Designing Organizations for the International Environment

1. Designing Organizations for the International Environment Entering the Global Arena Designing Structure to Fit Global Strategy Building Global Capabilities Cultural Differences in Coordination and Control The Transnational Model of Organization

2. Business 5301 Entering the Global Arena Motivations for Global Expansion Economic, technological and competitive forces have combined to push many companies from a domestic to a global focus. Three primary factors motivate companies to expand internationally: Economies of Scale � expanding the organisation�s scale of operations Economies of Scope � scope referring to the number and variety of products and services a company offers, as well as the number and variety of regions, countries and markets it serves. Low-Cost Production Factors � obtain raw materials and other resources at the lowest possible cost.

3. Business 5301 Stages of International Development Stage 1 � Domestic Stage The company is domestically oriented, but managers are aware of the global environment and may want to consider initial foreign involvement to expand production involvement and realise economies of scale Stage 2 � The International Stage The company takes exports seriously and begins to think multidomestically � which means competitive issues in each country are independent of other countries; the company deals with each country individually

4. Business 5301 Stages of International Development Stage 3 � Multinational Stage The company has extensive experience in a number of international markets and has established marketing, manufacturing or research and development facilities in several foreign countries Stage 4 � Global Stage The company transcends any signal country � truly global companies no longer think of themselves as having a single home country and, indeed, have been called stateless corporations. See Exhibit 6.1

5. Business 5301 Global Expansion Through International Strategic Alliances Joint venture Consortia Global virtual organisation Joint venture � is a separate entity created with two or more active firms as sponsors. This is a popular approach to sharing development and production costs and penetrating new markets. Joint ventures may be with either customers or competitors. Consortia � groups of independent companies � including suppliers, customers and even competitors � that join together to share skills, resources, costs and access to one another�s markets. Global virtual organisation � refers to a continually evolving set of company relationships that exist temporarily to exploit temporary opportunities or attain specific strategic advantages. Joint venture � is a separate entity created with two or more active firms as sponsors. This is a popular approach to sharing development and production costs and penetrating new markets. Joint ventures may be with either customers or competitors. Consortia � groups of independent companies � including suppliers, customers and even competitors � that join together to share skills, resources, costs and access to one another�s markets. Global virtual organisation � refers to a continually evolving set of company relationships that exist temporarily to exploit temporary opportunities or attain specific strategic advantages.

6. Business 5301 Designing Structure to Fit Global Strategy Model for Global Versus Local Opportunities When organisations venture into the international domain, managers strive to formulate a coherent global strategy that will provide synergy among worldwide operations for the purpose of achieving common organisational goals. One dilemma they face is choosing whether to emphasise global integration versus national responsiveness. Managers must decide whether they want each global affiliate to act autonomously or whether activities should be standardised across countries. These decisions are reflected in the choice between a globalisation versus a multi-domestic global strategy. Globalisation strategy � can help an organisation reap economy-of-scale efficiencies by standardising product design and manufacturing, using common suppliers, introducing products around the world faster, co-ordinating processes and eliminating overlapping facilities. Multi-domestic strategy � means that competition in each country is handled independently of competition in other countries. Thus, a multi-domestic strategy would encourage product design, assembly and marketing tailored to the specific needs of each country. Companies can be characterised by whether their product and service lines have potential for globalisation, which means advantage through worldwide standardisation. Companies that sell diverse products or services across many countries have a globalisation strategy. On the other hand, some companies have products and services appropriate for a multi-domestic strategy which means local-country advantages through differentiation and customisation. See Exhibit 6.2 � Model to Fit Organisation Structure to International Advantages Globalisation strategy � can help an organisation reap economy-of-scale efficiencies by standardising product design and manufacturing, using common suppliers, introducing products around the world faster, co-ordinating processes and eliminating overlapping facilities. Multi-domestic strategy � means that competition in each country is handled independently of competition in other countries. Thus, a multi-domestic strategy would encourage product design, assembly and marketing tailored to the specific needs of each country. Companies can be characterised by whether their product and service lines have potential for globalisation, which means advantage through worldwide standardisation. Companies that sell diverse products or services across many countries have a globalisation strategy. On the other hand, some companies have products and services appropriate for a multi-domestic strategy which means local-country advantages through differentiation and customisation. See Exhibit 6.2 � Model to Fit Organisation Structure to International Advantages

7. Business 5301 Four Stages of International Evolution

8. Business 5301 Matching Organizational Structure to International Advantage

9. Business 5301 International Division International division typically starts as an export department that grows into an international division � it has equal status to other departments but has its own hierarchy to handle business in various countries, selling the products and services created by domestic divisions, opening subsidiary plants and in general moving the organisation into more sophisticated international operations. Global product structure � the product divisions take responsibility for global operations in their specific product area With a global product structure, each division�s manager is responsible for planning, organising and controlling all functions for the production and distribution of its products for any market around the world

10. Business 5301 Domestic Hybrid Structure with International Division

11. Business 5301 Global Geographic Division Structure The global geographic structure divides the world into geographic regions, with each geographic division reporting to the CEP. Each division has full control of functional activities within its geographic area. Companies that use this type of structure have typically been those with mature product lines and stable technologies. They can find low-cost manufacturing within countries, as well as meeting different needs across countries for marketing and sales. See Exhibit 6.5

