Uncertainty and vertical control: An international investigation

This research investigates the effect of the environment on levels of vertical control in the international business arena. Both organizational economics and resource dependency perspectives emphasize, among other things, the impact of environmental uncertainty on organizational structures. Political economy models, in turn, incorporate these two perspectives, and emphasize the interaction between economic and sociopolitical forces in the environment. Although environmental uncertainty has been developed from a conceptual or theoretical standpoint, it has not received sufficient attention from an empirical standpoint. In short, empirical studies in this area have often presented a simplistic, one-dimensional picture of the business environment [Achrol, R.S. and Stern, L.W. (1988) Environmental determinants of decision-making uncertainty in marketing, Journal of Marketing Research, 25, 36-50]. The present study not only explores empirically the intricacies of environmental uncertainty from an international perspective, but also considers if uncertainty affects the likelihood of vertical governance. Data from 60 Norwegian-owned export companies operating in Poland and Germany indicate that market uncertainty in the host country and behavior-based (fixed) compensation systems induce vertical control, and that positive work force culture (e.g. low levels of shirking behavior and/or high levels of motivation) mitigates the need to control foreign subsidiaries.