1. ORGANISATION STRUCTURE
© 2010 Pearson Prentice Hall

2. Opening Profile: Samsung Electronics Recognizes to Fight Downturn
Badly hit by the global economic downturn
Implemented a radical reorganization in 2009
Consolidating business operations into two operating divisions
Replaced the heads of five of its eight overseas operations
Companies change their structures to align with new strategic directions and competition, but also to respond to development in their operating environments. Such was the case early in 2009, when Samsungs electronics of Seoul south Korea, implemented a radical reorganization in order to become more efficient to deal with worsening economic conditions. As a result, Samsung electronics Co. announced a major restructuring which necessitated reassigning two-thirds of it executives and relocating 1200 staff members.
Clearly, the company strategy has had to change from high-tech competition to controlling cash-flow and profitability.
© 2010 Pearson Prentice Hall

3. Organizational Structure
OrganisationStructure
Must evolve to accommodate internationalization
Should be contingency based
Must “fit” with strategy
A firm’s structure must “fit” with its strategy—that is, be conducive to its implementation. Choice of structure also should be contingency based, taking into consideration factors such as the firm’s size, the appropriate technology, the organizational environment, geographic dispersion, and differences in time, language, cultural attitudes, and business practices. Many managers find it more difficult to develop the appropriate organizational structure than it is to develop the strategy.
© 2010 Pearson Prentice Hall

4. Evolution and Change in MNC Organizational Structures
Structural evolution/stage model
Alcoa
Created smaller units
Linked geographically dispersed, but similar businesses (e.g., Brazil and Australia)
Structure continues to change over time with growth, increasing levels of investment or diversity, and the types of strategy chosen. This structural evolution that accompanies internationalization is known as the stages model.
Though some firms do not follow the stages model because they start their internationalization at a higher level of involvement, even mature MNCs must make structural changes sometimes. For example, the reorganization of Aluminum Company of America (Alcoa) split the company into smaller more autonomous units to give greater focus to growing businesses where the market for aluminum is strong. Alcoa also sought to increase communication by linking similar, but geographically dispersed, businesses.
© 2010 Pearson Prentice Hall

5. Evolution and Change in MNC Organizational Structures
Typical ways to structure international activities
* Domestic structure plus export department
* Domestic structure plus foreign subsidiary
*International division
* Global functional structure
* Matrix structure
* Global product structure
This slide shows the typical ways in which firms organize their international activities.
© 2010 Pearson Prentice Hall

6. Domestic Structure Plus Foreign Subsidiary
There are several common ways that firms organize their international activities, which are presented in this and the following slides.
Many smaller firms start their international involvement by exporting. As such, they may reorganize into a simple domestic structure plus export department. They can take a step further by reorganizing into a domestic structure plus foreign subsidiary in one or more countries. This structure works well for companies with one or a few subsidiaries located relatively close to headquarters.
With further expansion, a firm may create an international division organized along functional, product, or geographic lines. In this case, foreign subsidiaries are organized under the international division, and subsidiary managers report to its head. In turn, the head reports to the CEO of the corporation. This structure allows managers to coordinate resources for foreign activities under one roof and thus, facilitates the beginning of a global strategy.
© 2010 Pearson Prentice Hall

7. Integrated Global Structures
International Division
Global Functional Structure
Organized along functional, product, or geographic lines
IBM World Trade
Pepsi Cola International
Designed on the basis of the company’s functions
Allows for functional specialization and economies of scale
With further expansion, a firm may create an international division organized along functional, product, or geographic lines. In this case, foreign subsidiaries are organized under the international division, and subsidiary managers report to its head. In turn, the head reports to the CEO of the corporation. This structure allows managers to coordinate resources for foreign activities under one roof and thus, facilitates the beginning of a global strategy. Examples of companies with an international division are IBM and Pepsi. Their divisions are called IBM World Trade and Pepsi Cola International, respectively.
There are three integrated global structures presented in this and the following slides. These structures allow companies to respond to increased product diversification and to maximize benefits from both domestic and foreign operations.
The global functional structure is based around the organizational functions—e.g., production, marketing, finance—with foreign operations integrated into the activities of each function. This structure is primarily used by small firms with highly centralized systems and is appropriate for product lines using similar technology and for businesses with a narrow spectrum of customers. The result is plants that are highly integrated across products and that serve single or similar markets.
© 2010 Pearson Prentice Hall

