total of 350 subsidiaries were initially randomly selected and contacted in person, or via telephone and e-mail, of which 147 agreed to take part in the study and responded to the survey. Findings The authors find that Multinational Enterprises (MNEs) from highly financialized Liberal Market Economies will be associated with a greater reliance on formalized control mechanisms; this will enable the MNE’s headquarters to closely monitor subsidiary managers according to objective measures, to ensure that the maximum shareholder value is released. Research limitations/implications This study reveals a greater reliance on control mechanisms in larger firms, reflecting a desire to maximize bureaucratic economies of scale. Practical implications The authors find that the presence of expatriates regardless of country of origin leads to greater decentralization, suggesting foreign firms do not trust local staff. Originality/value This is one of the few studies of this nature conducted for the region of Middle East – and the only one the authors are aware of for Saudi Arabia. Further, it sheds new light on the impact of contextual circumstances on how closely firms monitor their subsidiaries, the challenges of doing business in the Gulf region and the consequences of the large-scale usage of expatriates.