The Impact of Globalization on the Organization of

The Impact of Globalization on the Organization of Activities Chapter 9

Common International Organization Structures International Division Structure n Area Division Structure n Multidomestic Affiliate Structure n Global Affiliate Structure n

The International Division Structure CEO VP Product A Domestic Market VP Product B Domestic Market VP Product C Domestic Market VP International Market

International Division Structure Under an international division structure, all functional activities-with the possible exception of sales-are maintained at home. n This allows a company to give international sales much greater support and attention. n

The Area Division Structure VP International General Manager Asia General Manager Europe General Manager Latin America Country Manager Germany Country Manager France Country Manager Italy

Area Division Structure Strategic decision making is shifted to regional or country managers n Capture the majority of efficiency advantages that result from globablization n Facilitate faster delivery, allows greater customization, and requires smaller inventories n

Multidomestic Affiliate Structure Parent Market Product Parent T E C H Affiliate Same Products M G T Affiliate Trade Barrier High autonomy level profit center measurement criteria.

Multidomestic Affiliate Structure Scaled-down version of the parent, in that it produces the same product but in lower volume for a smaller “domestic” market n Evaluated by profit center criteria keyed to results rather than obedience to head -office policies n

Global Affiliate structure Global market Product Division P R O D U C T Affiliate Market I M P U T S Affiliate I M P U T S

Global Affiliates Play no independent strategic role in the global organization n Little strategic autonomy and take few if any initiatives n Production is limited to a single product or component for use throughout the corporation n Largely treated as a source of supply n

Area Structures Works best when international sales are important and requirements for local responsiveness is high n Managers: n – responsible for corporate strategy – familiar with products and markets of their region

Area Structures (cont. ) n n n Weaknesses: – difficulty of parent in imposing a strategy on its affiliates – specialization Therefore --> inefficient Unless the host market is protected or customers are prepared to pay extra for unique local features or services, companies will have a hard time justifying the added costs

Global Product Division Structures Works best when the number of products has proliferated and globalization requirements are high n Managers: n – administrative-legal role – know product better than the market

Global Product Division Structures n Weaknesses: – growing dependence over time of affiliates on the parents – lack of initiative from the affiliates Therefore --> notoriously inflexible n Example: n – Matsushita Electric Industrial

Area and Global Product Division Structures n The weaknesses in both the area and product structures are enhanced when a company adopts a structure inconsistent with its international strategy

Telecommunications Companies n Pressures toward globalization – high R&D costs – available scale economies n Pressures toward localization – different systems in each country – politicization of the industry

The Transnational Option n Key Elements – Two way flow of ideas and resources – Frequent movement of people between units – Extensive use of local boards of directors – Global perspective on part of both parent and affiliate – Configuration and coordination of activities mixed

Transnational Affiliates and the Development of Mandates n World product mandates – represent global strategies controlled by the affiliate as opposed to the parent Most parent companies reluctant to give up control of R&D and product renewal for products they developed n Strong senior managers are essential n

Importance of Affiliate Depth and Competence Affiliate initiative more acceptable in some areas of activity than others n Caution must be used in taking initiatives n

Affiliate Competence and Initiative

Importance of Affiliate Depth and Competence n Affiliate managers must be in sync with headquarters – shouldn’t presume competence level of the parent in a particular product area – Interdependence is very important n integration and working together

Challenges with Developing Transnational Structures n Managing under multiple mandates is difficult – Signals can get crossed – Affiliate suspicion of one another – Product managers may favor home country

The Seamless Organization Formal structures are the antithesis of seamlessness n Seamlessness is built on the notion of destroying barriers inside and outside the organization n Formal structures acknowledge and promote barriers n Barriers prevent learning, produce inefficiencies, and blunt responsiveness n

Teamwork The primary unit of analysis in the seamless organization is a team. n Organizations that have used teamwork to develop seamless interactions: n – Boeing in developing its 777 aircraft – Fed Ex- global tracking – EDS- on-site management of computer systems – Brunswick Corporation- Sea Ray boats

Suppliers Erasing vertical boundaries also involves working more closely with suppliers n Example: n – Walmart

Erasing Boundaries Delayering management structure n Cutting bureaucracy n Creating internal teams n – technology as an aid: Lotus Notes, e-mail, video conferencing

Summary n With Global Pressures: – the traditional area division structure with its high autonomy and multidomestic focus won’t endure – MNCs increasingly abandon countryfocused structures – global products and transnational structures favored – change of the organizational structure overall

Summary n Custom Companies: – most companies use a mix of structures described – however, competitive advantage goes to those companies who can reinvent themselves – speed and flexibility are key. Size and past success really don’t matter!