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m Explain why the design of organizational structure is
important to international companies
m Understand the organizational dimensions that must be
considered when selecting organizational structures
m Discuss the various organizational forms
m Understand the concept of the virtual corporation
m Explain why decisions are made where they are among parent
and subsidiary units of an international company
m Understand how an IC can maintain control of a joint venture
m List the types of information an IC needs to have reported to it
by its units around the world

18-2

 
&
Ú ?rganizational structure
Ú The way organization
arranges its various
domestic and
international units and
activities
Ú The relationships among
these components
Ú Determines where formal
power and authority will
be located
Ú Presented in an
organization chart
18-3

  
Ú ?rganization design deals with how an
international business should be organized in order
to ensure its worldwide business activities are able
to be integrated in an efficient and effective manner
Ú Structures and systems must be consistent with each
other and with the environmental context
Ú Size and complexity of the organization must be
considered in design
Ú Structure must be able to evolve over time in order to
respond to change
18-4
    
m ?rganizational Design Concerns
m Two concerns that management faces in
designing the organizational structure
m Finding the most effective way to
departmentalize to take advantage of the
efficiencies gained from specialization of labor
m Coordinating the activities of those
departments to enable the firm to meet its
overall objectives

18-5
  "  
Ú Product and technical
expertise regarding the
businesses
Ú Geographic expertise
regarding the countries and
regions
Ú Customer expertise
regarding the client groups,
industries, market segments,
or population groups
Ú Functional expertise
regarding the value chain
activities
Y

 6
  !   
 "
m International Division Ú Management changes to
m A division in the global product or global
organization that is at the geographic form to
same level as the Ú Be more capable of
domestic division and is
responsible for all non- developing competitive
home country activities strategies
m ?rganization on a Ú ?btain lower production
regional or geographic costs
basis Ú Enhance technology
m As overseas operations transfer and the
grow global structures are allocation of resources
formed
18-7
 r
 

 


mProduct
m Product divisions responsible for the worldwide
operations such as marketing and production of
products
m Each division generally has regional experts
m Eliminates duplication of product experts
m Creates a duplication of area experts

18-8
 

    "
m Geographical Regions
m Responsibilities for all
activities under area
managers who report
directly to the CE?
m This kind of organization
simplifies the task of
directing worldwide
operations
m Every country is
clearly under the
control of someone
who is in contact with
headquarters
18-9
 

    "
Ú Geographical Regions
Ú Used for both multinational and global companies
Ú Used by
Ú Companies that manufacture products with a low or
stable technological content that require strong
marketing ability
Ú Firms with diverse products
Ú Producers of consumer products
Ú Creates duplication of product and functional
specialists

18-10


  
 "
Ú Function Ú Hybrid Forms
Ú Few firms are organized
by function at the top
level
Ú Senior executives
responsible for each
functional area report
to CE?
Ú Users of the functional
form are those with a
narrow and highly
integrated product mix
18-11
Ú A mixture of the
organizational forms is
used at the top level and
may or may not be
present at the lower
Ú ?ften result of regionally
organized company
introducing new and
different product line or
Ú Firm selling to sizable,
homogeneous class of
customers
 

  
 "
Ú Matrix ?rganization
Ú ?rganization based on one or two dimensions
superimposed on organization based on another
dimension
Ú Evolved from attempt to mesh product, regional,
and functional expertise
Ú Requires multiple managers to agree on decision

Ú Matrix overlay attempts to correct this problem

18-12
 &  '
Ú An organizational form
in which
Ú product divisions
have been defined as
though they were
distinct, independent
businesses
Ú Most SBUs are based on
product lines

Y
Y
 
 
 "
Ú Pressure to act more quickly, reduce costs and
improve quality have created new forms
Ú Reengineering to
Ú reduce levels of middle management
Ú restructure work processes
Ú reduce fragmenting across departments
Ú empower employees
Ú improve communication
Ú respond more quickly
Ú become more innovative

