ASSIGNMENT #01

SUBMITTED BY:
MUBASHIRA SIDDIQUI
CLASS: BS-VIII
SUBJECT: INTERNATIONAL BUSINESS
SUBMITTED TO: SIR MOIZ SABUWALA
TOPIC COVERED:
ORGANIZQATION OF INTERNATIONAL
BUSINESS
INTERNATIONAL BUSINESS:-
International business is a business in which the parties i.e. the buyer & seller or
the service provider or the client are in two different countries. The transactions
are affected by currency fluctuations, relations of one country with the other,
policies, geo-political and economic factors etc.
International Business refers to the trade of goods, services, technology, capital
and/or knowledge at a global level. It involves cross-border transactions of
goods and services between two or more countries. Transactions of economic
resources include capital, skills, and people for the purpose of the international
production of physical goods and services such as finance, banking, insurance,
and construction. International business is also known as globalization.
Organizational architecture refers to the totality of a firm’s organization,
including formal organization structure, control systems and incentives,
processes, organizational culture, and people To be the most profitable, firms
need to be sure the different elements of the organizational architecture are
internally consistent the organizational architecture matches or fits the strategy
of the firm the strategy and architecture of the firm are consistent with each
other, and consistent with competitive conditions

Organizational Architecture Organizational structure refers to: the formal

division of the organization into subunits the location of decision-making
responsibilities within that structure (centralized versus decentralized) the
establishment of integrating mechanisms to coordinate the activities of subunits
including cross- functional teams or pan-regional committees Control systems
are the metrics used to measure performance of subunits and make judgments
about how well managers are running those subunits

Organizational Architecture Incentives are the devices used to reward

appropriate managerial behavior Processes are the manner in which decisions
are made and work is performed within the organization Organizational
culture refers to the norms and value systems that are shared among the
employees of an organization People refers to not just the employees of the
organization, but also the strategy used to recruit, compensate, and retain those
individuals and the type of people they are in terms of their skills, values, and
orientation

Organizational Structure :- Organizational structure has three dimensions: 1.

Vertical differentiation - the location of decision-making responsibilities within a
structure

2. Horizontal differentiation - the formal division of the organization into sub-units

3. The establishment of integrating mechanisms - the mechanisms for
coordinating sub-units

Vertical Differentiation: (Centralization and Decentralization ) Vertical

differentiation determines where decision-making power is concentrated
Centralized decision-making facilitates coordination ,ensure decisions consistent
with organization’s objectives gives top-level managers the means to bring
about organizational change avoids duplication of activities

Decentralized decision-making: relieves the burden of centralized decision-

making has been shown to motivate individuals permits greater flexibility can
result in better decisions  can increase control It can be worthwhile to
centralize some decisions and decentralize others

By organizational structure ,we mean three things: First, the formal division
of the organization into subunits such as product divisions, national
operations, and functions (most organizational charts display this aspect
of structure); second, the location of decision-making responsibilities within that
structure (e.g., centralized or decentralized); and third, the establishment of
integrating mechanisms to coordinate the activities of subunits
including cross functional teams and or pan regional committees
.Control systems are the metrics used to measure the performance of
subunits and make judgments about how well managers are running
those subunits
 Vertical Differentiation: Centralization and Decentralization
A firm’s vertical differentiation determines where in its hierarchy the
decision-making power is concentrated.

Are production and marketing decisions centralized in the offices of

upper-level managers, or are they decentralized to lower-level
managers? Where does the responsibility for R&D decisions lie? Are
strategic and financial control responsibilities pushed down to operating
units, or are they concentrated in the hands of top management? And
so on. There are arguments for centralization and other arguments for
decentralization.
When decisions are decentralized to lower-level managers, those
managers may make decisions at variance with top management’s
goals. Centralization of important decisions minimizes the change of
this occurring .Third, by concentrating power and authority in one
individual or a management team, centralization can give top-level
managers the means to bring about needed major organizational
changes. Fourth, centralization can avoid the duplication of activities
that occurs when similar activities are carried on by various subunits
within the organization. Production activities may be centralized at key
locations for the same reason.
Arguments for Decentralization
There are five main arguments for decentralization. First, top
management can become overburdened when decision-making
authority is centralized, and this can result in poor decisions
.Decentralization gives top management time to focus on critical issues
by delegating more routine issues to lower-level managers. Second,
motivational research favors decentralization. Behavioral scientists
have long argued that people are willing to give more to their jobs when
they have a greater degree of individual freedom and control over their
work. Third, decentralization permits greater flexibility more rapid
response to environmental changes-because decisions do not have to
be “referred” up the hierarchy” unless they are exceptional in nature.
Fourth, decentralization can result in better decisions. Ina decentralized
structure, decisions are made closer to the spot by individuals who
have better information than managers several levels up in a hierarchy.
Fifth, it can increase control. It can be used to establish relatively
autonomous, self-contained subunits within an organization. Subunit
managers can then be held accountable for subunit performance
.Strategy and Centralization in an International Business
the emphasis on local responsiveness in multi domestic firms creates
strong pressures for decentralizing operating decisions to foreign
subsidiaries Thus, while products are developed at home, managers in
the various foreign subsidiaries have significant latitude for formulating
strategies to market those products in their particular settings. The
situation in transnational firms is more complex. The need to realize
location and experience curve economies require some degree of
centralized control over global production centers (as it does in global
firms). However, the need for local responsiveness dictates the
decentralization of many operating decisions, particularly for marketing,
to foreign subsidiaries
Vertical Differentiation: Centralization
andDecentralization
A firm’s vertical differentiation determines where in its hierarchythe decision-making power is
concentrated.

