The authors of the research paper surveyed exchange listed Chinese firms to investigate the relationship between competitive forces and the importance that the firms place on their management control systems, and whether the firms international market orientation moderates this relationship. Michael Porter's3 famous Five Forces of Competitive Position model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.
The researchers have taken one force from horizontal competition namely ‘Threat of new Entrants’ and one force from vertical competition namely ‘Buyers bargaining power’ to assess the importance the firms give for MCS.
Emerging market and MCS:
The researchers have reasoned that firms in emerging markets need to focus more on MCS for the following reasons: 1.
Emerging markets rely heavily on Foreign Direct Investment to accelerate their growth which necessitates the adoption of western accounting practices. 2.
Emerging-economy firms are expanding globally through mergers and acquisitions. 3.
Social, political and economic factors are likely to impact the importance placed on MCS. The researchers have identified in their research factors that affected their practice of MCS in China such as (a)
Chinese way of doing things(“under the table affairs”) (b)
View they held that MCS is a passive activity
MCS adoption depended on the leaders of the company
MCS adoption depended on the size of the company.
Management Control systems:
Management control system4 (MCS) is the process by which managers influence other members of the organization to implement the Organization’s strategies. MCS involves a variety of activities including 1.
Planning what the organization should do
Coordinating the activities of several parts of the organization 3.
Deciding what, if any, action should be taken
Influencing people to change their behavior.
It involves Formulation of Strategy, Implementation of Strategy by efficient and effective performance of the individual tasks ensuring goal congruence. Strategy formulation is the process of deciding on the goals of the organization and the strategies for attaining these goals. Management control is the process of implementing those strategies. Strategy implementation depends on the Organizational structure, Culture, Human resources and the Control/process adopted by the firms. International Market Orientation:
The researchers considered a firm to be internationally oriented when it depends to a great extent on foreign markets for customers and factors of production and when such dependence is geographically widely dispersed. International market orientation gives the firm opportunity to learn new product designs and global marketing strategies, develop alliances with foreign businesses and achieve economies of scale. They are better positioned to seek growth opportunities aggressively through market development and innovation. Threat of foreign entrants:
They found through regression analysis a positive association between threat of foreign entrants and the importance that the firms place on their MCS, but this association was larger for firms competing predominantly in the domestic market than for those competing predominantly in international markets. The researchers have found that this is due to the fact that firms competing in the domestic market have fewer alternative markets and few learning opportunities from abroad which limit their ability to sell products at higher margins. The entry of foreign firms creates...
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