The design and use of management control systems in a Chinese multinational corporation : a neo-institutional perspective

This study investigates the role of management control systems (MCS) in a Chinese multinational construction company (International GS). In particular it explores how MCS rules and mechanisms for overseas operation (e.g. budgetary control, cost control, performance measurement and incentive system and localized management) are designed in the case company’s head office in China (GSLZ), and how these formal rules and mechanisms are implemented in one of its overseas subsidiaries in Ghana (GSJN). In-depth semi-structured interviews were carried out with top and middle managers in both research sites, alongside reviews of documents. A neo-institutionalist theoretical framework, drawn from Scott’s (2013) theoretical concepts of regulative, normative and cultural-cognitive institutions, are combined with the notion of contextualization (Tsui, 2006, 2007) to interpret and analyse the case study findings. Findings from the head office show how regulative and normative institutional pressures conflictingly and simultaneously circumscribed the company’s MCS design. Whilst the MCS rules were designed in accordance to regulatory pressures and in particular as a result of the government’s pursuance of a ‘marketization’ policy, it also revealed an authoritative control mode emphasising centralization, compliance and military approaches. The study of MCS implementation further showed that although rules were imposed in the Ghanaian subsidiary, practical variations emerged as a response to the contradictions in the setting of MCS rules and mechanisms, and localized management control practices were also established to adapt to the local political and market needs. However, this study further reveals that a specific logic (i.e. ‘policy orientation’) pervaded the Chinese managers’ design and use of MCS, leading to a problematic role of MCS in practice and a failure to achieve the objectives of localized management. Informed by Scott’s idea of a cultural-cognitive institutional order, this study further contends that the Chinese managers’ specific logic arose because their cognition were shaped by, and reflected, certain intrinsic notions derived from the interactions between regulative and normative institutions. Furthermore, this study argues that the unique Chinese culture, as the fundamental institutional logic, provides the infrastructure on which not only beliefs, but norms and rules rests. Two characteristics of Chinese culture (i.e. paternalism and Guanxi) have been identified to explain the rationalities behind the problems of MCS design and use in the case company. Due to the increasing presence of Chinese multinational corporations in emerging and less-developed economies, this study aims to offer new insights in the study of MCS development and dissemination in non-western contexts. Moreover, the particular focus on a construction company brings new evidence since this sector, in spite of its size and importance in modern economies, rarely features in management accounting and control research. Lastly, this study contributes to extant cross-cultural accounting work. Whilst recent work remains influenced (and limited) by Hofstede's notions of national culture (Baskerville, 2003; Joannides, Berland and Wickramasinghe, 2010), this study highlights how the underlying facets of Chinese culture are relevant to the design and use of MCS in Chinese multinational corporations.