8. Integrated Global Structures: Global Product (Divisional) Structure
For companies with diversified product or service lines and that are aimed at dissimilar or dispersed markets, a global product (divisional) structure may be more strategically advantageous than a functional structure. In this structure, a single product or product line has its own separate division, headed by its own general manager, and which is responsible for its own production and sales functions. Often each division is a strategic business unit (SBU) or a self-contained business with its own functional departments and accounting systems.
The advantages of this structure are market concentration, innovation, and responsiveness to new opportunities in a particular environment. It also facilitates diversification and rapid growth. Nonetheless, the structure can create difficulties in the coordination of widely dispersed operations.
© 2010 Pearson Prentice Hall

9. Integrated Global Structures: Global Geographic (Area) Structure
One answer to the difficulties associated with a global product structure is to use a global geographic (area) structure, which is the most common form of organizing foreign operations. With this structure, divisions are created to cover geographic areas. Regional managers are responsible for the operation and performance of the countries within a given region. As such, country and regional needs and relative market knowledge take precedence over product expertise. In this structure, the focus is on marketing and adapting products to local requirements. Nestle is a good example of a company using the global geographic structure. They produce a range of products that can be marketed through similar channels of distribution to similar customers.
A matrix structure is a final option from which organizations can choose, but it has recently fallen into disfavor.
© 2010 Pearson Prentice Hall

10. Organizing for Globalization
Differentiation
Focusing on and specializing in specific markets
Integration
Coordinating those same markets
A firm’s structural choices always involve two opposing forces: the need for differentiation (focusing on and specializing in specific markets) and the need for integration (coordinating those same markets). The way a firm is organized along the differentiation-integration continuum determines how well strategies, along the localization-globalization continuum, are implemented. A globalization strategy treats the world as one market by using a standardized approach to products and markets.
IBM is an example of a company reorganizing to achieve globalization. They are moving away from a geographic structure toward the use of centralized industry expert teams.
A globalization strategy usually involves rationalization and the development of strategic alliances. To achieve rationalization, managers must choose the manufacturing location for each product based on where the best combination of cost, quality, and technology can be attained. This means different parts and components are often produced in different countries and that product design and marketing are essentially the same in all markets. As such, differentiation and specialization in local markets is minimized. Another risk associated with globalization is exposure to volatility from all corners of the globe.
© 2010 Pearson Prentice Hall

11. Organizing for Globalization
ROA
Moved away from its traditional geographic structure to a global structure
ABB is legendary in changing its organizational structure to fit its new strategic directions and its competitive environment.
IBM is an example of a company reorganizing to achieve globalization. They are moving away from a geographic structure toward the use of centralized industry expert teams.
A globalization strategy usually involves rationalization and the development of strategic alliances. To achieve rationalization, managers must choose the manufacturing location for each product based on where the best combination of cost, quality, and technology can be attained. This means different parts and components are often produced in different countries and that product design and marketing are essentially the same in all markets. As such, differentiation and specialization in local markets is minimized. Another risk associated with globalization is exposure to volatility from all corners of the globe.
© 2010 Pearson Prentice Hall

12. Organizing for Globalization
Responding to local market structures and consumer preferences, along the globalization-regionalization continuum
Be Global—
Act Local
Allows managers to act independently
Keeps some centralized control, but decentralizes control of foreign subsidiaries
In their rush to become global, many companies sacrificed the ability to respond to local markets and consumer preferences. They are now realizing they must find structures that allow them to “be global, act local.” Two companies that have successfully struck a balance between globalization and localization is Levi Strauss.
Levi Strauss gives foreign managers freedom to adjust their tactics to meet the changing tastes of their home markets. Additionally, although the company maintains centralized control of some aspects of the business, it decentralizes control to its foreign subsidiaries. The subsidiaries are supplied by a global manufacturing network. As such, Levi Strauss achieves local coordination and the flexibility to respond to ever-changing fashion trends and fads in denim shading.
© 2010 Pearson Prentice Hall

13. P&G’s Global/Local Structure
Management Focus: Proctor & Gamble’s “Think Globally—Act Locally” Structure
P&G’s Global/Local Structure
Philosophy
Global business units
Market Development Organizations (MDO)
Global Business Services (GBS)
Corporate functions
Think globally
Act locally
Enabling P&G to win with customers and consumers
Be the smartest/best
In January 2006, Gillette India announced merger plans with Proctor and Gamble (P&G) India. Even though it would remain a separate legal entity, Gillette intended to take P&G’s structure as a means of increasing reach, cost efficiencies, speed to market, and growth momentum.
P&G’s structure is divided into three heads: GBU, MDO, GBS. Gillette will move form business units based on geographic regions to GBUs based on product lines. MDOs will develop market strategies to build business based on local knowledge. GBS will bring together business activities such as accounting, human resource systems, order management, and information technology. P&G is the only consumer products company with global shared services, all supported by innovative corporate functions.
© 2010 Pearson Prentice Hall

