Chapter 6

5.Describe the five constrains when evaluating subsidiary performance against the expectations from
the MNC. What do you think is the predominant constrain in measuring subsidiary of the MNC in Vietnam?
Difficulties faced by MNEs in implementing a multinational performance management system
Dowling, Festing & Engle (2013) propose 5 main challenges for MNEs when it comes to implementing and
managing a multinational performance management system:

The question of whole vs part:By nature, an MNE is a single entity that faces the challenge
of operating within a number of cultural contexts. It is for this reason that firms must often
make choices that promote the benefit of the firm as a whole over the success of certain
individual subsidiaries. If a subsidiary is deemed to have little importance in the grand scheme
of the organisations overall operations it may be assigned less resources, thus limiting the
extent to which that subsidiary could develop and implement its own performance
management activities.
The issue of non-comparable data:Because MNEs operate across a number of different
cultural contexts, data and information gathered from one subsidiary regarding what has and
what has not been successful may not be applicable to other branches of the organisation,
making objective performance appraisal of international managers difficult. Some countries
may have tighter labour or WH&S laws than others, some countries may be subject to higher
tariffs that distort pricing schedules, and some countries may have lower quality-control
thresholds than those that other subsidiaries operate within. This highlights the importance of
appropriately tailoring performance appraisal standards to suit the cultural contexts in order to
ensure impartiality.
Volatility in the Global Business Environment:Because different markets experience
different and sometimes volatile rates of economic fluctuation, it is important that the goals
that form the foundations of an MNEs international performance appraisal system remain
flexible and context-sensitive in order to respond to potential market contingencies. There
may be serious problems if subsidiary managers believe that the goals and deadlines set by
distant headquarters strategy teams are unreasonable.
Separation by Time and Distance:
Complications arise for MNEs in trying to co-ordinate a performance management system for

a number of reasons; namely physical distance, time-zone differences, frequency of contact

between headquarters staff and subsidiary managers and the cost of maintaining
communications systems. Despite the highly advanced and instantaneous nature of modernday communications systems, no e-communication can truly make up for a lack of face to
face contact when it comes to in-depth planning and discussion. Difficulties may also arise
when subsidiaries are situated in countries where infrastructure is not as advanced as the home
country, meaning that certain methods of e-communications are either not supported or patchy
at best. This may mean that discussion becomes difficult and/or infrequent, which can cause
extreme difficulties for international initiatives to be implemented.

Variable Level of Maturity Across markets:Because different countries have different levels of development
in terms of infrastructure, economy, business practices etc it is important to realise that a foreign subsidiary will
often require more time to achieve significant success than a comparable domestic operation. This is largely
because it has less of a support network to fall back on when struggling, and more time has to be devoted to
breaking into the market and setting up operations in a way which fits how the host country operates.
6. Explain why performance management is a part of a multinationals formal control. Give some
examples
What is international Performance Management?
By drawing on the works of Schmidle (2011) and Biron, Farmdale & Paauwe (2011) we can generally define
the term performance management as being the continuous process of identifying, measuring and developing
the performance of employees to best achieve the strategic objectives of the organisation.
To examine this phrase in terms of what it means on an international business scale, we can draw on the work of
Dowling, Festing & Engle (2013) in asserting that International Performance Management refers to the
evaluation of individual, subsidiary and corporate performance against clearly defined, pre-determined targets
to minimise inefficiencies and promote continuous improvement.
Controlling the system
The implementation of an International Performance Management system is much more difficult
compared to implementing a system domestically due to the fact that there is no clear locus of control because
of the many subsidiaries operating outside of the organisations home office. This could lead to difficulties and
ambiguities in the target setting and decision making processes. To overcome this, strategists from headquarters
must liaise with subsidiary managers in order to formulate a context-sensitive mix of global strategic outcomes,
as well as an appropriate system for measuring results. ( Varma, Budhwar & DeNisi 2008)

