The Organization of Global Operations

1
Lecture V

• The Organization of Global Operations
• (ch. 4, make a note here most of the materials
  in this lecture are not covered in your text)

2
Structure and Coordination

• International corporate structure directly
  impacts the relationships between headquarters
  and subsidiaries
• Strategy- Structure Control /Coordination

3
Issues complicating the structuring of
multinationals international organizations

• How to coordinate activities of foreign units
  while permitting each to retain its identity
  (subsidiary autonomy innovative, responsive)
• How to exhibit local responsiveness while
  maintaining a global orientation (coordination)

4
Factors influencing MNCs Structure

• External Factors
• Economic conditions
• Technological developments
• Type of industry product-market
  characteristics
• Host government policies

5
Factors influencing MNCs Structure

• Company Factors
• Administrative heritage
• Company history
• Top management philosophy
• Nationality, primarily organizational differences
  associated with nationality
• Corporate strategy
• Degree of internationalization
• Number of overseas subsidiaries
• of sales from overseas markets
• Number of product lines marketed abroad

6
Development of International Corporate Structure

• Stopford and Wells International Structural
  Stages Model (p. 334, Figure 4-1)
• Structure evolves over time resulting from
  the growth of
• - product diversity
• - overseas sales

7
A progression parallels the product life cycle

• Stage 1, Introduction Exporting
• domestic structure, international operations
  are treated as appendage
• Stage 2, Growth Expansion to manufacturing in
  low-cost countries 
• international division structure with little
  integration
• Stage 3, Maturity Global operations
• More sophisticated structures (product division,
  area division, global matrix/integrated
  network,etc)

8
Stage 1 - Extension of the domestic structure

• EMC (Export Management Company)
• Trading Company (Japanese Sogo Shosha)

9
Stage 1 - Extension of the domestic structure
(Contd..)

• International Manager

10
Stage 1 - Extension of the domestic structure
(Contd..)

• Export Manager with broad product line

11
Stage 1 - Extension of the domestic structure
(Contd..)

• Autonomous foreign subsidiaries
• US (short-lived)
• European MNCs

12
Stage 2 - International Growth / Expansion

• International Division Structure
• Ethnocentric (domestic orientation)
• Centralized control of overseas businesses
• Examples

13
Stage 2 - International Growth / Expansion
(Contd..)

• International Division Structure

14
Stage 2 - International Growth / Expansion
(Contd..)

• Geographic (Area) Division Structure
• Polycentric
• High sales from overseas markets
• Price / product differentiation
• Example Nestle (then),now - ?

15
Stage 2 - International Growth / Expansion
(Contd..)

• Geographic (Area) Division Structure

16
Stage 2 - International Growth / Expansion
(Contd..)

• Product Division Structure
• Diverse product lines with high technological
  content
• Significant responsibility given to young product
  managers
• Coordination of different product activities in
  one country?
• Example HP then, now?

17
Stage 2 - International Growth / Expansion
(Contd..)

• Product Division Structure

18
Stage 2 - International Growth / Expansion
(Contd..)

• International Functional Structure
• Narrow, standardized product lines
• Stable competitive environment
• Example extraction industry

19
Stage 2 - International Growth / Expansion
(Contd..)

• International Functional Structure

20
Stage 2 - International Growth / Expansion
(Contd..)

• International Mixed Structure

21
Stage 2 - International Growth / Expansion
(Contd..)

• International Matrix Structure

22
Stage 2 - International Growth / Expansion
(Contd..)

• Matrix Structure of ABB

23
Stage 2 - International Growth / Expansion
(Contd..)

• Advantages of Matrix structure
• More efficient use of overall resources
• Better cooperation and coordination across
  sub-units
• Companys overall global performance is
  highlighted (compared to the problems of
  sub-optimization in the product or area
  division structures)
• Conflicts resolved at the lowest possible level

24
Stage 2 - International Growth / Expansion
(Contd..)

• Drawbacks of Matrix structure
• Worldwide responsibility may be given to product
  managers with relatively weak international
  experiences
• Dual-boss/ dual-communication can be complex and
  expensive 
• Create a mountain of paperwork (?)
• Quick decision making is impossible (?)

25
IBMs Restructuring
26
Review of the MNE definitions
Attribute
Source
Perlmutter 1969
Management Style
Centocentric
Geocentric
Ethnocentric
Polycentric
Coordination/ Configuration needs
Porter 1986
Complex Global
Multidomestic
Global
Bartlett Ghoshal
Global
Strategy
Multinational
International
Transnational
Integrated Network
Coordinated Federation
Centralized Hub
Bartlett Ghoshal
DecentralizedFederation
Structure