14. Interorganizational Networks
Relational/Global e-Networks
I-Form:
Acer–Taiwan
Royal Philips Electronics
Platformisation
Intel
MNC linkages with different companies, subsidiaries, suppliers, and individuals result in relational networks. Regarding the MNC’s overall structure as a network of interconnected relations helps them consider organizational design imperatives at both global and local levels. The network framework makes clear that the company’s operating units link vastly different environmental and operational contexts based on varied economic, social and cultural milieus. Philips and Intel are examples of companies with interorganizational networks.
The global e-corporation network structure involves a network of virtual e-exchanges and “bricks and mortar” services. This structure of functions and alliances makes up a combination of electronic and physical stages of the supply chain network.
Philips has operating units in sixty countries. These units range from large subsidiaries to very small single-function operations. Some have centralized control at Philip’s headquarters; others are autonomous.
In 2005 Intel developed a structural focus called “Platformisation,” which is customizing a range of chips in a combination suitable for a particular target market as a response to the need for speed adaptation. Because Intel is not very hierarchical, its formalized structure is not a good representation of how the company works.
© 2010 Pearson Prentice Hall

15. Global E-Corporation Network Structure
EXHIBIT The Global E-Corporation Network Structure
This figure depicts the global e-corporation network structure. Such a structure combines some global and some local functions. Customized e-exchanges for logistics, supplies, and customers could be housed anywhere; suppliers manufacturers, and distributors may be in various countries, separately or together, wherever efficiencies of scale and cost may be realized. The final distribution system and customer interaction must be tailored to the customer-location physical infrastructure and payment infrastructure, as well as local regulations and languages. The end result should be efficiency and cost effectiveness throughout the chain.
© 2010 Pearson Prentice Hall

16. Transnational Corporation (TNC) Network Structure
EXHIBIT Dell’s Value Web Model
Dell is an example of a company that uses the global e-corporation network structure. As shown in this figure, Dell’s strategy is to conduct critical activities in-house, while outsourcing non-strategic activities.
© 2010 Pearson Prentice Hall

17. Matrix Structure and Transnational Company: Coordination and Control System
Attempts to combine:
The capabilities and resources of a multinational corporation
The economies of scale of a global corporation
The local responsiveness of a domestic company
The ability to transfer technology efficiently typically of the international structure
© 2010 Pearson Prentice Hall

18. Choice of Organizational Form
EXHIBIT Organizational Alternatives and Development for Global Companies
Two major issues in choosing the structure and design of an organization are the opportunities and need for (1) globalization and (2) localization. This exhibit shows alternative structural forms appropriate to each of these variables and to the strategic choices regarding the level and type of international involvement desired by the firm. It updates the evolutionary stages model to reflect alternative organizational responses to more recent environments and to the anticipated competitive environments ahead. As the company progresses through various stages from domestic to transnational the organizational structure must be adapted to accommodate changes in relative focus on globalization versus localization, choosing a global product structure, a geographic area structure, or perhaps a matrix form.
© 2010 Pearson Prentice Hall

19. Organizational Change and Design Needed When:
Clashes among divisions, subsidiaries, or individuals over territories or customers
Duplication of administrative or personnel services, sales offices, account executives
An increase in overseas customer service complaints
A shift in operational scope
Conflict between overseas and domestic staff
Centralization leads to excessive and, thus, misused or misunderstood data
Unclear reporting relationships
Signs of organizational inefficiency or any major organizational change usually indicate the organizational structure must change as well. This slide and the next highlight some of the change indicators presented in the text in Exhibit 8-8. They particularly highlight international indicators that change is needed.
© 2010 Pearson Prentice Hall

