THE ORGANIZATION OF INTERNATIONAL BUSINESS

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THE ORGANIZATION OF INTERNATIONAL BUSINESS
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Organizational Consequence of Internationalization
Aircraft Cameras Electronics Computers
Telecommunications Aerospace
High
Autos
Pressure for Globalization
Steel Clothing Packaged goods
Synthetic fibers Cement
Low
Low
High
Pressure for Local Responsiveness
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HORIZONTAL DIFFERENTIATION
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Horizontal Differentiation

• How a firm divides itself into sub-units - value
  creation activities. Why?
• Before subunits, demands too great for one
  individual.
• Firm diversifies its product offerings.
• Typically function, business area or geography.

13-9
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Initial Division Structure

• Used for Initial Entry into International Markets
• Exporting
• Common first choice for manufacturers of
  technologically advanced products
• Firm can charge premium price due to little
  competition
• Subsidiary
• A common for handling finance-related businesses
  or other operations that require an on-site
  presence from the start

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Subsidiaries During the Early Stage of
Internationalization
CEO
Home Office Departments
Production
Marketing
Finance
Personnel
V.P. International Operations
Overseas Subsidiaries
France
Japan
Egypt
Australia
Argentina
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INTERNATIONAL DIVISION

• Usually firms start with an international
  division.
• Leads to coordination problems, and
• Conflict between domestic and foreign operations.

13-11
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International Division Structure

• Advantages
• Takes burden off the CEO
• Receives top management attention
• Promotes overall unified approach
• Develops internationally experienced managers
• Disadvantages
• Separating domestic and international managers
  may cause differing objectives
• Home office may not be able to allocate resources
  globally, thereby penalizing growth

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An International Division Structure
Home Office Departments
CEO
Production
Marketing
Finance
Personnel
Domestic Division
Domestic Division
Domestic Division
Domestic Division
International Division
Operating Divisions
Australia
Japan
Italy
Office Operations
Government Relations
Marketing
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The International Structural Stages Model
Worldwide product division
Global matrix (grid)
Foreign product diversity
Alternate paths of development
Area division
International division
Foreign sales as a percentage of total sales
Figure 13.4
Source Adapted from John M. Stopford and Louis
T. Wells, Strategy and Structure of the
Multinational Enterprise (New York Basic Books,
1972).
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Global Product Division
Domestic divisions are given worldwide
responsibility for product groups

• Advantages
• Helps to manage diversity
• Able to cater to local needs
• Marketing, production, and finance can be
  co-ordinated on a product-by-product global basis
• Disadvantages
• Duplication of facilities and staff personnel
• Managers may pursue attractive short-term sites
  instead of long-term sites
• Managers spend to much time trying to tap local
  instead of international markets

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A Global Product Division Structure
CEO
Production
Marketing
Finance
Personnel
Product Division A
Product Division B
Product Division C
Product Division D
Product Division E
South America
Africa
Europe
Australia
Far East
Great Britain France Germany Italy Netherlands
Production
Marketing
Finance
Personnel
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Global Area Division
Based on geographic
rather than product orientation

• Advantages
• Reduces cost per unit
• Caters to local markets
• Makes rapid decisions to accommodate
  environmental changes
• Disadvantages
• Difficulty reconciling a product emphasis with
  geographic orientation
• Ignores new research and development by division
  groups

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A Global Area Division Structure
CEO
Home Office Departments
Production
Marketing
Finance
Personnel
Operating Divisions
North America
South America
Europe
Asia
Africa
Great Britain France Germany Italy Netherlands
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Global Functional Division
Worldwide operations based primarily on function
and secondarily on product

• Advantages
• Emphasizes functional expertise
• Tight centralized control
• Relatively lean managerial staff
• Disadvantages
• Difficulty coordinating manufacturing and
  marketing
• Difficulty managing multiple product lines
• Only CEO can be held accountable for profits

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A Global Functional Structure
CEO
Production
Marketing
Finance
Domestic Production Product A Product B Product
C Product D
Foreign Production Product A Product B Product
C Product D
Domestic Production Product A Product B Product
C Product D
Foreign Production Product A Product B Product
C Product D
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Mixed Organization Structures
Combines global product, area, and functional
divisions to supplement its primary structure
with a secondary one, and perhaps a tertiary
(third) one

• Advantages
• Allows organization to create the specific type
  of design to meet its needs
• Disadvantages
• Complexity increases
• Difficulty arises in coordinating personnel

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Matrix Structures

• Multinational and Transnational attempt to use a
  matrix structure.
• High failure rate because of bureaucratic (turf)
  problems.

