Multinational companies—companies that operate in multiple countries—are often decentralized because centralizing the control of their subunits around the world can be physically and practically impossible. Also, language, customs, cultures, business practices, rules, laws, and regulations vary significantly across countries. Decentralization enables managers in different countries to make decisions that exploit their knowledge of local business and political conditions and enables them to deal with uncertainties in their individual environments. For example, Coca-Cola maintains a global brand strategy and architecture but delegates major decisions to overseas markets, including franchise relations with bottlers, new product launches, and locally relevant communication, pricing, and packaging. Multinational corporations often rotate managers between foreign locations and corporate headquarters. Job rotation combined with decentralization helps develop the ability of managers to operate in the global environment.
There are drawbacks to decentralizing multinational companies. One of the most important is the lack of control and the resulting risks. In 1995, Barings PLC, a British investment banking firm, went bankrupt and had to be sold when one of its traders in Singapore caused the firm to lose more than £1 billion on unauthorized trades that went undetected. Similarly, in 2011, a London trader working for UBS, Switzerland’s largest bank, circumvented the bank’s risk controls and made unauthorized trades that resulted in a $2.3 billion loss for the company. UBS’s CEO and other top managers resigned because of the scandal. Multinational corporations that implement decentralized decision making usually design their management control systems to measure and monitor the performance of divisions. Information and communications technology help the flow of information for reporting and control.