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Organization Structure

and Control Systems

© 2006 Prentice Hall 8-1


Organizational Structure
There is no permanent organization chart for
the world. . . . It is of supreme importance
to be ready at all times to take advantage of
new opportunities.

© 2006 Prentice Hall 8-2


Evolution and Change in MNC
Internationalization is the process by which a firm
gradually changes in response to international
competition, domestic market saturation, and the
desire for expansion, new markets, and
diversification.
Structural Evolution (Stages Model) occurs when
managers redesign the organizational structure to
optimize the strategy’s changes to work, making
changes in the firm’s tasks and relationships and
designating authority, responsibility, lines of
communication, geographic dispersal of units and
so forth
© 2006 Prentice Hall 8-3
Basic Organizational Structures
A number of basic structures exist that permit
an MNC to compete internationally
– Structure must meet the need of both the local
market and the home-office strategy of
globalization
– Contingency approach
• Balances the need to respond quickly to local
conditions with the pressures for providing
products globally
– Most MNCs evolve through certain basic
structural arrangements in international
operations

© 2006 Prentice Hall 8-4


Organizational Consequences of
Internationalization
High Aircraft Telecommunications
Cameras
Aerospace
Pressure for globalization

Consumer electronics
Computers

Automobiles
Synthetic fibers Steel

Clothing

Low Cement Packaged goods


Low High
Pressure for local responsiveness
© 2006 Prentice Hall 8-5
Basic Organizational Structures (cont.)
Global Structural Arrangements
– Global Product Division
• Structural arrangement in which domestic divisions are given
worldwide responsibility for product groups
– Global Area Division
• Structure under which global operations are organized on a
geographic rather than a product basis
– Global Functional Division
• Structure which organizes worldwide operations primarily
based on function and secondarily on product
– Matrix Organization Structure
• Structure that is a combination of a global product, area, or
functional arrangement

© 2006 Prentice Hall 8-6


Domestic Plus Foreign Subsidiary

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International Division Structure
Chief Executive Officer

Production Marketing Finance Personnel

Domestic Domestic International Domestic Domestic


Division Division Division Division Division
Paint Tools Furniture Hardware

Japan Australia Italy

Office Marketing Government


Operations Relations
© 2006 Prentice Hall 8-8
Integrated Global Structures
The global functional structure is designed on the
basis of the company’s functions – production,
marketing, finance, and so forth. Foreign
operations are integrated into the activities and
responsibilities of each department to gain
functional specialization and economies of scale.
Matrix Structure is a hybrid organization of
overlapping responsibilities – it is used by some
firms but has generally fallen into disfavor
recently

© 2006 Prentice Hall 8-9


Organizing for Globalization
Two opposing forces in structural decisions
– The need for differentiation (focusing on
and specializing in specific markets)
– The need for integration (coordinating
those same markets)
Globalization – a specific strategy that
treats the world as one market by using a
standardized approach to products and
markets

© 2006 Prentice Hall 8-10


Organizing for Globalization
Organizing to facilitate a globalization strategy
typically involves rationalization and the
development of strategic alliances
Organizing for global product standardization
necessitates close coordination among the various
countries involved
The problem facing companies in the future is that
the structurally sophisticated global networks
leave the organization exposed to the risk of
environmental volatility from all corners of the
world
© 2006 Prentice Hall 8-11
Comparative Management Focus:
Chinese Global Network
The Chinese commonwealth is a form of
global network that has become the envy of
Western multinationals
– Network of entrepreneurial relationships in
Asia primarily
– Includes mainland China, 1.3 billion citizens,
and more than 55 million Chinese in Taiwan,
Indonesia, Hong Kong, and Thailand
– Estimated to control $2 Trillion in liquid assets

© 2006 Prentice Hall 8-12


Emergent Structural Forms
Inter-organizational networks
The global e-corporation network structure
The transnational corporation (TNC) network s

© 2006 Prentice Hall 8-13


Choice of Organizational Form

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Organizational Change and Design
When does a company need to make a
change in organizational structure?
– Makes a change in goals or strategy
– Makes a change in scope of operations
– Indications of organizational inefficiency
– Conflicts among divisions and
subsidiaries
– Overlapping responsibilities
– Complaints regarding customer service

© 2006 Prentice Hall 8-15


Control Systems for Global
Operations
The establishment of a single currency makes
it possible, for the first time, to establish
shared, centralized accounting and
administrative systems.
—Francesco Caio, CEO, Merloni Elettrodomestici

© 2006 Prentice Hall 8-16


Direct Coordinating Mechanisms
 Design of appropriate structures
 Use of effective staffing practices
 Visits by head-office personnel
 Regular meetings

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In-Direct Coordinating Mechanisms
 Sales quotas
 Budgets
 Other financial tools
 Feedback reports

© 2006 Prentice Hall 8-18


Managing Effective Monitoring
Systems
In deciding on appropriate monitoring and
reporting systems, additional factors to be
considered include:
• The role of information systems (adequacy of
management information systems in foreign
affiliates, non-comparability of performance data
across countries)
• Evaluation variables across countries

© 2006 Prentice Hall 8-19


Inter-organizational networks
Views the various companies, subsidiaries,
suppliers, or individuals as a relational
networks
Allows the different network partners to
adopt unique structures that are adapted to
the local context

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Global E-Corporation Network

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Thanks
© 2006 Prentice Hall 8-22