Cross cultural management 5e by cullen CH08

The Basic Product and Geographic Structures• Product structure: departments or subunits based on different product groups • Geographic structure: departments or subunits based on geograp

Chapter 8

Organizational Designs for

Multinational Companies

Learning Objectives

• Understand the components of organizational design

• Know the basic building blocks of organization

• Understand the components of organizational design

• Know the basic building blocks of organization

Learning Objectives

• See the links between multinational strategies and

structures

• Understand the basic mechanisms of organizational

coordination and control

• Know how coordination and control mechanisms are

used by multinational companies

• Understand the need for knowledge management

systems within organizations

• See the links between multinational strategies and

structures

• Understand the basic mechanisms of organizational

coordination and control

• Know how coordination and control mechanisms are

used by multinational companies

• Understand the need for knowledge management

systems within organizations

Nature of Organization Design

• In small organizations, there is little reason to divide

work

- Everyone does the same thing and everything

• As organizations grow, there is a need to divide work

and the organization

• There is no one best organizational design

• In small organizations, there is little reason to divide

work

- Everyone does the same thing and everything

• As organizations grow, there is a need to divide work

and the organization

• There is no one best organizational design

The Basic Functional Structure

• Departments perform separate business functions

such as marketing or manufacturing

• Simplest of organizations

• Most smaller organizations have functional structures

• Departments perform separate business functions

such as marketing or manufacturing

• Simplest of organizations

• Most smaller organizations have functional structures

Exhibit 8.1: A Basic Functional

Structure

The Basic Functional Structure

• Works best when organization has:

The Basic Product and Geographic Structures

• Product structure: departments or subunits based on

different product groups

• Geographic structure: departments or subunits based

on geographic regions

• Product structure: departments or subunits based on

different product groups

• Geographic structure: departments or subunits based

on geographic regions

The Basic Product and Geographic Structures (cont.)

• Usually less efficient than the functional organization

• Allows a company to serve customer needs that vary

by region or product

• Usually less efficient than the functional organization

• Allows a company to serve customer needs that vary

by region or product

Exhibit 8.2: Product Structure

Exhibit 8.3: A Basic

Geographic Structure

The Basic Product and Geographic Structures

• Managers choose product structures when:

• Product or an area sufficiently unique to require

focused functional efforts on one type of product or service

• Hybrid structure: mixes functional, geographic, and

product units

• Managers choose product structures when:

• Product or an area sufficiently unique to require

focused functional efforts on one type of product or

service

• Hybrid structure: mixes functional, geographic, and

product units

Organizational Structures to Implement Multinational

Strategies

• When company first goes international, it seldom

changes structure

- Passive exporter

• Licensing has little impact on domestic structures

• However, when international sales become more

central, structures need to be changed

• When company first goes international, it seldom

changes structure

- Passive exporter

• Licensing has little impact on domestic structures

• However, when international sales become more

central, structures need to be changed

Export Department

• Coordinates and controls a company’s export

operations

• Export department

- Is created when exports become significant

- Deals with international sales of all products

• Coordinates and controls a company’s export

operations

• Export department

- Is created when exports become significant

- Deals with international sales of all products

Exhibit 8.4: A Functional

Structure with an Export

Department

Foreign Subsidiaries

• Subunit of the multinational company that is located in another country

• Types of foreign subsidiaries

- Minireplica subsidiary: smaller version of the parent company

• Uses the same technology and producing the same products as the parent company

- Transnational subsidiary: has no companywide form

or function

• Each subsidiary contributes what it does best

• Subunit of the multinational company that is located in another country

• Types of foreign subsidiaries

- Minireplica subsidiary: smaller version of the parent

Foreign Subsidiaries

• Many subsidiaries are neither minireplicas nor

transnationals

• May take different forms or functions

• Many subsidiaries are neither minireplicas nor

transnationals

• May take different forms or functions

Foreign Subsidiaries

• Multinationals choose the mix of functions based on:

- The firm’s multinational strategy or strategies

- The subsidiaries’ capabilities and resources

- The economic and political risk of building and

managing a subunit in another country

- How the subsidiaries fit into the overall multinational organizational structure

