Lecture 6 The Impact of Globalization on The Organization of Activities

1. Lecture 6 The Impact of Globalization on The Organization of Activities

2. Exhibit 9-1 The International Division Structure Common International Organization Structures Ⅰ. International Division Structure

3. ◆Under an international division structure, all functional activities---with the possible exception of sales---are maintained at home. ◆One clear advantage: A company can give international sales much greater support and attention. ◆Default: As a result, the manager of the international division has to understand the product-market strategies of each product division and adapt them to international markets. International Division Structure

4. Exhibit 9-2 The Area Division Structure Common International Organization Structures Ⅱ. Area Division Structure

5. ◆Area Division Structure captures the majority of efficiency advantages resulting from globalization. ◆It is more efficient and effective than global structures because of increased responsiveness, reduced bureaucracy, communication efficiencies, and improved employee morale. ◆In many cases, area stuctures can also facilitate faster delivery, allow greater customization, and allow the company to maintain smaller inventories than would be necessary under more complex organization forms. Area Division Structure

6. ▲ Characteristics The regional and country managers have a high degree of autonomy in how they adapt the strategies of the home country product divisions to meet the particular circumstances of their regions and countries. e.g. Ford, IBM, General Motors, and Philips Electronics are examples of MNCs widely known for powerful area headquarters. The more local conditions influence consumer demand, the more autonomy country managers usually get. The more important local market is, the more important the local manager. Area Division Structure

7. Area Division Structure ▲Multidomestic Affiliate Structure

8. Multidomestic Affiliates In multidomestic affiliates, local CEOs report to area presidents, manage a wide array of the parent company’s product lines, but have considerable leeway in making production, marketing, and servicing decisions. Host countries have long used the term miniature replica to describe the traditional multidomestic affiliate. Multidomestic affiliates are typically evaluated by profit center criteria keyed to results rather than adherence to head office policies. Usually, local nationals are appointed as country managers and management turnover is relatively slow. Each affiliate often takes on a character and personality of its own, and formulates its own internal strategy.

9. Communications between home country product divisions and distant overseas are often complex and risk breaking down. Corporate policies and standards may not be effectively communicated to or adopted by the affiliates.   Affiliate autonomy is not conductive to MNC learning. As affiliates develop self-sufficiency,the power of home country managers may be challenged. Problems with Multidomestic Affiliates

10. Global Product Division Structure

11. ▲Characteristices What is lost in terms of local responsiveness is gained in terms of global efficiencies. Global product division structures represent a chain of vertically integrated activities. Advantage: managers can easily focus on maximizing competitiveness. Global Product Divisions

12. Global Affiliate Structure Global market Product division Inputs Technology Inputs Affiliate market Affiliate Little affiliate level Product cost criteria

13. Global Product Divisions ▲Global Affiliates Do not operate with a great deal of autonomy. Become an integrated part of a global organization and often play no independent strategic role at all. Are evaluated as cost centers. The profit center concept just does not fit the strategy. Largely treated as a source of supply or as sales offices.

14. Contrasting Area and Global Product Division Structure Contrasting Global Product and Multidomestic Area Structure

16. Transnational Structures ◆Represents an attempt to concurrently capture all of the advantages of area and global product division structures. ◆In transnational structures Configuration and coordination of activities are mixed; affiliates play leadership roles for some activities and supporting roles for others. Decisions are based on maximizing the use of company skills and competencies, irrespective of activity location or affiliate nationality. Company acts essentially as a network of activities with multiple headquarters spread across different countries. Affiliate roles shift over time and learning and sharing are emphasized. Emphasis on extensive horizontal linkages, effective communication and extreme flexibility.

17. Transnational Affiliates and the Development of Mandates ☆Transnational Affiliate Structure International organization World markets Products Products Autonomous/integrated affiliates; normal profitability Criteria in some areas, cost centers in others Affiliate Affiliate market

18. Affiliate Competence and Affiliate Initiativeive The Importance of Affiliate Depth and Competence

19. Challenges with Developing Transnational Structures Managing under multiple mandates is difficult. Most managers want clarity and exactness in roles and measurements. Because of the difficulties of effective implementation, the transnational structure has been proposed as more of an idealized form than a widespread reality. The transnational approach is really about learning. It is much more about style, attitude, and mind-set than it is about formal organization structure.

20. Formal structures are the antithesis of seamlessness that is built on the notion of destroying barriers inside and outside the organization. Teams are the primary unit of analysis in the seamless organization. Teams involve groups of individuals brought together to achieve a common objective, and also outsiders such as buyers and suppliers. Clusters of companies is one of the new themes in international business strategy. The Seamless Organization

21. Teams have become a common mechanism used by companies to link people from different divisions, functions and geographies. Internal teams represent a type of organizational structure that may replace the more rigid boxes and lines in standard organization charts. The Seamless Organization