Global Organization Design Chapter 5 Global Organization Design

Motivations for Global Expansion Economies of scale Economies of scope Low-cost production factors

Economies of Scale The property whereby long-run average total cost falls as the quantity of output increases

Economies of Scope Scope : the number and variety of goods and services a company offers. Increase a company’s market power and synergy Ex : Bancassurance

Low-Cost Production Factors Opportunity to obtain raw materials, labor, and other resources (reduced government restrictions) at the lowest possible cost.

Stages of International Development Domestic stage International stage Multinational stage Global stage

Domestic Stage Domestically oriented Managers are aware of the global environment.

International Stage Takes exports seriously Begins to think multi -domestically

Multinational stage Extensive experience in the international markets Business units scattered around the world

Global stage Stateless corporations

Designing Structure to Fit Global Strategy Global Standardization vs. Local Opportunities

Globalization Strategy Products are standardized across national markets Decisions regarding business-level strategies are centralized in the home office e.g. Boeing, Intel Advantages Disadvantages Economies of scale efficiencies Save costs Faster introduction of products Coordinating prices Eliminating overlapping facilities Services are less suitable for globalization (advertising, marketing) Different customs and habits throughout the countries Economic and social changes

Multidomestic Strategy Strategy and operating decisions are decentralized. Products and services are tailored to local markets. Differentiation and Customization e.g. Pizza Hut

Designing Structure to Fit Global Strategy Globalization strategy: Global Product Structure Both Globalization & Multinational Strategy: Matrix Export Strategy: International Division Multidomestic Strategy: Geographic Forces for Global Integration Forces for National Responsiveness 15

International Division International Division = Other major departments Export department International division Product/Geographic Matrix Structure Domestic Divisions International Divisions Organized along functional or product lines Lines of functional hierarchy tends to extend too long Therefore, subdivide the org. into smaller units - Organized according to geographic interests Own hierarchy to handle business

Global Product Division Structure Standardization & Centralized Division manager’s responsibility Planning, organizing, and controlling functions and distributions of productions throughout the world

Global Product Division Structure Advantages Disadvantages Economies of scale Effective way to manage a variety of business and products A broad perspective on competition Respond more rapidly to a changing global environment Can save the cost by standardizing activities and products Compete instead of cooperating Some countries are ignored by product managers Doesn’t know what each customer wants throughout the world Globalization Strategy

Global Geographic Division Structure Local responsiveness & Decentralized Divides world into geographic region Each division has full control of functional activities within its geographic area Local managers (regional manager) have authority

Global Geographic Division Structure Advantages Disadvantages It’s good for a company which has… - Mature product lines and stable technologies Low-cost manufacturing within countries A strategy to customize the products to meet specific needs (for marketing and sales as well) It is difficult to… - Plan on a global scale (R&D) Transfer new domestic tech. and products to int’l markets Rapidly introduce products developed offshore into domestic markets Track and maintain control of costs Duplication of line and staff managers across regions Multidomestic Strategy

Global Matrix Structure Both Globalization and Multidomestic Strategy It works best…. - When pressure for decision making balances the interests of both product standardization and geographic localization - When coordination to share resources is important

Building Global Capabilities

The Global Organizational Challenge Complexity and Differentiation Transfer of Knowledge and Innovation Need for Integration

Increased Complexity and Differentiation Greater level of internal and external complexity than on the domestic front Differentiation – new positions and departments to cope with specific sectors in the environment Meet local needs and preferences

Need for Integration Integration – the quality of collaboration across organizational units Operating units can be divided by: goals, work attitudes, geographic distance, time differences, cultural values, language.

Transfer of Knowledge and Innovation Learn from their international experiences by sharing knowledge and innovations across the enterprise Systems for sharing knowledge and innovation Main problems creating systems for sharing knowledge and innovation: Language, culture Managers don’t appreciate value of organizational integration, or views knowledge as power to gain influential position in firm Knowledge is in the minds of employees

Global Coordination Mechanisms Global Teams Headquarters Planning Expanded Coordination Roles

Global Teams Global Teams – cross border work groups made of multi skilled, multinational members whose activities span multiple counties. Two main types: intercultural and virtual global teams. Same problems as making systems for knowledge and innovations sharing.

Headquarters Planning Headquarters take an active role in planning, scheduling and controlling of global organization. Control through centralized systems

Expanded Coordination Roles Managers responsible for coordinating across countries More responsibilities for functional managers

Three National Approaches to Coordination and Control Centralized Coordination in Japanese Companies European Firms: Decentralized Approach The United States: Formalization

Centralized Coordination in Japanese Companies Coordination mechanisms that rely on centralization Activities centralized in home country Strong structural linkages Comon to all Asia countries

European Firms: Decentralized Units have a high level of independence Rely on strong mission, shared values and informal personal relationships Each international unit focuses on its local market

The United States: Formalization Responsibility is delegated international divisions Management control systems (policies, standarts, procedures) Limited flexibility

The Transnational Model of Organization

Brands of European cars Volkswagen Group Skoda auto

A bit of history Established in 1895 as bike manufacture (Laurin & Klement) 1905 first car produced 1924 Skoda and Laurin & Klement merged 1991 become brand of Volkswagen group 1996 “Big change” 2008-2009 growing during financial crisis

Skoda cars today

Summary What gave 19 years of being part of global organization? 8 factories around world (Czech Republic, Ukraine, India, Bosnia and Herzegovina, Kazakhstan, China and Russia) Recovered good name of company Growing sales, despite economical crisis in Europe

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