• Multinationals choose the mix of functions based on:

- The firm’s multinational strategy or strategies

- The subsidiaries’ capabilities and resources

- The economic and political risk of building and

managing a subunit in another country

- How the subsidiaries fit into the overall multinational organizational structure

International Division

• Larger and has greater responsibilities compared to

the export department

• Responsible for managing exports, international sales, and foreign subsidiaries

• Usual step after export department

• Deals with all products

• Manages overseas sales force and manufacturing sites

• Larger and has greater responsibilities compared to

the export department

• Responsible for managing exports, international sales, and foreign subsidiaries

• Usual step after export department

• Deals with all products

• Manages overseas sales force and manufacturing sites

Exhibit 8.5: An International

Division

Organizational Structures to Implement Multinational

Strategies

• Reasons to abandon the international division

- Diverse products overwhelm capacities of

multinational

- Not close enough to local markets

- Cannot take advantage of global economies of scale

or global sources of knowledge

• Reasons to abandon the international division

- Diverse products overwhelm capacities of

multinational

- Not close enough to local markets

- Cannot take advantage of global economies of scale

or global sources of knowledge

Organizational Structures to Implement Multinational

Strategies

• Several options available to deal with these

shortcomings

- Worldwide product structure

- Worldwide geographic structure

- Matrix structure

- Transnational-network structure

• Several options available to deal with these

shortcomings

- Worldwide product structure

- Worldwide geographic structure

- Matrix structure

- Transnational-network structure

Worldwide Geographic Structure

• Has geographical units representing regions of the

- Separate divisions for large market countries

• Has geographical units representing regions of the

Exhibit 8.6: Royal Vopak

Geographic Structure

Worldwide Product Structure

• Worldwide product structure

- Gives product divisions responsibility to produce and sell their products or services throughout the world

- Implements strategies that emphasize global

products

- Provides an efficient way to organize and centralize the production and sales of similar products

• Worldwide product structure

- Gives product divisions responsibility to produce and sell their products or services throughout the world

- Implements strategies that emphasize global

products

- Provides an efficient way to organize and centralize

the production and sales of similar products

Exhibit 8.7: Worldwide

Product Structure

• Both worldwide product structure and worldwide

geographic structure have advantages and

disadvantages

- Product structure: supports global products

- Geographic structure: emphasizes local adaptation

• Multinationals often want both abilities

• Use hybrids

• Both worldwide product structure and worldwide

geographic structure have advantages and

disadvantages

- Product structure: supports global products

- Geographic structure: emphasizes local adaptation

• Multinationals often want both abilities

• Use hybrids

Front-back Hybrid Structure

• The front side has units based on geography to provide

a multidomestic or regional focus

• The backside has units based on product groups to

capture global economies of scale in R&D and

production

• The front side has units based on geography to provide

a multidomestic or regional focus

• The backside has units based on product groups to

capture global economies of scale in R&D and

production

Exhibit 8.8: Tetra Pak’s

Front-Back Hybrid Structure

Worldwide Matrix Structures

• Symmetrical organization with equal emphasis on

- Worldwide product groups and

- Regional geographical divisions

• Geographic divisions focus on national responsiveness and product divisions focus on finding global

efficiencies

• Symmetrical organization with equal emphasis on

- Worldwide product groups and

- Regional geographical divisions

• Geographic divisions focus on national responsiveness and product divisions focus on finding global

efficiencies

Worldwide Matrix Structures

• Balances the benefits produced by area and product

structures

• Creates equal lines of authority for products and areas

- Works best with near equal demands from both

sides

• Requires extensive resources for communication and

coordination

• Requires middle and upper level managers with good

• Balances the benefits produced by area and product

structures

• Creates equal lines of authority for products and areas

- Works best with near equal demands from both

Exhibit 8.9: Worldwide Matrix

Organization

Matrix Structures

• Problems emerging with worldwide matrix structures

- Slow decision making process

- Too bureaucratic

- Too many meetings and too much conflict

• Problems emerging with worldwide matrix structures

- Slow decision making process

- Too bureaucratic

- Too many meetings and too much conflict

Matrix Structures (cont.)