Are production andmarketing decisions centralized in the offices of upper-levelmanagers,

or are they decentralized to lower-level managers?Where does the responsibility for R&D
decisions lie? Arestrategic and financial control responsibilities pushed down tooperating
units, or are they concentrated in the hands of topmanagement? And so on. There
are arguments for centraliza-tion and other arguments for decentralization.
Arguments for Centralization
There are four main arguments for centralization. First,centralization can facilitate
coordination. For example, consider afirm that has a component manufacturing
operation in Taiwanand an assembly operation in Mexico. The activities of thesetwo
operations may need to be coordinated to ensure a smoothflow of products
from the component operation to theassembly operation. This might be achieved
by centralizingproduction scheduling at the firm’s head office. Second,centralization can help
ensure that decisions are consistent withorganizational objectives. When decisions are
decentralized tolower-level managers, those managers may make decisions atvariance
with top management’s goals. Centralization of important decisions minimizes the change
of this occurring.Third, by concentrating power and authority in one individualor a
management team, centralization can give top-levelmanagers the means to bring
about needed major organiza-tional changes. Fourth, centralization can avoid the
duplicationof activities that occurs when similar activities are carried on byvarious subunits
within the organization. For example, manyinternational firms centralize their
R&D functions at one or twolocations to ensure that R&D work is not duplicated.
Produc-tion activities may be centralized at key locations for the samereason.
Arguments for Decentralization
There are five main arguments for decentralization. First, topmanagement can become
overburdened when decision-makingauthority is centralized, and this can result in poor
decisions.Decentralization gives top management time to focus on criticalis sues by
delegating more routine issues to lower-levelmanagers. Second, motivational research
favors decentralization.Behavioral scientists have long argued that people are willing togive
more to their jobs when they have a greater degree of individual freedom and control
over their work. Third,decentralization permits greater flexibility more rapid responseto
environmental changes-because decisions do not have to be“ referred” up the
hierarchy” unless they are exceptional in nature. Fourth, decentralization can result in better
decisions. Ina decentralized structure, decisions are made closer to the spot by individuals
who (presumably) have better information than managers several levels up in a hierarchy.
Fifth, decentralization can increase control. Decentralization can be used to establish relatively
autonomous, self-contained subunits within an organization. Subunit managers
can then be held account able for subunit performance. The more responsibility
subunit managers have for decisions that impact subunit performance, the fewer alibis they
have for poor performance.
Strategy and Centralization in an
InternationalBusiness
The choice between centralization and decentralization is not absolute. Frequently it makes
sense to centralize some decisions and to decentralize others, depending on the
type of decision and the firm’s strategy.Decisions regarding overall firm strategy ,major financial
expenditures, financial objectives, and the like are typically centralized at the firm’s headquarters.
However, operating decisions, such as those relating to production, marketing, R&D,
and human resource management, mayor may not be centralized depending on the
firm’s international strategy. Consider firms pursuing a global strategy. They must decide
how to disperse the various value creation activities around the globe so location and
experience economies can be realized. The head office must make the decisions about
where to locateR&D, production, marketing, and so on. In addition, the globally
dispersed web of value creation activities that facilitatesa global strategy must be coordinated. All of
this createspressures for centralizing some operating decisions.In contrast, the
emphasis on local responsiveness in multi domestic firms creates strong pressures for
decentralizing operating decisions to foreign subsidiaries. In the classicmulti domestic
firm, foreign subsidiaries have autonomy in most production and marketing
decisions. International firm stend to maintain centralized control over their core
competency and to decentralize other decisions to foreign subsidiaries. This typically
centralizes control over R&D and/or marketing in the home country and decentralizes
operating decisions to the foreign subsidiaries. For example, Microsoft Corporation
,Which fits the international mode, centralizes its product development activities (where its
core competencies lie) at the Redmond, Washington, headquarters and decentralizes
marketing activity to various foreign subsidiaries. Thus, while products are developed at
home, managers in the various foreign subsidiaries have significant latitude for
formulating strategies to market those products in their particular settings.The
situation in transnational firms is more complex. The need to realize location and
experience curve economies require s some degree of centralized control over global
production centers (as it does in global firms). However, the need for local responsiveness
dictates the decentralization of many operating decisions, particularly for marketing, to
foreign subsidiaries .Thus, in transnational firms, some operating decisions are
relatively centralized, while others are relatively decentralized. In addition, global learning based
on the multidirectional transfer of skills between subsidiaries and between
subsidiaries and the corporate center, is a central feature of a firm pursuing a
transnational strategy. The concept of global learning is predicated on the notion that
foreign subsidiaries within a multinational firm have significant freedom to
develop their own skills and competencies.