12. Business 5301 Partial Global Product Structure Used by Eaton Corporation

13. Business 5301 Global Matrix Structure Global matrix structure � same as a regular matrix structure, except that for multinational corporations the geographic distances for communication are greater and co-ordination is more complex The matrix works best when pressure for decision-making balances the interests of both product standardisation and geographic localisation and when co-ordination to share resources is important. See Exhibit 6.6

14. Business 5301 Global Matrix Structure

15. Business 5301 Building Global Capabilities The Global Organizational Challenge Increased Complexity and Differentiation Need for Integration Knowledge Transfer Global Coordination Mechanisms Global Teams Headquarters Planning Expanded Coordination Roles When organisations enter the international arena, they encounter a greater level of internal and external complexity than anything experienced on the domestic front. Companies have to create a structure to operate in numerous countries that differ in economic development, language, political systems and government regulations, cultural norms and values, and infrastructure such as transportation and communication facilities. As organisations become more differentiated with multiple products, divisions, departments and positions scattered across numerous countries, manager face a tremendous integration challenge Question organisations have to address � how to achieve the co-ordination and collaboration that is necessary for a global organisation to reap the benefits of economies of scale, economies of scope, and labour and production cost efficiencies that international expansion offers. Organisations to learn from their international experience and exploit that learning to create and leverage global organisation knowledge. The diversity of the international environment offers extraordinary opportunities for learning and the development of diverse capabilities. Organisational units in each location acquire the skills and knowledge to meet environmental challenges that arise in that particular location. Many organisations tap only a fraction of the potential that is available from the cross-border transfer of knowledge. There are several reasons for this: Knowledge often remains hidden in various units because language, cultural and geographic distances prevent top managers from recognising it exists. Divisions sometimes view knowledge as power and want to hold onto it as a way to gain an influential position within the global firm. The �not-invented-here� syndrome makes some managers reluctant to tap into the know-how and expertise of other units Much of an organisation�s knowledge is in the minds of employees and sharing not easily be written down and shared with other units. When organisations enter the international arena, they encounter a greater level of internal and external complexity than anything experienced on the domestic front. Companies have to create a structure to operate in numerous countries that differ in economic development, language, political systems and government regulations, cultural norms and values, and infrastructure such as transportation and communication facilities. As organisations become more differentiated with multiple products, divisions, departments and positions scattered across numerous countries, manager face a tremendous integration challenge Question organisations have to address � how to achieve the co-ordination and collaboration that is necessary for a global organisation to reap the benefits of economies of scale, economies of scope, and labour and production cost efficiencies that international expansion offers. Organisations to learn from their international experience and exploit that learning to create and leverage global organisation knowledge. The diversity of the international environment offers extraordinary opportunities for learning and the development of diverse capabilities. Organisational units in each location acquire the skills and knowledge to meet environmental challenges that arise in that particular location. Many organisations tap only a fraction of the potential that is available from the cross-border transfer of knowledge. There are several reasons for this: Knowledge often remains hidden in various units because language, cultural and geographic distances prevent top managers from recognising it exists. Divisions sometimes view knowledge as power and want to hold onto it as a way to gain an influential position within the global firm. The �not-invented-here� syndrome makes some managers reluctant to tap into the know-how and expertise of other units Much of an organisation�s knowledge is in the minds of employees and sharing not easily be written down and shared with other units.

16. Business 5301 Cultural Differences in Coordination and Control National Value Systems Power Distance Uncertainty Avoidance Three National Approaches to Coordination and Control Centralized Coordination in Japanese Companies European Firms� Decentralized Approach The United States: Coordination and Control through Formalization

17. Business 5301 Cultural Differences in Coordination and Control Just as social and cultural values differ from country to country, the management values and organisational norms of international companies tend to vary depending on the organisation�s home country. Organisational norms and values are influenced by the values in the larger national culture, and these in turn influence the organisation�s structural approach and the ways managers co-ordinate and control and international firm.

18. Business 5301 National Value Systems Two dimensions that seem to have strong impact within organisations are power distance and uncertainty avoidance. High Power distance � means that people accept inequality in power among institutions, organisations and people. High Uncertainty and Avoidance � means that members of a society feel uncomfortable with uncertainty and ambiguity and thus support beliefs that promise certainty and conformity. Low uncertainty avoidance means that people have a high tolerance for the unstructured, the unclear and the unpredictable.

19. Business 5301 National Value Systems The values are reflected within organisations in terms of beliefs regarding the need for hierarchy, centralised decision making, and control, formal rules and procedures, and specialised jobs. Examples Centralised co-ordination in Japanese Companies European Firm�s Decentralised Approach The United States: Coordination and Control Through Formalisation

20. Business 5301 The Transnational Model of Organisation The transnational model � represents the most advanced kind of international organisations. The transnational model is useful for large, multinational companies with subsidiaries in many countries to exploit both global and local advantages as well as technological advancements, rapid innovation, and global learning and knowledge sharing. The transnational model creates an integrated network of individual operations that are linked together to achieve the multidimensional goals of the overall organisation. The management philosophy is based on interdependence rather than either full divisional interdependence or total dependence of these units on headquarters for decision making and control

21. Business 5301 The Transnational Model of Organisation Several characteristics distinguish the transnational organisation from other global organisational forms such as the matrix. These are: Assets and resources are dispersed worldwide into highly specialised operations that are linked together through interdependent relationships Structures are flexible and ever changing � flexible centralisation Subsidiary managers initiate strategy and innovations that become strategy for the corporation as a whole. Unification and coordination are achieved primarily through corporate culture, shared vision and values, and management style rather than formal structures and systems