Organization of Multinational Operations

Basic Principles of Organization DEPARTMENTALIZATION UNITY OF COMMAND

Departmentalization - - group activities that have similar characteristics and functions from the lowest levels of the firm and proceed upward - - tasks are clustered into jobs - - jobs are combined to form departments - - departments are put together to create business units

Organizational structure in the early stage of international expansion Advantages No commissions for specialized foreign trade agencies No commissions for specialized foreign trade agencies Better coordination and control to the whole activity Better coordination and control to the whole activityDisadvantages subordination to the marketing departament subordination to the marketing departament No direct connections with production, financial or research and development departments No direct connections with production, financial or research and development departments subordination to the domestic sector. subordination to the domestic sector.Recommendation Companies with a narrow line of products, and for which revenues from the international activity are smaller than the revenues from domestic production Companies with a narrow line of products, and for which revenues from the international activity are smaller than the revenues from domestic production

International Division Structure Advantages Top management attention to foreign business Top management attention to foreign business Concentration of international management expertise at headquarters Concentration of international management expertise at headquartersDisadvantages An inherent conflict between the goals of the domestic and international division An inherent conflict between the goals of the domestic and international division Domestic functional specialists are reluctant to give priority to foreign customers Domestic functional specialists are reluctant to give priority to foreign customers A high degree of internationalization make very difficult a global coordination of resources A high degree of internationalization make very difficult a global coordination of resources Recommendation : to be used by the companies with few specialists in international business and internationalized in a limited geographical area

Global Product Division Structure Advantages Allows the companies to add new products without disturbing the rest of organization Allows the companies to add new products without disturbing the rest of organization Fast response to the global competitive pressures against specific product lines Fast response to the global competitive pressures against specific product linesDisadvantages Wasteful duplication of management, sales representations and plant capacity utilization within regions. Wasteful duplication of management, sales representations and plant capacity utilization within regions. The production managers tend to consider more the internal market The production managers tend to consider more the internal market Recommendations : To be used by the companies with a diversified product line and growth opportunities and have different clients. To be used by the companies with a diversified product line and growth opportunities and have different clients. It is the most suitable for the companies which use advanced technologies It is the most suitable for the companies which use advanced technologies

Global Area Division Structure Advantages High decision power of local managers High decision power of local managers Create the opportunity for economies of scale Create the opportunity for economies of scale Local managers could find faster better solutions to solve local problems Local managers could find faster better solutions to solve local problemsDisadvantages Duplication of functional and product specialists among the regions Duplication of functional and product specialists among the regions Lack of interest of area divisions to promote new products realized at headquarter or in another regional department Lack of interest of area divisions to promote new products realized at headquarter or in another regional department Recommendations : to be used by companies with mature business and narrow product lines Suitable for beverages, food, cosmetics or pharmaceutical companies Suitable for beverages, food, cosmetics or pharmaceutical companies

Global Functional Division Structure Advantages Global activities could be controlled by a small number of managers Global activities could be controlled by a small number of managers Functional design permits functional line managers to control directly all activities. Functional design permits functional line managers to control directly all activities.Disadvantages Difficult global coordination of functional departments Difficult global coordination of functional departments Inherent divergence of objectives among production and marketing managers which need to be solved at headquarters Inherent divergence of objectives among production and marketing managers which need to be solved at headquartersRecommendations To be used by companies with narrow, standardized product line To be used by companies with narrow, standardized product line Most suitable for companies involved in raw materials extractive industry. Most suitable for companies involved in raw materials extractive industry.

Global Matrix Division Structure Advantages It allows the efficient use of organizational resources, sharing them across multiple projects or countries It allows the efficient use of organizational resources, sharing them across multiple projects or countries Improved interaction both vertically and laterally. Improved interaction both vertically and laterally. Frequent contacts between members from different areas expedite decision making and enhance management flexibility Frequent contacts between members from different areas expedite decision making and enhance management flexibilityDisadvantages A built-in tension between country managers and product managers who are in competition for control over the same set of resources A built-in tension between country managers and product managers who are in competition for control over the same set of resources The time-consuming nature of shared decision making system The time-consuming nature of shared decision making system

Strategic Business Unit Structure Advantages Equal importace between different products or product lines Equal importace between different products or product lines Full decision decentralization Full decision decentralization Strong personnel specialization Strong personnel specializationDisadvantages Duplication of functions and managerial positions Duplication of functions and managerial positions Recommendations Recommendations To be used by big companies with diversified product line To be used by big companies with diversified product line Most suitable for companies who need decentralization. Most suitable for companies who need decentralization.

Global Network Division Structure Advantages Improved cooperation between vertically integrated companies Improved cooperation between vertically integrated companies Enhance the group global competitivity Enhance the group global competitivity Enhanced flexibility and reactivity Enhanced flexibility and reactivity “Key-competences” “Key-competences”Disadvantages Strategic difficulties Strategic difficulties Recommendations : Recommendations : To be used by big companies with complex objectives. To be used by big companies with complex objectives.