1. International
Business
Fourth Edition

2. The Organization of International Business
CHAPTER 13
The Organization of International Business

3. Chapter Focus
Identifying the organization architecture that international businesses use to manage their global operations.
Discuss the concepts of organization architecture and fit.
Explore the various components of the architecture.
Look at ways to match architecture and competitive strategy to achieve high performance.

4. Organization Architecture and Profitability
Organization architecture is the totality of a firm’s organization, including structure, control systems and incentives, processes, culture and people.
Superior enterprise profitability requires three conditions;
An organization’s architecture must be internally consistent.
Strategy and architecture must be consistent.
Strategy, architecture and competitive environments must be consistent.

5. Organization Architecture
Structure
People
Culture
Processes
Controls
&
Incentives
Figure 13.1

6. Organization Architecture
Control Systems:
Metrics used to measure subunit performance.
Make judgments about managers’ abilities to run units.
Incentives are devices to reward appropriate managerial behavior.
Processes:
Manner in which decisions are made.
Manner in which work is performed.
Conceptually distinct from location of decision-making responsibility.

7. Organization Architecture
Culture:
Norms and value systems shared by the employees.
People:
Not just employees, but the strategy to recruit, compensate, and retain individuals with necessary skills, values and orientation.
If a firm is going to maximize its profitability,
it must pay close attention to achieving
internal consistency among the various components
of its architecture.

8. Functional Organization Structure at Unilever
European Business Group
Detergents
Frozen
Food
Margarine
France
Germany
Spain
Minimize component
inconsistencies through
intelligent design.
Figure 13.2

9. Vertical Differentiation
Concerned with where decisions are made.
Centralization:
Facilitates coordination.
Ensure decisions consistent with organization’s objectives.
Top-level managers have means to bring about organizational change.
Avoids duplication of activities.
Decentralization:
Overburdened top management.
Motivational research favors decentralization.
Permits greater flexibility.
Can result in better decisions.
Can increase control.

10. Strategy and Centralization
Global
Centralize
Multi-domestic
Decentralize
International
Centralize for
core competencies
Decentralize for
operating decisions
Transnational
Both Centralize
And Decentralize

11. Horizontal Differentiation
geographical
area
How a firm divides
itself into subunits
function
type of
business
International must
reconcile conflict
between product
and location.

12. A Typical Functional Structure
Purchasing
Manufacturing
Marketing
Finance
Top
Management
Buying
units
Plants
Branch
sales units
Accounting
Figure 13.3

13. The Functional Structure
Typically, the structure
that evolves in a
company’s early stages.
Coordination and
control rests with
top management.

14. A Typical Product Division Structure
Department
Purchasing
Manufacturing
Marketing
Finance
Buying
units
Plants
Branch
sales units
Accounting
Division product
line A
Headquarters
line B
line C
Figure 13.4

15. Product Division Structure
Probable next stage of
development. Reflects
company growth into
new products.
Eases coordination
and control
problems.
Each unit responsible
for a product.
Semiautonomous and
accountable for
its performance.

16. One Company’s International Division Structure
Domestic
Division
General
Manager
Product line A
International
area line
Headquarters
Product line B
Product line C
Country 1
(product A, B,
and / or C)
Country 2
Functional units
Figure 13.5

17. International Division
Widely used.
1. Can create conflict
between domestic and
foreign operations.
2. Implied lack of
coordination between
domestic and foreign
operations.
Growth can lead
to worldwide
structure.

18. The International Structural Stages Model
Worldwide Product Division
Global Matrix
(“Grid”)
Foreign Product Diversity
Alternate Paths of Development
Figure 13.4
International Division
Area Division
Foreign Sales as a Percentage of Total Sales

19. Worldwide Area Structure
European
area
Middle East /
Africa area
Far East
Headquarters
North American
Latin American
Figure 13.5

20. Worldwide Area Structure
Favored by firms with
low degree of
diversification.
Area is usually
a country. Largely
autonomous.
Facilitates local
responsiveness.
Encourages
fragmentation.

21. A Worldwide Product Division Structure
product group
or division A
or division C
Headquarters
or division B
Area 1
(domestic)
Area 2
(international)
Functional units
Figure 13.6

22. Product Division Reasonably diversified firms. Attempts to overcome
international division
and worldwide area
structure problems.
Believe that product value
creation activities should
be coordinated
worldwide.
Weak local
responsiveness.

23. A Global Matrix Structure
Headquarters
Area 1
Area 2
Area 3
Product
division A
division B
division C
Manager here
belongs to division B
and area 2
Figure 13.7

24. Matrix Structure Attempts to meet needs of transnational strategy.
Doesn’t work as well
as theory predicts.
Conflict and
power struggles.
“Flexible” matrix
structures.

25. Integrating Mechanisms
Need for coordination:
Low
High
Multidomestic
International
Global
Transnational
Impediments;
Different managerial orientations.
Differing goals.
Time zones, distance, nationality.

26. Formal Integrating Mechanisms
Increasing complexity
of integrating mechanism
Direct contact
Liaison roles
Teams
Matrix structures
Figure 13.8

27. A Simple Management NetworkB C D A F E
Informal contacts between
managers within an enterprise.
Figure 13.9

28. Control Systems and Incentives
Depends on employee and his/her tasks.
Can be used to improve manager coordination between units.
Need to account for national differences in institutions and culture.
Caveat: beware of the rule of unintended consequences.
Types of controls:
Personal.
Bureaucratic
Output.
Cultural.

29. Performance Ambiguity
A function of the
interdependence among
subunits.
Multinational
Output/Bureaucratic
Global/Transnational
Cultural
Control Systems

30. Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies
Strategy
Inter-
dependence
Performance
Costs of
Ambiguity
Control
Multi-domestic
Low
Moderate
High
Very high
Low
Low
International
Moderate
Moderate
Global
High
High
Transnational
Very high
Very high
Table 13.1

31. Processes
The manner in which decisions are made and work is performed within an organization.”
Cut across national boundaries as well as organizational boundaries.
Can be developed anywhere within the firms global operations network.

32. Organization Culture Values and norms shared among people. Sources:
Founders and important leaders.
National social culture.
History of the enterprise.
Decisions that result in high performance.
Cultural maintenance:
Hiring and promotional practices.
Reward strategies.
Socialization processes.
Communication strategy.

33. Organization Culture and Performance
Culture must match an organization’s architecture.
Culture does not necessarily translate across borders.
A “Strong” Culture:
Not always good.
Sometimes beneficial, sometimes not.
Context is important.
Adaptive cultures.
Culture
Transnational
Multidomestic
Global
International
Strong
Weak

34. A Synthesis of Strategy, Structure and Control Systems
Multi-domestic
International
Global
Transnational
Vertical
differentiation
Decentralized
Core competency;
rest decentralized
Some
centralized
Mixed
centralized and
decentralized
Horizontal
Worldwide
area structure
Worldwide product
division
product
Informal matrix
Need for
coordination
Low
Moderate
High
Very high
Integrating
mechanisms
None
Few
Many
Very many
Performance
ambiguity
cultural
controls
Structure and
control
Table 13.2

35. Organizational Change
Change to match competitive and strategy environment
Hard to change:
Existing distribution of power and influence.
Current culture.
Manager’s preconceptions about the appropriate business model or paradigm.
Institutional constraints.
Principles for change;
Unfreeze the organization.
Moving to the new state.
Refreezing the organization.