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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. International corporate structure directly impacts the relationships between headquarters and subsidiaries

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lecture v

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
Structure and Coordination
  • International corporate structure directly impacts the relationships between headquarters and subsidiaries
  • Strategy- Structure – Control /Coordination
issues complicating the structuring of multinationals international organizations
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)
factors influencing mnc s structure
Factors influencing MNC’s Structure

External Factors

Economic conditions

Technological developments

Type of industry: product-market characteristics

Host government policies

factors influencing mnc s structure5
Factors influencing MNC’s 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
development of international corporate structure
Development of International Corporate Structure
  • 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
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)

stage 1 extension of the domestic structure
Stage 1 - Extension of the domestic structure
  • EMC (Export Management Company)
  • Trading Company (Japanese Sogo Shosha)
stage 1 extension of the domestic structure contd10
Stage 1 - Extension of the domestic structure (Contd..)
  • Export Manager with broad product line
stage 1 extension of the domestic structure contd11
Stage 1 - Extension of the domestic structure (Contd..)
  • Autonomous foreign subsidiaries:
    • US (short-lived)
    • European MNCs
stage 2 international growth expansion
Stage 2 - International Growth / Expansion
  • International Division Structure
    • Ethnocentric (domestic orientation)
    • Centralized control of overseas businesses

Examples:

stage 2 international growth expansion contd14
Stage 2 - International Growth / Expansion (Contd..)
  • Geographic (Area) Division Structure
    • Polycentric
    • High % sales from overseas markets
    • Price / product differentiation

Example: Nestle (then),now - ?

stage 2 international growth expansion contd15
Stage 2 - International Growth / Expansion (Contd..)

Geographic (Area) Division Structure

stage 2 international growth expansion contd16
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?

stage 2 international growth expansion contd18
Stage 2 - International Growth / Expansion (Contd..)
  • International Functional Structure
    • Narrow, standardized product lines
    • Stable competitive environment

Example: extraction industry

stage 2 international growth expansion contd19
Stage 2 - International Growth / Expansion (Contd..)

International Functional Structure

stage 2 international growth expansion contd23
Stage 2 - International Growth / Expansion (Contd..)

Advantages of Matrix structure

  • More efficient use of overall resources
  • Better cooperation and coordination across sub-units
  • Company’s 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
stage 2 international growth expansion contd24
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 (?)
review of the mne definitions
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

International

Multinational

Transnational

Integrated Network

Centralized Hub

Coordinated Federation

Bartlett & Ghoshal

DecentralizedFederation

Structure