7. Describe the variables affecting expatriate performance. If you are a TCN expatriate working in
Thailand, what factor will have the most significant impact on your performance? What can you do to
improve your own performance?
Variable levels of maturity across markets: the need for relevant comparative data
A final factor influencing the performance of a subsidiary is the variable level of maturity across markets.
According to Pucik,10 without the supporting infrastructure of the parent, market de- velopment in foreign
subsidiaries is generally slower and more difficult to achieve than at home, where established brands can
support new products and new business areas can be cross- subsidized by other divisions. As a result, more time
may be needed to achieve results than is customary in a domestic market, and this fact ought to be recognized in
the performance management process. Further, variations in customs and work practices between the parent
country and the foreign subsidiary need to be considered. For example:
One does not fire a Mexican manager because worker productivity is half the American average. In
Mexico, that would mean that this manager is working at a level three or four times as high as the average Mexican industrial plant. Here we need relevant comparative data, not absolute numbers; our
harassed Mexican manager has to live with Mexican constraints, not European or American ones, and
these can be very different. The way we measure worker productivity is exactly the same, but the
numbers come out differently because of that environmental difference.11

In summary, there are a number of significant constraints that must be taken into account when considering
foreign subsidiary performance. Because performance measurement is primarily based on strategic factors, it
affects the appraisal and success of the subsidiarys chief executive and senior management team most directly.

8. What are types of goals in performance criteria? What type of goals should we focus on when
developing performance criteria for an employees? Develop performance criteria for an expatriate sales
team leader of a EU-based elevator company who work in Vietnam.
Performance Criteria

Hard Goals Objective, quantifiable and can be directly measured e.g. Market share,
Return-on-Investment (ROI).
Soft Goals Relationship or trend-based e.g. interpersonal skills or leadership style.
Contextual Goals Takes into account the factors that result from workplace situations

in which performance occurs e.g. financial tools

ISSUE:
Focusing on the hard criteria such as financial data of the business does not consider the way
goals are achieved and thus behaviours are not considered when obtaining these results
Performance criteria
The global firms ability to measure an employees individual contribution to performance and to assess the
aggregate contribution of human capital to strategic progress is a complex and timely topic in organizational
studies.42 Goals tend to be translated into performance appraisal criteria so specificity and measurability issues
are important aspects, and we need to recognize that hard, soft and contextual goals are often used as the basis
for performance criteria. Hard goals are objective, quantifiable and can be directly measured such as returnon-investment (ROI), market share, etc. Soft goals tend to be relationship or trait-based, such as leadership style
or interpersonal skills. Contextual goals attempt to take into consideration factors that result from the situation
in which performance occurs. For example, MNEs commonly use arbitrary transfer pricing and other financial
tools for transactions between subsidiaries to minimize foreign-exchange risk exposure and tax expenditures.
Another consideration is that all financial figures are generally subject to the problem of currency conversion,
including sales and cash positions. Further complications could arise because some host governments (usually
emerging economies) may decide to place restrictions on repatriation of profits and currency conversion. The
nature of the international monetary system and local accounting differences may also preclude an accurate
measurement of results. The dilemma this poses is that the use of transfer pricing and other financial tools is
necessary because of the complexity of the international environment. Multinationals cannot allow subsidiaries
to become autonomous in financial management terms, and place controls on subsidiary managers. Thus, the
financial results recorded for any particular subsidiary do not always accurately reflect its contribution to the
achievements of the MNE as a whole. Therefore, such results should not be used as a primary input in
performance appraisal.43 For this reason, a performance management approach is now advocated, rather than
traditional performance appraisal, as it allows clarification of goals and expectations of performance against
those goals.
Janssens44 suggests that performance appraisal of subsidiary managers against hard criteria is often
supplemented by frequent visits by headquarters staff and meetings with senior managers from the parent
company. Soft criteria can be used to complement hard goals, and take into account areas that are difficult to
quantify such as leadership skills, but their appraisal is some- what subjective and, in the context of both
expatriate and non-expatriate assignments, more complicated due to cultural exchanges and clashes. However,
relying on hard criteria such as financial data to evaluate how well a manager operates a foreign subsidiary does
not consider the way results are obtained and the behaviors used to obtain these results. 45 Concern with
questionable ethical practices led to the enactment of the US Foreign Corrupt Practices Act (FCPA), which may

prompt an increased use of behavioral as well as results data to appraise the performance of managers in foreign
subsidiaries.46 However, an appraisal system that uses hard, soft and contextual criteria builds upon the
strengths of each while minimizing their disadvantages.47 Using multiple criteria wherever possible is therefore
recommended in the relevant literature. In addition, job analysis must, as Harvey 48 suggests, generate criteria
that adequately capture the nature of international work as opposed to the domestic context, in order to provide
valid appraisal information.