1. Global Organization Design
Chapter 5
Global Organization Design

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

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

5. 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

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

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

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

9. International Stage Takes exports seriously
Begins to think multi -domestically

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

11. Global stage
Stateless corporations

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

13. 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

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

15. 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

16. 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

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

18. 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

19. 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

20. 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

21. 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

22. Building Global Capabilities

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

24. 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

25. 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.

26. 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

27. Global Coordination Mechanisms
Global Teams
Headquarters Planning
Expanded Coordination Roles

28. 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.

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

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

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

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

33. 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

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

35. The Transnational Model of Organization

36. Brands of European cars
Volkswagen Group
Skoda auto

37. 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”
growing during financial crisis

38. Skoda cars today

39. 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

40. We hope it was interesting
Thank You
We hope it was interesting