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GSBS6481 International Business Strategy
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Week 8: Organization of MNCs
Student presentations: Examples of MNEs organizational structures
The strategy-structure relationship
The integration–Responsiveness Framework: Four strategic choices
Organizational structures of MNEs
The three perspectives to organizational structures of MNCs
Reference & Readings
organizational structure
global integration
local responsiveness
home replication strategy
localization/multidomestic strategy
global standardization strategy
transnational strategy
organizational design
control mechanisms in multinational organization structures
Key concepts
Peng, (2021), Global Strategy, 5th ed. USA: Cengage Learning.
Chapter 10
Examples of structures of global firms/organizations
Accountable Now
World Banking Group
Student group presentations: Examples of MNCs organization structures
A brief introduction of the company, its main businesses and the international coverage
An introduction of the organizational structure as illustrated by an organizational chart (i.e. how the main businesses of the multinational company are organised internationally)
Any additional remarks, e.g. reasons why the company set up such a structure, any changes in its structure in the past, and whether you think the structure fits its international business strategy
The Strategy-Structure Relationship
Organizational Structure
The firm’s formal reporting relationships, procedures, and controls
Also known as organizational design or organizational architecture.
Strategy and structure: A reciprocal relationship
Strategy drives organizational structure; structure can also enable and constrain strategy.
The fit can become a source of competitive advantage.
An inappropriate fit may cause performance problems and call for strategic changes, structural changes, or both.
MNEs confront two sets of pressures
Pressures for global integration
To reduce costs – impetus for global integration of manufacturing
Key international competitors located where factor costs are low
Universal needs – consumer tastes in different countries are similar with regard to certain types of products
Create strong pressures for a global strategy
Global strategic coordination – response to global competitive threats
Centralize decisions regarding the competitive strategies of foreign subsidiaries
MNEs confront two sets of pressures (cont’d)
Pressures for local responsiveness
consumer tastes and preferences differ significantly among countries
requires customized product and/or marketing messages
differences in traditional practices among countries
differences in distribution channels and sales practices among countries
economic and political demands imposed by the host government.
The Integration–Responsiveness Framework: Four Strategic Choices
Home replication strategy – a strategy that emphasizes the duplication of home country-based competencies in foreign countries
Localization (multidomestic) strategy – a strategy that focuses on a number of foreign countries/regions, each of which is regarded as a standalone local (domestic) market worthy of significant attention and adaptation
Global standardization strategy – a strategy that focuses on development and distribution of standardized products worldwide in order to reap the maximum benefits from low-cost advantages
Transnational strategy – a strategy that endeavors to be simultaneously cost efficient, locally responsive, and learning-driven around the world
Four Strategic Choices for MNEs
Pros and Cons of the Four Strategic Choices for Multinational Enterprises
Cost Reduction Considerations
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Standardized product
Economies of scale
Cross-cultural learning
Texas Instruments
Caterpillar
Global Strategy
Transnational Strategy
Move material, people, ideas across national boundaries
Economies of scale
Cross-cultural learning
International Strategy
Import/export or license existing product
U.S. Steel
Harley Davidson
Multidomestic Strategy
Use existing
domestic model globally
Franchise, joint ventures,
subsidiaries
Heinz The Body Shop
McDonald’s Hard Rock Cafe
Four Strategic Choices for MNEs – examples
Organizational Structures
Four organizational structures that are appropriate for the four strategic choices:
The ‘International Division’ structure the home replication strategy
The ‘Geographical Area’ structure the localization (multidomestic) strategy
The ‘Global Product Division’ structure the global standardization strategy
The ‘Global Matrix’ structure the transnational strategy
International Division Structure
International Division Structure at
Typically set up when firms initially expand abroad, often when engaging in a home replication strategy.
Advantages
Straightforward, easy to implement, cost effective,
Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions.
International division activities are not coordinated with the rest of the firm, which focuses on domestic activities.
Firms often phase out this structure after their initial overseas expansion
Geographic Area Structure
Geographic Area Structure at Ispat
Organizes the MNE according to different geographic areas (countries and regions).
Advantages
Its ability to facilitate local responsiveness is both a strength and a weakness.
While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “freedoms”
Fight between headquarter and region/country headquarters
Global Product Division Structure
Supports a global strategy in treating each product division as a stand-alone entity with full worldwide— as opposed to domestic—responsibilities for its activities.
Advantages
Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries
It is the opposite of the geographic area structure: Little local responsiveness.
Global Product Division Structure at European Aeronautic Defense and Space Company (EADS)
Global Matrix
Is often used to alleviate the disadvantages associated with both geographic area and global product division structures.
Advantages
Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver Problems
May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement
A Hypothetical Global Matrix Structure
Organizational Design
How organizations structure subunits and coordination and control mechanisms to achieve strategic goals
Basic questions:
– How to divide work among the organization’s subunits?
– How to coordinate and control the efforts of the units created?
Use of control mechanisms in multinational organizational structures
© 2013 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Control systems (cont’d)
1, Output Control Systems
Assesses the performance of a unit based on results, not on the process used to achieve those results
Responsibility for profit is the most common output control.
Example: a Profit Center.
Source: Cullen & Parboteeah (2008) Multinational Management, -West.
Control systems (cont’d)
2. Bureaucratic Control Systems
Focuses on managing behaviors, not outcome
Examples include budgets, statistical reports, and centralization of decision-making.
Budgets set financial targets for expenditures.
Statistical reports provide information to top management on non-financial outcomes.
Standard operating procedures (SOPs) provide rules that identify approved ways of behaving.
Source: Cullen & Parboteeah (2008) Multinational Management, -West.
Control systems (cont’d)
3, Decision-making Control Systems
The level of the organization where managers have the authority to make decisions.
In decentralized organizations, lower-level managers make many important decisions.
In centralized organizations, higher-level managers make most important decisions.
Transnational structures do not have a tendency for control in either direction.
Source: Cullen & Parboteeah (2008) Multinational Management, -West.
Control systems (cont’d)
4. Cultural Control Systems:
Use organizational culture to control employees’ behaviors and attitudes
Strong organizational cultures develop shared norms, values, believes and traditions
Such cultures encourage high levels of commitment and support for the organization.
Source: Cullen & Parboteeah (2008) Multinational Management, -West.
Industry-based considerations on organizational structure
Industry characteristics
Industrial products firms: Favor global product divisions
Consumer goods firms: Favor geographic areas
Porter’s five forces, e.g.
Interfirm rivalry: structure depends on competing on cost or differentiation;
Need to heighten entry barriers: Behind some recent moves to phase out multidomestic strategy and to erect world-scale facilities to deter entrants
Bargaining power of suppliers and buyers: They also have to internationalize if the focal MNE goes overseas
Resource-based considerations on organizational structure
Does any new structure (such as matrix) really add value?
When all rivals adopt a “global strategy,” it is not rare
Imitability
It is easier to imitate formal structure. But how to imitate an elusive, informal matrix which is a “philosophy”?
Organization
Some MNEs are better able to take advantage of complex organizational structures such as matrix than others
Organization culture – the collective programming of the mind that distinguishes the members of one organization from another
Externally, MNEs are subject to the formal and informal institutional frameworks erected by various home-country and host-country governments
How MNEs are governed internally is determined by various formal (responsibilities defined by an organizational chart) and informal (organizational norms, values, and networks) rules of the game
Institution-based considerations on organizational structure
high angle view of a businessman and two businesswomen working in an office
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