1. 11-1 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved.

2. 11-2 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Part Three: International Strategic Management International Management, 5th ed.

3. 11-3 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Management, 5th ed. Hodgetts and Luthans Chapter Eleven Organizing International Operations

4. 11-4 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved.  EXAMINE the major types of organizational structures used in handling international operations  ANALYZE the advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others  DESCRIBE the recent, nontraditional organizational arrangements coming out of mergers, joint ventures, keiretsus, and other new designs including electronic networks and product development structures  DISCUSS the value of subsidiary boards of directors in overseas operations  EXPLAIN how organizational characteristics such as formalization, specialization, and centralization influence how the organization is structured and functions Objectives of the Chapter

5. 11-5 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Basic Organizational Structures  A number of basic structures exist that permit an MNC to compete internationally  Structure must meet the need of both the local market and the home-office strategy of globalization  Contingency approach  Balances the need to respond quickly to local conditions with the pressures for providing products globally  Most MNCs evolve through certain basic structural arrangements in international operations

6. 11-6 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-1 Organizational Consequences of Internationalization Pressure for local responsiveness LowHigh Pressure for globalization Low High Aircraft Cameras Consumer electronics Computers Automobiles Telecommunications Aerospace Synthetic fibers Cement Steel Clothing Packaged goods

7. 11-7 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Basic Organizational Structures (cont.)  Global Structural Arrangements  Global Product Division  Structural arrangement in which domestic divisions are given worldwide responsibility for product groups  Global Area Division  Structure under which global operations are organized on a geographic rather than a product basis  Global Functional Division  Structure which organizes worldwide operations primarily based on function and secondarily on product  Matrix Organization Structure  Structure that is a combination of a global product, area, or functional arrangement

8. 11-8 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-2 Use of Subsidiaries during the Early Stage of Internationalization PersonnelProductionMarketingFinance Chief Executive Officer FranceJapanEgyptAustraliaArgentina V.P. International Operations

9. 11-9 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-3 International Division Structure PersonnelProductionMarketingFinance Chief Executive Officer Domestic Division Paint Domestic Division Tools International Division Domestic Division Furniture Domestic Division Hardware Japan Australia Italy Office Operations MarketingGovernment Relations

10. 11-10 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-4 Global Product Division Structure PersonnelProductionMarketingFinance Chief Executive Officer Product Division A Product Division B Product Division Product Division D Product Division E C South America AfricaEuropeAustraliaFar East MarketingFinancePersonnel Great BritainFrance Italy Netherlands Germany Production America Production

11. 11-11 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-5 Global Area Division Structure PersonnelProductionMarketingFinance Chief Executive Officer North America South America EuropeAsiaAfrica Great Britain France Italy Netherlands Germany

12. 11-12 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-6 Global Functional Structure Domestic Production Product A Product B Product C Product D Foreign Production Product A Product B Product C Product D Production Domestic Production Product A Product B Product C Product D Foreign Production Product A Product B Product C Product D MarketingFinance Chief Executive Officer

13. 11-13 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-6 Global Functional Structure Domestic Production Product A Product B Product C Product D Foreign Production Product A Product B Product C Product D Production Domestic Marketing Product A Product B Product C Product D Foreign Marketing Product A Product B Product C Product D MarketingFinance Chief Executive Officer

14. 11-14 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-7 Multinational Matrix Structure PersonnelProductionMarketingFinance Chief Executive Officer North AmericaIndustrial GoodsEurope Manager, Industrial Goods North America Manager, Industrial Goods Europe

15. 11-15 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Basic Organizational Structures (cont.)  Global Structural Arrangements (cont.)  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 company’s worldwide subsidiaries  Interdependent relationships  Share information and resources throughout the dispersed and specialized subunits

16. 11-16 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. 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

17. 11-17 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 11-10 Comparison of Asian and Western Management Features WESTERN ASIAN Rationality Structured Directive Doing Relationships Flexible Adaptive Understanding Management Style WESTERN ASIAN Short Term Control Conflict One Product Service- focused Long Term Human Resource Collaborative Customer- focused Action WESTERN ASIAN Formal Fragmented Hierarchical Competitive Informal Generalist Integrated Cooperative Organization WESTERN ASIAN Individual Legal Confrontation Analytic Group Trust Compromise Fluid Basic Values

18. 11-18 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Nontraditional Organizational Arrangements (cont.)  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

19. 11-19 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Nontraditional Organizational Arrangements (cont.)  Organizing for Product Integration  Toyota’s system based on several organizational mechanisms  Mutual adjustment  Direct, technically skilled supervision  Integrative leadership  Role of Information Technology (IT) in Organizing  Integration of IT into the overall organizing process can have a dramatic effect on organizational performance  Japanese leading the way on the use of IT

20. 11-20 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Use of Subsidiary Boards of Directors  Subsidiary board  A board that overseas and monitors the operations of a foreign subsidiary  Used to:  Advise, approve, and appraise local management  Help the unit to respond to local conditions  Assist in strategic planning  Supervise the subsidiary’s ethical conduct

21. 11-21 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Organizational Characteristics of MNCs  Formalization  Use of defined structures and systems in decision making, communicating, and controlling  Specialization  Organizational characteristic that assigns individuals to specific, well-defined tasks  Horizontal specialization  Assignment of jobs so that individuals are given a particular function to perform and tend to stay in this area  Vertical specialization  Assignment of work to groups or departments where individuals are collectively responsible for performance

22. 11-22 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Organizational Characteristics of MNCs (cont.)  Centralization  Management system under which important decisions are made at the top  Decentralization  Pushing decision making down the line and getting the lower- level personnel involved  Putting Organizational Characteristic in Perspective  MNCs tend to organize international operations in a manner similar to that used at home  Future challenge is to bring subsidiary organizational characteristics into line with local customs and cultures