module 10 IB

organizational design

A process that determines how a company should be organized to ensure its worldwide business activities are integrated in an efficient and effective manner.

key points about organization structure of an international company

-changes over time as the company adapts, redesigns, or innovates to meet external pressures, evolving customer needs and demands, etc.

-closely aligned with the IC's strategic planning process

-main issues to consider when designing an IC structure: (1) What departments do we need, to take advantage of the efficiencies gained from the specialization of labor? And (2) How to best coordinate efforts among departments to meet the firm's overall objectives?

international division structure

-International division is at the same level as the domestic
division
-One single division responsible for all international
operations
-Difficult to manage and coordinate as volume of sales and
product diversity increases

Worldwide product division

-The domestic division is given responsibility for the global product line and staff operations
-Product divisions are responsible for global product operations,
including production and sales
-Each product division has regional experts
-Management and coordination is done at a product level (strategic business units)

Why companies move from an international division and adopt a global/worldwide product division?

-better able to develop competitive strategies to deal with increasing global competition
-reduce production costs by promoting product standardization and/or manufacturing rationalization
-efficient allocation of resources across the board and promote technology transfer among global offices

geographic region structure

-Geographic area managers responsible for all activities and report directly to CEO.
-Simplifies task of directing worldwide operations—every country
under control of someone in contact with headquarters.
-Popular with companies that manufacture diverse products with a low or stable technological content.

global functional structure

-Few international companies organized by function at top level.
-Functional form may be used by companies with narrow and
highly integrated product mix such as oil companies.

hybrid organizational structure

-Hybrid organizations use a mixture of organizational forms at the top level.
-Often the result of a regionally organized company introducing a new and different product line that management believes is best handled by a worldwide product division.

Regional-product matrix organization

-An organizational structure composed of one or more superimposed organizational structures to mesh product, regional, functional, and other expertise.
-Disadvantages of the matrix form and its multiple reporting relationships have kept most worldwide companies from adopting it.

important note

Most ICs combine elements of two or more different structures to meet the dynamic conditions of the global environment.

Subsidiaries

are companies controlled by other companies (known as parent companies) through ownership of enough voting stock to elect a majority of the voting members on the company’s board of directors.

-Wholly-owned subsidiaries: Parent company has 100%
ownership.

Affiliates

are companies controlled by other companies, but less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving non-ownership mechanisms.