18-14
  
 
0 
Ú §irtual Corporation Ú Advantages
Ú Coordinates activity to Ú Permits greater flexibility
deliver value to Ú Forms a network of
customers using
dynamic relationships
resources outside
traditional boundaries taking advantage of the
competencies of other
Ú Relies to a great extent on
third parties to conduct organizations
its business Ú Disadvantage
Ú Also called a network Ú Potential to reduce
corporation management·s control
Ú Advanced by technology over the corporation·s
18-15 activities
  
 
0 
m Horizontal Corporation
m Gives flexibility to
respond quickly
m ´antiorganzationµ
removes constraints of
conventional structures
m Employees worldwide
create, build, and market
the company·s products
through a carefully
cultivated system of
interrelationships
18-16
  

m  here Are Decisions Made?

m All at IC headquarters
m All at subsidiary level
m Combination
m §ariables determining the location of decision making
m Product and Equipment
m Competence of subsidiary management
m Size of the international company and how long it has
been one
m Detriment of a subsidiary for the benefit of the
enterprise
m Subsidiary frustration
18-17
  
Ú Product and Equipment
Ú Standardized product
affiliates have to follow
company policy
Ú  ithout global product
policy, still attempt to
standardize as much as
possible
Ú If profit potential greater
when subsidiary
customizes, subsidiary
can proceed with parent
approval
18-18
Ú Competence of Subsidiary
Management depends on
Ú How well do executives
know one another
Ú How well do they know
company policies
Ú Understanding of host
country conditions
Ú Distances between home
and host countries
Ú Size and age of parent
company
  

Ú Greater reliance on
subsidiary management if
Ú Executives are moved
around between
headquarters and
subsidiaries
Ú HQ less familiar with host
country
Ú Greater distance
Ú Smaller company lacks
internationally experienced
managers and cannot afford
to hire them
Y
Y
  

Ú Benefiting the Ú Moving Production Factors

Enterprise to the Ú Cost, labor, taxes, market,
currency, political stability
Detriment of a
Ú  hich Subsidiary Gets the
Subsidiary ?rder
Ú IC can source raw Ú Transportation, production,
materials and tariffs, currency, backlogs
components, locate Ú Multicountry Production
factories, allocate orders
Ú Economies of scale
and govern intrafirm
pricing that may benefit Ú  hich Subsidiary Books the
the IC but be a detriment Profits
to the subsidiary Ú Taxes, currency controls,
labor relations, political
climate, social unrest
18-20
  

Ú Subsidiary Frustration
Ú Management of subsidiaries must be motivated
and loyal
Ú If all decisions made at HQ they can lose incentive
and prestige or face with their employees and the
community
Ú They may become hostile and disloyal

Ú HQ management should delegate as much as

reasonably possible
Ú Subsidiary managers should be kept informed
18-21
 ü (  & 
) Y**+  
, 
Ú A joint venture may be
Ú A corporate entity between
an IC and local owners
Ú A corporate entity between
two or more companies that
are foreign to the area where
the joint venture is located
Ú ?ne company working on a
project of limited duration
in cooperation with one or
more other companies
18-22
 ü (  & 
) Y**+  
, 
Ú Loss of freedom and Ú Methods HQ can use to
flexibility because maintain control include
shareholders can block HQ Ú A management contract
efforts to Ú Control of the finances
Ú Move production factors
Ú Control of the technology
Ú Fill an order from another
Ú Putting people from the
affiliate or subsidiary IC in important executive
Ú Shareholders may bring positions
Ú legal pressures Ú Joint venture partner will
Ú Political pressures want their own or host
government personnel in
executive positions
18-23
  

m For controls to be effective

m all operating units of an international company
must provide headquarters with
m timely, accurate, and complete reports
m Types of reporting required
m Financial
m Technological
m Market opportunity
m Political and economic
18-24
  --ü 

Ú Mass production and
large organizations are
disappearing
Ú New computer and
communication
technologies are ´de-
jobbingµ the workplace
Ú Fixed jobs are being
replaced with tasks
performed by evolving
Y

teams
  --ü 

m Traits of Companies with De-Jobbed  orkers
m They encourage employees to make operating
decisions that used to be reserved for managers
m They give employees the information they need
to make such decisions
m They give employees lots of training to create an
understanding of business and financial issues
that used to concern only an owner or executive
m They give employees a stake in the fruits of their
labor--a share of the profits
18-26