chapter 9 organizing strategy

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Rugman and Collinson, International Business, 6th Edition, © Pearson Education Limited 2013

Organizing strategy

Chapter 9



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Organizing strategy

Objectives Introduction

Organizational structures

Strategic management and organizing strategy.



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Objectives

Examine organization structures used byenterprises that are just beginning their

international expansion.

Describe the international division and global

structures that are used as firms increase theirinternational presence.

Analyze the key structural variables that

influence international organization designs. Review the role of the organizational processes

in ensuring that the structure is both effective and

efficient.



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Introduction

The FSA and CSA framework is related to theissues of organizational structure.

A centralized and hierarchical structure is usually

followed by firms in cell 1 pursuing economic

integration. In cell 4, the strategy of national responsiveness

may require a decentralized organizational

structure.

In cell 3, it may be necessary to combine the

advantages of both a centralized and

decentralized organizational structure.



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Organizations that have decided to expand internationallydo it in a number of ways.

Some companies ship their goods to a foreign market

and have a third party handle sales activities.

If the firm’s international market continues to grow, the

enterprise will need to review this strategy and decide

whether to play a more active role in the distribution and

sale of its products. As this happens, the company’s

organizing strategy will change.

Major MNEs such as IBM, GM and Mitsubishi havesophisticated global structures that form the basis of their

organizing strategies. Sometimes these firms will also

have subsidiaries or affiliates that are integrated into the

overall structure.

Introduction (Continued)



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Organizational structures



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Early organization structures

When a company first begins internationaloperations, it is typical for these activities to be

extensions of domestic operations.

Primary focus continues to be the local market.

As international operations increase, however, the

MNE will take steps to address this growth

structurally.

For instance, by having a marketing or exportdepartment handle international sales or by using

an overseas subsidiary.



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Figure 9.1 An export department structure



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Figure 9.2 Use of subsidiaries during the early stages of internationalization



S



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Figure 9.3 An international division structure

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Global organization structures

As MNEs generate more and more revenuesfrom their overseas operations, their strategies

and the structures used to implement these

strategies become more global in focus.

There are six basic types of global structures.

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1. Global product structure

An arrangement in which domestic divisions aregiven worldwide responsibility for product groups.

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Figure 9.4 A global product structure

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2. Global area structure

Primary operational responsibility is delegated toarea managers, each of whom is responsible for

a specific geographic region.

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Figure 9.5 A global area structure

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3. Global functional structure

Builds around the basic tasks of theorganization. For example, in manufacturing

firms, production, marketing and finance are the

three primary functions that must be carried out

for the enterprise to survive.

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Figure 9.6 A global functional structure

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4. Matrix structure

An organizational arrangement that blends twoorganizational responsibilities such as functional

and product structures or regional and product

structures.

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Figure 9.7 Geographic matrix structure

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Figure 9.8 A multinational matrix structureSource: Allan R. Janger, Matrix Organizations of Complex Business (New York: The Conference Board, 1979), p. 31

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5. Mixed structure

A hybrid organization design that combinesstructural arrangements in a way that best meets

the needs of the enterprise.

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Figure 9.9 A mixed structure

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6. Transnational network structure

Designed to help MNEs take advantage of globaleconomies of scales while also being responsiveto local customer demands. Relies on a network arrangement to link the various

worldwide subsidiaries.

Three components: Dispersed subunits Specialized operation Interdependent relationships.

At the center of the transnational networkstructure are nodes, which are units charged withcoordinating product, functional and geographicinformation.

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Figure 9.10 Transnational network structure

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Strategic management andorganizing strategy

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From strategy to structure

Effective organizations begin by formulating astrategy and only then design a structure that willefficiently implement this plan.

In determining the best structure, three questions

must be answered: Can the company operate efficiently with domestic

divisions or are international divisions alsonecessary?

On what basis should the organization bestructured: product, area, function, mixed ormatrix?

How can the necessary coordination andcooperation be most effectively achieved?

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These answers are usually determined through acareful analysis of five key variables.

The relative importance of international operations

at the present time and what the projected

situation might be within three to five years. The firm’s past history and experience in the

international arena.

The company’s business and product strategy.

The management’s philosophy of operating.

The firm’s ability to adjust to organizational

changes.

Analysis of key structural variables

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Coordination processes

The structure is designed to answer the question:What is to be done? The organizational

processes – decision making, communicating and

controlling – help to make the structure work

efficiently. Decision making: the process of choosing from

among alternatives.

Communication: the process of transferring

meanings from sender to receiver.

Controlling: the process of determining that

everything goes according to plan.

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R d C lli I t ti l B i 6th Editi © P Ed ti Li it d 2013

Table 9.1 Factors that encourage centralization or decentralization of decision making

in multinational operations

chapter 9 organizing strategy

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