Performance Evaluation of Foreign Subsidiaries

Seminar paper from the year 2008 in the subject Business economics - Controlling, grade: 1,7, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, course: Seminar Controlling, language: English, abstract: Long before the globalisation had become a buzz word and an impetus for companies to

invest abroad, enterprises enlarged their ¿business playing field¿ into foreign countries

for various reasons, such as to capture a new market, to secure resources, or to take advantage

of local cost levels. Therefore, subsidiaries are heavily involved in the value

creation process for and within multinational corporations (MNCs). However, despite

the fact that the measurement of performance is crucial for globally active companies

not only in steering the value creation for the MNC but also, for example, in fostering

international expansion or guiding resource allocation, MNCs differ significantly in the

extent to which they are aware of the performance of their subsidiaries.

Due to the fact that strategic decisions regarding the global expansion of a MNC require

a wide and clear information basis to be able to assess how successfully a foreign subsidiary

has conducted its business or under what possibly unfavourable environmental

conditions the business results were achieved, multinational enterprises have to implement

a system for evaluating the performance of their foreign subsidiaries and their

management. Therefore, this paper aims to analyse the central aspects to consider in the

evaluation of the performance of foreign subsidiaries.

This paper is divided into five chapters. After a short introduction to the theoretical

background of performance evaluation in chapter 2, the paper continues in chapter 3

with the central issues of an effective performance evaluation system for foreign subsidiaries

with a clear focus on the aspect of separating managerial and subsidiary performance.

Then chapter 4 illustrates the measures used for evaluating foreign subsidiary

performance. Finally, the paper concludes by emphasising that an MNC can properly

evaluate the performance of it foreign subsidiaries only by considering the specific environmental

factors of the foreign country, separating managerial and subsidiary performance,

and supplementing financial with nonfinancial measurements.

[...]