HBC case

Case Write-Up – HBC case
HBC, to certain extent, managed to run the operations and reduce private trade in multi-location firms with limited frequency of communication by employing a range of strategies.
One device was formal contract structure with high salaries, gratuities, bonds and oaths to reduce the level of opportunistic behavior. However it only works if managers believed there existed little possibility of being caught and losing their salary.
The second approach was to monitor the activities of its managers through straightforward monitoring devices and internal control mechanism to ensure that the managers should follow rigorous standards.
The third approach was to create a social structure within the company to reduce the level of private trade.
Though the technology has developed so much and global environment has changed significantly since then, today’s global companies can still learn from HBC with respect to long-term survival.
The formal contract structure with high salary and package still works to reduce the level of opportunistic behavior. Most of global companies pay high management cost to control the business from far away though it increases overall cost to manage the business which needs to be balanced out by creating more value through revenue and cost reduction in other areas.
With the availability of various monitoring technology, global companies have more tools to monitor the activities of its managers. For instance, E-One, P2P and O2C system are used to monitor transactions from distance. Quite often, internal audit is conducted to control the local operations. The principles are same as HBC’s.
Creating a social structure as family is still a very effective way to reduce the level of private trade nowadays. However a lot of global companies do not use it well which leads to failure of overseas development. For instance, Cemex’ integration strategy is to completely change the management team and draw clear boarder between managers and local s which create mis-trust and private trade increases.
Another approach that a lot of global companies are using today is to rotate senior manager every 3~5 years to reduce private trade by breaking long term networking.