Global Operations: Structure and Coordination

1. 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)

2. Structure and Coordination • International corporate structure directly impacts the relationships between headquarters and subsidiaries • Strategy- Structure – Control /Coordination

3. 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)

4. Factors influencing MNC’s Structure External Factors Economic conditions Technological developments Type of industry: product-market characteristics Host government policies

5. 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

6. 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

7. 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)

8. Stage 1 - Extension of the domestic structure • EMC (Export Management Company) • Trading Company (Japanese Sogo Shosha)

9. Stage 1 - Extension of the domestic structure (Contd..) • International Manager

10. Stage 1 - Extension of the domestic structure (Contd..) • Export Manager with broad product line

11. Stage 1 - Extension of the domestic structure (Contd..) • Autonomous foreign subsidiaries: • US (short-lived) • European MNCs

12. Stage 2 - International Growth / Expansion • International Division Structure • Ethnocentric (domestic orientation) • Centralized control of overseas businesses Examples:

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

14. Stage 2 - International Growth / Expansion (Contd..) • Geographic (Area) Division Structure • Polycentric • High % sales from overseas markets • Price / product differentiation Example: Nestle (then),now - ?

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

16. 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?

17. Stage 2 - International Growth / Expansion (Contd..) Product Division Structure

18. Stage 2 - International Growth / Expansion (Contd..) • International Functional Structure • Narrow, standardized product lines • Stable competitive environment Example: extraction industry

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

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

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

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

23. 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

24. 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 (?)

25. IBM’s Restructuring

26. 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