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)
Structure and Coordination
 International corporate structure
directly impacts the relationships
between headquarters and
subsidiaries
 Strategy- Structure – Control /Coordination
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)
Factors influencing MNC’s Structure
External Factors
Economic conditions
Technological developments
Type of industry: product-market characteristics
Host government policies
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
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
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)
Stage 1 - Extension of the
domestic structure
EMC (Export Management Company)
Trading Company (Japanese Sogo
Shosha)
Stage 1 - Extension of the domestic
structure (Contd..)
International Manager
Stage 1 - Extension of the domestic
structure (Contd..)
Export Manager with broad product line
Stage 1 - Extension of the domestic
structure (Contd..)
 Autonomous foreign subsidiaries:

US (short-lived)

European MNCs
Stage 2 - International Growth / Expansion
 International Division Structure

Ethnocentric (domestic orientation)

Centralized control of overseas
businesses
Examples:
Stage 2 - International Growth / Expansion
(Contd..)
International Division Structure
Stage 2 - International Growth / Expansion
(Contd..)
 Geographic (Area) Division Structure

Polycentric

High % sales from overseas markets

Price / product differentiation
Example: Nestle (then),now - ?
Stage 2 - International Growth / Expansion
(Contd..)
Geographic (Area) Division Structure
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?
Stage 2 - International Growth / Expansion
(Contd..)
Product Division Structure
Stage 2 - International Growth / Expansion
(Contd..)
 International Functional Structure

Narrow, standardized product lines

Stable competitive environment
Example: extraction industry
Stage 2 - International Growth / Expansion
(Contd..)
International Functional Structure
Stage 2 - International Growth / Expansion
(Contd..)
International Mixed Structure
Stage 2 - International Growth / Expansion
(Contd..)
International Matrix Structure
Stage 2 - International Growth / Expansion
(Contd..)
Matrix Structure of ABB
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
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 (?)
IBM’s Restructuring
Review of the MNE definitions
Attribute
Source
Perlmutter Management
Centocentric Geocentric Ethnocentric Polycentric
[1969]
Style
Porter
[1986]
Coordination/
Configuration
needs
Bartlett &
Ghoshal
Strategy
Bartlett &
Ghoshal
Structure
Global
Global
Centralized
Hub
Complex
Global
Multidomestic
Transnational International Multinational
Integrated Coordinated Decentralized
Network
Federation Federation