20. Locus of Decision Making in an International Organization
EXHIBIT Locus of Decision Making in an International Organization
When modifying the organizational structure, managers must establish a system of communication and control that will provide for effective decision-making. The organization design must determine effective behaviors at both the macro and micro levels. The level of decision-making centralization can have important consequences and is a matter of degree. This figure illustrates the centralization-decentralization continuum and the different ways that decision making can be shared between headquarters and local units or subsidiaries. Two key issues are the speed with which the decisions have to be made and whether they affect only a certain subsidiary or part of the company. For functions that are organized for the entire organization (e.g., finance, research and development), centralization is generally preferred.
In general, though, there is no one best way to organize. Ideally, a company tries to organize in a way that will allow it to carry out its strategic goals; the staffing is then done to mesh with those strategic goals and the way the structure has been set up. In reality, though, the result is likely to be trade-off between the desired strategy and existing constraints.
© 2010 Pearson Prentice Hall

21. Control Systems for Global Operations
Direct Coordinating Mechanism
Indirect Coordinating Mechanism
McDonald’s in Moscow
Problem: quality control
Solution: built processing plant in Moscow and provided managerial training
Other options: visits by head- office personnel
Examples: sales quotas, budgets, and financial tools and reports
Three financial statements
One for accounting standards in host country
One for the standards in the home country
One for consolidation
Direct mechanisms include the design of appropriate structures (as already discussed) and the use of effective staffing (discussed in Chapter 9). They proactively set the stage for operations to meet goals, rather than troubleshooting problems after they occur.
When McDonald’s first opened in Moscow in 1990, they anticipated their biggest challenge would be quality control of food products. In response to this challenge, they adopted a strategy of vertical integration for sourcing raw materials and built a large plant in Moscow to process beef, milk, buns, vegetables, sauces, and potatoes. The company also sent Russian managers for five months of training in Canada.
Another form of direct control is periodic visits to subsidiaries by executives from headquarters. These visits allow them to check performance, troubleshoot, and anticipate future problems. Likewise, regular meetings can be a form of direct control. International Telephone and Telegraph Corporation (ITT) holds monthly management meetings at headquarters. Each general manager shares performance data, and problems and solutions also are shared.
Domestic companies often rely on financial statement analysis, but doing so becomes more complicated for foreign subsidiaries due to exchange rates, inflation levels, transfer prices, and accounting standards. MNCs usually require three sets of financial statements from subsidiaries. The first must meet the accounting standards prescribed by law in the host country (which also allows for comparison of subsidiaries within the same country). The second is in accordance with the accounting standards required by the home country (which allows for comparison with subsidiaries in other countries). The third translates the second set of statements (with adjustments) into the currency of the home country for consolidation purposes.
Evidence suggests that US companies may tend to rely more heavily on indirect mechanisms than European companies, which tend to favor direct mechanisms.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

22. Managing Effective Monitoring Systems
Appropriateness of Monitoring and Reporting Systems
Evaluation Variables Across Countries
Role of Info. Systems
Management practices, local constraints, and expectations regarding authority, time, and communication are some of the variables likely to affect the appropriateness of monitoring (or control) systems. The degree to which headquarters’ practices and goals are transferable may depend on whether top managers are from the head office, the host country, or a third country.
Research by Ueno and Sekaran indicates that individualism may lead US managers to use more formal communication and coordination processes, whereas Japanese managers may be more likely to use informal and implicit processes. Likewise, because US managers are often evaluated on individual performance, they are more likely than their Japanese counterparts to build slack into budget calculations.
Reporting systems require sophisticated information systems to enable them to work properly. Managers must receive accurate and timely information about sales, production, and financial results to be able to compare actual performance with goals and take corrective action when necessary. Research by Neghandi and Welge indicates that US companies use far more specific functional reports than do German or Japanese MNCs.
Accuracy and timeliness of informational systems are often imperfect—especially in less developed countries. Problems may stem from false information provided by governments, differences in work norms, and inadequate technology.
An additional problem is the difficulty of comparing performance data across various countries because of the variables that make that information appear different—which hinders the evaluation process. To combat some of these problems, some companies are taking advantage of the Internet to create Internet MIS systems for supply-chain management.
It can be difficult to evaluate the performance of foreign affiliates because performance data is not necessarily comparable across countries. For example, factors like considerable inflation, which is beyond the manager’s control, can have a downward effect on profitability. It is possible, though, that this manager may have done more to maximize opportunities for long-term profitability relative to a manager in a country with less inflation problems.
One way to ensure meaningful comparison is to adjust financial statements for uncontrollable variables particular to each country where a subsidiary is located. Another way is to take nonfinancial measures into account. These include market share, productivity, sales, relations with the host country government, public image, employee morale, union relations, and community involvement.
© 2010 Pearson Prentice Hall