Welcome to class of
Impact of Globalization on
Organization of Firm’s Activities
by
Dr. Satyendra Singh
www.uwinnipeg.ca/~ssingh5
What does it mean?
Why now?
• Old business model is not competitive
– ↓ Trade barrier
– ↑ Trust b/w governments
– ↑ FDI permitted
– ↑ Democracy
– ↑ Emerging markets
– ↑ Education
– ↑ Travel
– ↑ Technology
–.
So, Strategic Mindset is Needed
• Activities
– Research and Development (R&D)
– Production
– Marketing
– Services
• Configured and Coordinated
– ↑ Sustainable Competitive Advantage (SCA)
across countries
– Strategic
– That is, we need strategies
This is not a Strategy
The Strategies
Strategy and Structure
• Sustainable Competitive Advantage
• Efficiency and Responsiveness
• Structure
– International Division Structure
– Area Division Structure
– Global Product Division
– Transnational (Hybrid) Structure
– Seamless Organization  team and Internet
• Reducing internal and external barrier
International Division Structure…
CEO
VP Product A
VP Product B
VP Product C
VP International
Domestic
Market
Domestic
Market
Domestic
Market
International
Market
• Evolves from export department
– Shipping across borders
• When successful, add Int’l division
– More % of sales coming from overseas
International Division Structure
• Except sales,
centered at HO
• Advantages
all
activities
are
– Oversee export and foreign investment
– Building and cultivating foreign business ↑
• Because of dedicated international division
– HO gives much support and attention to sales
– Share learning across product division
– No duplication of activities
– Easy to negotiate abroad with governments,
suppliers, retailers…
• Because of size of company
Area Division Structure…
VP International
General Manager
General Manager
General Manager
(Far East)
(Europe)
(Latin America)
Country Manager
Country Manager
Country Manager
(Germany)
(France)
(Italy, etc.)
• When International sales grow as a %
of total company sales
• Success of intl div leads to area div
Area Division Structure…
• Advantages
– ↑ Efficiency due to globalization
– ↑ Effectiveness
• ↑ Local responsiveness
• ↑ Communication efficiency
• ↑ Improved employee morale
• ↑ Faster delivery
• ↓ Reduced bureaucracy
• ↓ Small inventory
Area Division Structure…
• Strategic decision (↑ responsiveness)
– Activities are dispersed or duplicated
• GM has assembly plant in each regional market
• Product development, purchasing, marketing,
sales are regionally coordinated
– HO decides which brand to sell, manufacture
or market in regions -- Kellogg
– However, Regional or Country manager has
autonomy and discretionary power over
• Marketing, pricing, production, sourcing
• To meet the needs of region/country
• GM, IBM, Philips
Multidomestic Affiliate Structure…
Multidomestic Affiliate Structure…
• More power to CM acts as parent CEO
– CM reports to RM
– Manages HO product lines
– But has considerable leeway in making
production, marketing, service decisions
• Affiliate/country is smaller version of parent
• Performance is based on profit-centre criteria
Multidomestic Affiliate Structure…
• Advantages
– Disperse activities
– Control through local decision making
– HO managers do not need to
•
•
•
•
Travel much
Worry about local issues
Keep abreast with foreign markets, customers
Develop global managers  hire local CM
– ↓ Management Turnover
Multidomestic Affiliate Structure
• Disadvantages
– Does not do R & D
– Transfer technology and adapt it
– Does not export  does not bring $
• Not competitive because they produce multiple
products in small volume – efficiency is low
• Production cost is higher than parent
– Communication between Home and
affiliate product division is more complex
– HO does not learn from Affiliates
– When self-sufficient, CM challenges RM
• Dysfunctional behavior and moral problem
Global Product Divisions…
Global Product Divisions…
CEO
VP Product A
VP Product B
VP Product C
Worldwide
Worldwide
Worldwide
---R&D
---R&D
---R&D
---Production
---Production
---Production
---Marketing
---Marketing
---Marketing
---Accounting
---Accounting
---Accounting
---Service
---Service
---Service
• Evolves from diversity of products
Global Product Divisions…
Global Product Divisions…
• Activities are controlled - product group
• HO managers run affiliate – 3/5 yr term
– Specialization and global mindset is needed
• Affiliates do not have much autonomy
– Thus, play no independent strategic role
• HO makes decision about products
– Input from affiliates is discouraged
– Because products are globally standardized
– Role of affiliate is to implement strategy, and
not to formulate it  Thus it is a cost centre
• Highly efficient, but less responsive
Global Product Divisions…
• Advantages
– Chain of vertically integrated activities
– Product division managers can configure
activities based on costs and skills across
countries
• Thus efficient  adjust labor costs, political
instability, product quality, exchange rate
• Flexible – options among countries
• Ideal for global strategies
– Maximize competitiveness
– By identifying competitors clearly
Comparison: Global and Area Structure
Global
Multidomestic
Product Structure Area Structure
Product-Line
Market Emphasis
Transfers
Affiliate Evaluation
Affiliate Role
Specialized
International
Product/Technology
Cost Center
Implement Strategy
Affiliate Autonomy
Low
Affiliate Management Expatriates,
Short-Term
Duplicated
National
Technology/Skills
Profit Center
Develop & Implement
strategy
High
Local,
Long-Term
Transnational (Hybrid) Structure..
Transnational (Hybrid) Structure..
• Get advantages of both 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.
Transnational (Hybrid) Structure
– Affiliate roles shift over time and learning and
sharing are emphasized.
– Emphasis on extensive horizontal linkages,
effective communication and extreme flexibility.
Affiliate Competence vs. its Initiative
High
localization
pressures
High
globalization
pressures
Low affiliate
capability
High affiliate
capability
Form Alliances or
make Acquisitions
Take strategic
Initiative
Follow Parent
Instructions
Influence Parent
Strategies
Seamless Organization
• Destroy barriers inside and outside the
organization
• Barriers prevent learning, produce inefficiencies,
and blunt responsiveness
• Teams are the primary unit of analysis in the
seamless organization
• Seamless organizations try to remove boundaries
inside the company
• The growth of Internet exchanges now enables
companies of all sizes to access global suppliers
and buyers without necessarily having a global
presence.
Configuration and Coordination
• Configuration
– Geographic positioning of activities
– Concentrated  in one country
– Dispersed  in many countries
• Coordination
– ↓ if activity of business is independent
• Single country, one place
– ↑ if we need to integrate across countries