Chapter 5
Global Organization
Design
Motivations for Global Expansion
• Economies of scale
• Economies of scope
• Low-cost production factors
Economies of Scale
• The property
whereby
long-run
average total
cost falls as
the quantity
of output
increases
Economies of Scope
• Scope : the number and variety of goods
and services a company offers.
• Increase a company’s market power and
synergy
• Ex : Bancassurance
Low-Cost Production Factors
• Opportunity to
obtain raw materials,
labor, and other
resources (reduced
government
restrictions) at the
lowest possible cost.
Stages of International
Development
•
•
•
•
Domestic stage
International stage
Multinational stage
Global stage
Domestic Stage
• Domestically oriented
• Managers are aware of the
global environment.
International Stage
• Takes exports
seriously
• Begins to think
multi domestically
Multinational stage
• Extensive
experience in
the international
markets
• Business units
scattered
around the
world
Global stage
• Stateless corporations
Designing Structure to Fit Global
Strategy
Global Standardization
vs.
Local Opportunities
Globalization Strategy
Products are standardized across national markets
Decisions regarding business-level strategies are
centralized in the home office
e.g. Boeing, Intel
Advantages
- Economies of scale efficiencies
- Save costs
- Faster introduction of products
- Coordinating prices
- Eliminating overlapping facilities
Disadvantages
- Services are less suitable for
globalization (advertising, marketing)
- Different customs and habits
throughout the countries
- Economic and social changes
Multidomestic Strategy
Strategy and operating decisions are
decentralized.
Products and services are tailored to local
markets.
Differentiation and Customization
e.g. Pizza Hut
Designing Structure to Fit Global Strategy
Globalization strategy:
Global
Product
Forces for
Global
Integration
Structure
Both Globalization
& Multinational
Strategy:
Global
Matrix
Structure
Multidomestic
Strategy:
Export Strategy:
International
Division
Global
Geographic
Structure
Forces for
National
Responsiveness
International Division
International Division = Other major departments
Export department
Matrix Structure
International division
Domestic Divisions
- Organized along functional or
product lines
- Lines of functional hierarchy
tends to extend too long
- Therefore, subdivide the org. into
smaller units
Product/Geographic
International Divisions
- Organized according to
geographic interests
- Own hierarchy to handle
business
Global Product Division Structure
Standardization & Centralized
Division manager’s responsibility
- Planning, organizing, and controlling functions and
distributions of productions throughout the world
Global Product Division Structure
Advantages
- Economies of scale
- Effective way to manage a
variety of business and
products
- A broad perspective on
competition
- Respond more rapidly to a
changing global environment
- Can save the cost by
standardizing activities and
products
Disadvantages
- Compete instead of
cooperating
- Some countries are ignored
by product managers
- Doesn’t know what each
customer wants throughout
the world
Globalization Strategy
Global Geographic Division Structure
Local responsiveness & Decentralized
- Divides world into geographic region
- Each division has full control of functional activities
within its geographic area
- Local managers (regional manager) have authority
Global Geographic Division Structure
Advantages
Disadvantages
It’s good for a company which has…
It is difficult to…
- Mature product lines and
stable technologies
- Low-cost manufacturing
within countries
- A strategy to customize the
products to meet specific
needs
(for marketing and sales as
well)
- Plan on a global scale (R&D)
- Transfer new domestic tech.
and products to int’l markets
- Rapidly introduce products
developed offshore into
domestic markets
- Track and maintain control of
costs
- Duplication of line and staff
managers across regions
Multidomestic Strategy
Global Matrix Structure
Both Globalization and Multidomestic Strategy
It works best….
- When pressure for decision making balances the interests
of both product standardization and geographic localization
- When coordination to share resources is important
Building Global Capabilities
The Global Organizational Challenge
Complexity and
Differentiation
Increased Complexity and
Differentiation
• Greater level of internal and external
complexity than on the domestic front
• Differentiation – new positions and
departments to cope with specific
sectors in the environment
• Meet local needs and preferences
Need for Integration
Integration – the quality of collaboration
across organizational units
Operating units can be divided by: goals,
work attitudes, geographic distance, time
differences, cultural values, language.
Transfer of Knowledge and
Innovation
• Learn from their international experiences by sharing
knowledge and innovations across the enterprise
• Systems for sharing knowledge and innovation
Main problems creating systems for sharing knowledge
and innovation:
• Language, culture
• Managers don’t appreciate value of organizational
integration, or views knowledge as power to gain
influential position in firm
• Knowledge is in the minds of employees
Global Coordination Mechanisms
Global Teams
Headquarters Planning
Expanded Coordination Roles
Global Teams
Global Teams – cross border work groups
made of multi skilled, multinational
members whose activities span multiple
counties.
Two main types: intercultural and virtual
global teams.
Same problems as making systems for
knowledge and innovations sharing.
Headquarters Planning
• Headquarters take an active role in
planning, scheduling and controlling of
global organization.
• Control through centralized systems
Expanded Coordination Roles
• Managers responsible for coordinating
across countries
• More responsibilities for functional
managers
Three National Approaches to
Coordination and Control
Centralized Coordination in
Japanese Companies
European Firms: Decentralized Approach
The United States: Formalization
Centralized Coordination in
Japanese Companies
• Coordination mechanisms that rely on
centralization
• Activities centralized in home country
• Strong structural linkages
• Comon to all Asia countries
European Firms: Decentralized
• Units have a high level of independence
• Rely on strong mission, shared values
and informal personal relationships
• Each international unit focuses on its
local market
The United States: Formalization
• Responsibility is delegated international
divisions
• Management control systems (policies,
standarts, procedures)
• Limited flexibility
The Transnational Model of
Organization
Brands
of European
cars
Volkswagen
Group
Skoda
auto
A bit of history
• Established in 1895 as bike manufacture
(Laurin & Klement)
• 1905 first car produced
• 1924 Skoda and Laurin & Klement merged
• 1991 become brand of Volkswagen group
• 1996 “Big change”
• 2008-2009 growing during financial crisis
Skoda cars today
Summary
What gave 19 years of being part of global
organization?
• 8 factories around world (Czech Republic,
Ukraine, India, Bosnia and Herzegovina,
Kazakhstan, China and Russia)
• Recovered good name of company
• Growing sales, despite economical crisis
in Europe