13-19
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A Global Matrix Structure
Headquarters
Area 1
Area 2
Area 3
Product division A
Product division B
Manager here belongs to division B and area 2
Product division C
Figure 13.7
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Network Structure
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TRANSNATIONAL NETWORK STRUCTURES

• Multinational structural arrangement that
  combines elements of function, product, and
  geographic designs, while relying on a network
  arrangement to link worldwide subsidiaries
• Dispersed subunits
• Subsidiaries that are located anywhere in the
  world where they can benefit the organization
• Specialized operations
• Activities carried out by subunits that focus on
  a particular product line, research area, or
  market area
• Designed to tap specialized expertise or other
  resources in the companys worldwide subsidiaries
• Interdependent relationships
• Share information and resources throughout the
  dispersed and specialized subunits

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Nontraditional Organizational Arrangements

• Mergers and Acquisitions
• Purchasing MNC attempts to promote synergy while
  encouraging local initiative by the acquired firm
• Joint Ventures and Strategic Alliances
• Each party contributes to the undertaking and
  coordinates its efforts for the overall benefit
• Keiretsu
• Large, often vertically integrated group of
  companies that work closely with each other
• Members bound by cross-ownership, long-term
  business dealings, interlocking directorates, and
  social ties

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Comparison of Asian and WesternManagement
Features
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Japanese Organizational Structure

• NEC
• Regional optimum locations manufacture.
• Work together, with or w/o support from Japan.

• Matsushita
• Rearranging 69 overseas plants into a global
  localization plan to supply four major poles
  NA, Europe, Japan, rest of Asia.

? Japanese accustomed to strong central
control. ? Problems dealing with minorities. ?
Problems with labor unions.
13-22
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Nontraditional Organizational Arrangements

• Electronic Network Form of Organization
• Electronic freelancers
• Individuals who work on a project for a company,
  usually via the Internet
• Move on to new employment at the completion of an
  assignment
• Deliver outsourcing function on-line
• Organizational Synergy
• MNCs leverage their knowledge and resources
  worldwide
• Increased movement toward making synergy work
  correctly

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INTEGRATING MECHANISMS
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INTEGRATING MECHANISMS

• VARIABLES CONCERNING NEED FOR COORDINATION?
• IMPEDIMENTS TO COORDINATION?
• WAYS OF INTEGRATING FORMAL INFORMAL
• NEW WAYS NETWORKING
• NETWORKED GLOBAL ORGANIZATION

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Formal Integrating Mechanisms
Direct contact
Liaison roles
Teams
Matrix structures
Increasing complexity of integrating mechanism
Figure 13.8
13-23
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Formal Integrating Mechanisms

• Communications.
• Inter and Intranets.
• Direct contact and liaison -
  requires leadership.
• Management schools.
• creates networks.
• imposes culture.

13-24
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Informal Integrating Mechanisms

• Management networks.
• Organization Culture.

13-25
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STRATEGY STRUCTURE A SYNTHESIS
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RELATIONSHIP STRATEGY STRUCTURE

• INTERNATIONAL FIRMStransfer core competencies
  from home to foreign subunits
• GLOBAL FIRMS realize location experience curve
  economies
• TRANSNATIONAL FIRMS simultaneous attainment of
  location experience curve economies, local
  responsiveness, global learning

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GETTING IN ON THE GROUND FLOOR
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QUESTIONS

• What type of organization design would you
  recommend that Ruehter use?
• Would a subsidiary board of directors be of any
  value in overseeing the Dutch operation?
• If there were joint RD efforts, would this be a
  problem?

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ASSIGNMENT FOR 17/3/2003

• TOPIC Decision Making Controlling
• ASSIGNMENT
• Integrative Case KNP, NV, 365-369
• The World of Business Week- Revisited Wal-Mart
• Spain (questions 2-4), p. 363
• Expansion Plans, p. 364