In the context of multi-national companies, cultural distance is the difference in the way business is conducted between companies of different cultural backgrounds. Dikova and Witteloostuijn’ s (2005, p. 24-25) research suggests that there is a significant positive correlation between cultural similarity and the performance of the subsidiary. Also, they cite Anderson, et al (p. 24) arguing against foreign investments for the sole purpose of increasing short-run financial performance although they do qualify the target market as “ young” and “ high-risk” . In this context, some thought needed to be given by Nissen to alleviate any expectation bias that might creep in due to ‘ cultural distance’ .Some clarity on the purpose of performance evaluation would be helpful.
Watty and Terigolu (1999, p. 11) cite Choi and Chechowicz finding that the goal of evaluation procedures in MNCs is to: 1.Ensure adequate profitability2.Have an early warning system if something is going wrong3.Have a basis for the allocation of resources4.Evaluate individual managersClearly, while sustainable profitability is the driver in performance evaluation at MNC, the current method for Niessen Peru has sufficient drawbacks to consider a change. That they are not following the original evaluation plan is also sufficient reason to consider a change.
Additionally, the original decision to use arm’ s length pricing as a means to prevent inflating profits were soon forgotten under the performance pressures of the parent. In considering a change in the evaluation methodology a framework needs to be developed that would be acceptable both to Niessen and Valencia. As Kren (1997, p. 92) discovers line managers (agents[ Kren examines Agency theory research where the relationship between the owner and line manager is characterized by a principal-agent transaction mode. ]) “ … self select compensation contracts based on privately (self) known skill level and risk preference” .
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