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					         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)
 Structure and Coordination
ü International corporate structure 
  directly impacts the relationships 
  between headquarters and 
  subsidiaries

ü Strategy- Structure – Control /Coordination
Issues complicating the structuring of multinationals’
            international organizations

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


         
Factors influencing MNC’s Structure

External Factors

        Economic conditions
        Technological developments
        Type of industry: product-market characteristics
        Host government policies
Factors influencing MNC’s Structure
Company Factors
Ø Administrative heritage
       Company history
       Top management philosophy
       Nationality, primarily organizational differences associated 
       with nationality
Ø Corporate strategy 
Ø Degree of internationalization 
   ü   Number of overseas subsidiaries 
   ü    % of sales from overseas markets
   ü   Number of product lines marketed abroad
     Development of International Corporate
                   Structure

ü Stopford and Well’s International Structural 
  Stages Model (p. 334, Figure 4-1)

       Structure evolves over time resulting from 
     the growth of
          - product diversity 
          - overseas sales
       
   A progression parallels the product life
                   cycle
ü Stage 1, Introduction – Exporting
     domestic structure, international operations are treated as 
    appendage
ü Stage 2, Growth – Expansion to manufacturing  in 
  low-cost countries 
     international division structure with little integration
ü Stage 3, Maturity – Global operations 
    More sophisticated structures (product division, area 
    division, global matrix/integrated network,etc)  
     Stage 1 - Extension of the
        domestic structure


EMC (Export Management Company) 
Trading Company (Japanese Sogo 
Shosha) 
 Stage 1 - Extension of the domestic
           structure (Contd..)
International Manager
 Stage 1 - Extension of the domestic
           structure (Contd..)
Export Manager with broad product line
   Stage 1 - Extension of the domestic
             structure (Contd..)


Ø Autonomous foreign subsidiaries:
  ü   US (short-lived)
  ü   European MNCs 
Stage 2 - International Growth / Expansion


  Ø International Division Structure 
      ü   Ethnocentric (domestic orientation)
      ü   Centralized control of overseas 
          businesses


     Examples:  
Stage 2 - International Growth / Expansion
                  (Contd..)
International Division Structure 
Stage 2 - International Growth / Expansion
                        (Contd..)

Ø Geographic (Area) Division Structure
     ü   Polycentric
     ü   High % sales from overseas markets
     ü   Price / product differentiation


Example: Nestle (then),now - ?
Stage 2 - International Growth / Expansion
                   (Contd..)

Geographic (Area) Division Structure
Stage 2 - International Growth / Expansion
                      (Contd..)


Ø Product Division Structure 
    ü   Diverse product lines with high 
        technological content 
    ü   Significant responsibility given to young 
        product managers 
    ü   Coordination of different product activities 
        in one country? 
  Example: HP – then, now?
Stage 2 - International Growth / Expansion
                   (Contd..)

Product Division Structure
Stage 2 - International Growth / Expansion
(Contd..)
  Ø International Functional Structure 
        ü   Narrow, standardized product lines 
        ü   Stable competitive environment 


      Example: extraction industry 
Stage 2 - International Growth / Expansion
                   (Contd..)


International Functional Structure 
Stage 2 - International Growth / Expansion
(Contd..)

  International Mixed Structure 
Stage 2 - International Growth / Expansion
                   (Contd..)

International Matrix Structure 
Stage 2 - International Growth / Expansion
                  (Contd..)

Matrix Structure of ABB
 Stage 2 - International Growth / Expansion
                          (Contd..)

Advantages of Matrix structure


ü More efficient use of overall resources
ü Better cooperation and coordination across sub-units
ü Company’s overall global performance is highlighted 
  (compared to the problems of “sub-optimization” in 
  the product or area division structures)
ü Conflicts resolved at the lowest possible level
Stage 2 - International Growth / Expansion
                      (Contd..)


Drawbacks of Matrix structure
ü Worldwide responsibility may be given to product 
  managers with relatively weak international 
  experiences
ü Dual-boss/ dual-communication can be complex and 
  expensive 
ü Create a mountain of paperwork (?)
ü Quick decision making is impossible (?)
IBM’s Restructuring
         Review of the MNE definitions
Source                                 Attribute

Perlmutter Management
[1969]                Centocentric Geocentric Ethnocentric Polycentric
           Style
             Coordination/
Porter                                       Complex                   Multidomestic
             Configuration    Global
[1986]                                       Global
             needs
Bartlett &    Strategy        Global       Transnational International Multinational
Ghoshal
Bartlett &                   Centralized    Integrated Coordinated Decentralized
              Structure
Ghoshal                      Hub            Network    Federation Federation

				
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