International Organizational Structure

1
Chapter 6

• International Organizational Structure

2
TRADITIONAL AND CONTEMPORARY INTERNATIONAL
STRUCTURES

• Functional Structure
• International Division
• Foreign Subsidiary Structure
• Product Division Structure
• Regional Structure
• Matrix Structure
• Contractual Alliance Structure
• Networking
• Mixed (Hybrid) Structure

3
THE FUNCTIONAL STRUCTURE

• In this structure the focus is on major
  functions. Product knowledge is centered in
  manufacturing, engineering, and marketing, and
  management of each of these departments is
  responsible for both domestic and international
  activities.
• Advantages of the Functional Structure
• Emphasis on functional expertise
• Tight control
• Prevents conflicts

4

• Disadvantages of the Functional Structure
• Weak regional coordination
• In firm with multiple products line, functional
  structure can lead to top heaviness.
• Much greater emphasis is often placed on domestic
  sales than on foreign sales

5
Evolution of Organizational Structures in MNCs

• Effective organizing requires two interrelated
  tasks. First, managers must design an
  organizational structure that will facilitate the
  firms strategy and maximize the use of its
  global resources.
• Second, managers must arrange activities,
  relationships, and responsibilities so as to
  facilitate the communications, authority, and
  coordination needed to ensure efficient
  international operations.

6
What is INTERNATIONALIZATION?

• INTERNATIONALIZATION is the process by which a
  firm gradually changes in response to
  international competition, domestic market
  saturation, and the desire for expansion, new
  markets, and diversification.
• As previously discussed, the firms managers
  weigh alternatives and decide on appropriate
  entry strategies.

7

• Perhaps the firm starts by exporting or by acting
  as a licensor or licensee and then, over time,
  continues to internationalize by engaging in
  joint ventures or by establishing service,
  production, or assembly facilities abroad.

8

• Depending on the strategy chosen at a given time,
  the firms managers redesign the organizational
  structure to optimize the strategys chances to
  work, making changes in the firms tasks and
  relationships and designating authority,
  responsibility, lines of communication and
  geographic dispersal of units.

9
Stages of structural adaptation to strategic
choices

• Even a mature MNC needs to make structural
  changes from time to time to facilitate changes
  in strategy such as from globalization to
  regionalization or an effort to improve
  efficiency or effectiveness.
• Firms with low technology and high marketing
  orientation tend to adopt the regional
  organizational structure.

10
Typical ways firms organize their international
activities

• The typical ways in which firms organize their
  international activities are
• DOMESTIC STRUCTURE EXPORT DEPARTMENT
• DOMESTIC STRUCTURE FOREIGN SUBSIDIARY
• Under the foreign subsidiary organizational
  structure, foreign affiliates are treated as an
  entity and Autonomy of affiliates and direct
  top management involvement are advantages.

11
THE INTERNATIONAL DIVISION

• Functional staffs such as marketing, finance,
  research and development are typically
  established, and an executive responsible for
  international operations is appointed.
  INTERNATIONAL DIVISION (this facilitates the
  beginning of a global strategy)
• Under this, functional managers are responsible
  for both the international business activities.

12
Advantages of the International Division

• Focused international responsibility and
  authority.
• International executive development.
• The international operation has a single, strong
  voice in the company.
• Company-wide view of international operations is
  obtained.

13
Disadvantages of the International Division

• Bottleneck.
• Exports slowdown.
• Conflict between employees in the domestic and
  the international division.
• International managers spread too thin

14
THE FOREIGN SUBSIDIARY STRUCTURE

• Each foreign subsidiary is treated as an entity.
  Each reports directly to top management at
  headquarters. Coordination between product and
  service departments is carried out at the
  headquarters office. Therefore Multidomestic
  strategy applies.
• Advantages of the Foreign Subsidiary Structure
• Autonomy of affiliate
• Direct top management involvement
• Disadvantages of the Foreign Subsidiary Structure
• Diffuseness of international responsibility
• Potential for unwieldiness

15
Integrated global Structures

• To respond to increased product diversification
  and to maximize benefits from both domestic and
  foreign operations, a firm may choose to replace
  international division with an integrated global
  structure organized along functional, product,
  geographic, or matrix lines.
• GLOBAL FUNCTIONAL STRUCTURE
• Under the functional international organizational
  structure, units are responsible for both
  domestic and foreign activities.

16
GLOBAL FUNCTIONAL STRUCTURE

• The global functional structure is designed on
  the basis of the companys functions such as
  production, marketing, finance, and so forth
• Foreign operations are integrated into the
  activities and responsibilities of each
  department to gain functional specialization and
  economies of scale.

17
GLOBAL PRODUCT STRUCTURE

• Each division has its own functional,
  environmental, sales and manufacturing
  responsibilities to meet its own sales and profit
  objectives.
• Advantages of the Product Division Structure
• Product and technology emphasized
• Worldwide product planning
• Conflict minimized.

18

• Disadvantages of the Product Division Structure
• Weakness in worldwide know-how
• Inherent weakness of multiproduct systems
• Division managers often lack international skills
• Foreign coordination problems.

19

• A Product (divisional) structure may be more
  strategically advantageous than a functional
  structure for firms with diversified product
  lines (or services) that have different
  technological bases and that are aimed at
  dissimilar or dispersed markets.
• In this structure, a single product (or product
  line) is represented by a separate division. Each
  division is headed by its own general manager,
  and each is responsible for its own production
  and sales function.

20
THE REGIONAL STRUCTURE

• Regional heads are made responsible for specific
  territories, usually consisting of areas such as
  Europe, Asia, etc., and report to the CEO or his
  or her designated executives at the HQ.
• Advantages of the Regional Structure
• Decentralization
• Adaptation
• Single management units possess regional knowledge

21

• Disadvantages of the Regional Structure
• Weak worldwide product emphasis and technical
  knowledge
• Technology transfer barriers
• Policy barriers
• Costly application
• Weak communications

22
THE MATRIX STRUCTURE

• Managers from the functional side (e.g.,
  Marketing, Africa) assign a staff to the product
  side (e.g., Product B). The staff leader is then
  responds to both bosses.
• Advantages of the Matrix Structure
• Coordination and cooperation across subunits and
  therefore easy to respond to global competition
  in any market.
• Overall corporate global performance is
  highlighted.
• Many internal conflicts are resolved at the
  lowest possible level.
• In the matrix group decision making process,
  decisions are usually made slowly.

23

• Disadvantages of The Matrix Structure
• Responsibility given to managers with weak
  international experience.
• The organization tends to create a mountain of
  paperwork.
• the dual-boss, cross-communication system is
  expensive and complex.

24
OTHER STRUCTURAL FORMATS

• Contractual Alliance Structures
• The advantage is that when there is a breakup,
  there is no long, drawn-out fight for the
  division of assets unlike equity-based
  partnerships.
• The disadvantages is that when one partner
  acquires other partners skills, and the reverse
  is not the case, the learned partner may leave.
• Networking
• A corporation subcontracts its manufacturing
  function to other companies.
• When an organization enters into such network
  agreements, it must create a unit whose
  responsibility is to monitor the agreement.

25

• The Mixed (Hybrid) Structure
• International organizations can centralize some
  functions, such as an accounting division that
  provides services for all worldwide subsidiaries,
  while other function, such as marketing, remain
  decentralized