• Result

- Some companies have abandoned their matrixes

and returned to product structures

- Other companies have redesigned their matrix

structures to be more flexible with speedier decision making

• Result

- Some companies have abandoned their matrixes

and returned to product structures

- Other companies have redesigned their matrix

structures to be more flexible with speedier decision making

The Transnational-Network Structure

• Newest solution to the complex demand of being

locally responsive and taking advantage of global

• Newest solution to the complex demand of being

locally responsive and taking advantage of global

The Transnational-Network Structures

• Has no symmetry or balance in its structural form

• Resources, people, and ideas flow in all directions

• Nodes or centers in the network coordinate product,

functional, and geographic information

• Has no symmetry or balance in its structural form

• Resources, people, and ideas flow in all directions

• Nodes or centers in the network coordinate product,

functional, and geographic information

The Transnational-Network Structures

• Philips divides the world into three groups

• Key countries: such as the Netherlands and the United

States produce for local and world markets and control local sales

• Large countries: such as Mexico and Belgium have some

local and worldwide production facilities and local sales

• Local business countries: smaller countries that are

primarily sales units and that import products from the

• Philips divides the world into three groups

• Key countries: such as the Netherlands and the United

States produce for local and world markets and control local sales

• Large countries: such as Mexico and Belgium have some

local and worldwide production facilities and local sales

• Local business countries: smaller countries that are

primarily sales units and that import products from the

Exhibit 8.10: Geographic Links

in the Philips Transnational

Structure

Exhibit 8.11: Product Links in

the Same Organization

Components of the Transnational-Network Structure

1 Dispersed subunits: subsidiaries located anywhere

where they can most benefit the company

2 Specialized operations: subunits specializing in

particular product, research areas, or marketing areas

3 Interdependent relationships: continuous sharing of

information and resources by dispersed and

specialized subunits

1 Dispersed subunits: subsidiaries located anywhere

where they can most benefit the company

2 Specialized operations: subunits specializing in

particular product, research areas, or marketing areas

3 Interdependent relationships: continuous sharing of

information and resources by dispersed and

specialized subunits

Metanational Structure

• Large entrepreneurial multinational

• Can tap into pockets of innovation, technology, and markets located around the world

• Develops extensive systems to encourage

organizational learning and entrepreneurial activities

• Large entrepreneurial multinational

• Can tap into pockets of innovation, technology, and

markets located around the world

• Develops extensive systems to encourage

organizational learning and entrepreneurial activities

Metanational Characteristics

• Nonstandard business formulas for any local activity

• Looking to emerging markets as sources of knowledge and ideas

• Creating a culture supporting global learning

• Extensive use of strategic alliances to gain knowledge for varied sources

• Nonstandard business formulas for any local activity

• Looking to emerging markets as sources of knowledge and ideas

• Creating a culture supporting global learning

• Extensive use of strategic alliances to gain knowledge for varied sources

Characteristics of Metanationals

• High levels of trust between partners to encourage

• Decentralization of decision making to managers who

serve key customers and strategic partners

Micro-Multinational Company

• Micro-multinational companies: smaller organizations

that take advantage of the Web to operate globally

from Day One

• Micro-multinational companies: smaller organizations

that take advantage of the Web to operate globally

from Day One

- They are more likely to use various state-of-the-art

• Characteristics

- They operate as born-global firms from the day they are founded, and they operate everywhere around

the world

- They are willing to start operations and hire workers

from around the world and from where it makes the

most sense to do so

- They are more likely to use various state-of-the-art

Multinational Strategy and Structure: An Overview

• Most companies support early internationalization

efforts with export department

• Depending on globalization strategy, they evolve into

product or geographic structure

• Pressure for local adaptation and global efficiencies

result into matrix or transnational-network

• No company reaches any pure form—use hybrids

• Most companies support early internationalization

efforts with export department

• Depending on globalization strategy, they evolve into

product or geographic structure

• Pressure for local adaptation and global efficiencies

result into matrix or transnational-network

• No company reaches any pure form—use hybrids