International Management: Managing
Across Borders and Cultures
Tenth Edition
Chapter 8
Organization Structure and
Control Systems
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Learning Objectives (1 of 2)
8.1 To understand the importance of appropriate
organizational structures to effective strategy
implementation
8.2 To understand the structural changes necessary as the
firm develops and changes strategies over time
8.3 To become familiar with the types of organizational
designs suitable for the level and scope of
internationalization of the firm
8.4 To understand emergent structural forms in the global
economy
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Learning Objectives (2 of 2)
8.5 To understand the role of technology in the evolution
of the networked structure and to appreciate the role of
teams in achieving business goals
8.6 To realize how organizational design affects the
manager’s job, for example, on the level and location of
decision making
8.7 To emphasize the role of control and monitoring
systems suitable for specific situations in the firm’s
international operations
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Opening Profile: Citi Sets Post-Brexit
Frankfurt Trading Hub in Motion
• Citigroup’s new broker-dealer in Frankfurt is operational as
the U S bank finalizes Brexit
• Citi’s German investment firm is trading on the European
exchanges not served by British entities
• Financial companies are leasing offices, moving staff, and
transferring billions to allow international clients to trade
without disruption
• Citi has a better starting position than other banks that
used London for access to the rest of Europe
• Despite the structural changes, the bank decided to keep
its headquarters in London
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Learning Objective 8.1
To understand the importance of appropriate
organizational structures to effective strategy
implementation
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Organizational Structure
• Must change to accommodate a firm’s evolving
internationalization in response to worldwide competition
• Firm’s structure must fit the strategy
• Organization’s design should be contingency based.
Some variables to be considered:
– Firm’s strategy, size, appropriate technology as well
as the environment where the firm operates
– Geographic dispersion as well as differences in time,
language, cultural attitudes, technology, and
business practices
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Learning Objective 8.2
To understand the structural changes necessary as the
firm develops and changes strategy over time
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Evolution and Change in M N C
Organizational Structures (1 of 2)
• Structural evolution/stages model
– Alcoa
▪ Created smaller units
▪ Linked geographically dispersed, but similar
businesses (e.g., Brazil and Australia)
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Evolution and Change in MN C
Organizational Structures (2 of 2)
Typical ways to structure international activities
• Domestic structure plus export department
• Domestic structure plus foreign subsidiary
• International division
• Global functional structure
• Global product structure
• Matrix structure
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Integrated Global Structures (1 of 2)
• Designed on the basis of the company’s functions
• Allows for functional specialization and economies of
scale
• Small firms with highly centralized systems
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Domestic Structure Plus Foreign
Subsidiary
Exhibit 8-1
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Integrated Global Structures (2 of 2)
International Division
Global Functional Structure
• Organized along functional, • Designed on the basis of
product, or geographic lines the company’s functions
• Foreign subsidiaries are
organized under the
international division
• Allows for functional
specialization and
economies of scale
• Subsidiary managers report • Small firms with highly
to its head
centralized systems
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Global Product (Divisional) Structure
Exhibit 8-2
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Global Geographic (Area) Structure
Exhibit 8-3
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Matrix Geographic Structure
Exhibit 8-4
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Management in Action: Volkswagen Makes
Sweeping Changes to Management and
Structure
• Volkswagen enacted sweeping changes to its
management board since the emissions scandal of
2015
– New C E O
– New corporate structure to speed decision making.
• V W’s and Toyota’s truck divisions struck an alliance to
work on electric vehicles and self-driving technology,
a partnership between the two largest motor groups.
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Learning Objective 8.3
To become familiar with the types of organizational designs
suitable for the level and scope of internationalization of the firm
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Organizing for Globalization (1 of 3)
• Differentiation
– Focusing on and specializing in specific markets
• Integration
– Coordinating those same markets
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Organizing for Globalization (2 of 3)
• IB M
– Moved away from its traditional geographic
structure to a global structure
• Microsoft
– Reversed its divisional structure, disbanded its
eight product divisions
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Dual Headquarters
• Strategic incentives for having a dual headquarters
structure
• Tax incentives
• Access to a broader pool of talent
• Strategic locations
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Under the Lens: Unilever Backs Down on
Plan to Move Headquarters from U K
• Unilever will not abandon Britain for the Netherlands
after shareholders defeated the effort to transform
company structure
• The C E O angered shareholders by attempting to consolidate
its headquarters in Rotterdam
• The dual structure is a legacy of Unilever’s formation from the
merger of Dutch and British companies 89 years ago
• The plan became fraught with symbolism as Brexit
approached
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Organizing for Globalization (3 of 3)
Be Global, Act Local
• Responding to local market structures and consumer
preferences, along the globalization-regionalization
continuum
Balance
• Allows managers to act independently
• Keeps some centralized control, but decentralizes
control of foreign subsidiaries
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Under the Lens: Yum China Battles
McDonald’s in China
• Yum China split from Yum Brands, which controls the
Pizza Hut, Taco Bell and KF C
• Yum China has more than 8,100 outlets in more than
1,200 cities
• Its biggest local competitor is McDonald’s
• The two rivals are experimenting to offer foreign and local
dishes
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Learning Objective 8.4
To understand emergent structural forms in the global
economy
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Comparative Management in Focus:
Changing Organization Structure of
Emerging Market Companies
• Major Variables: company’s global involvement and
degree of localization
• Fast-growing companies from emerging markets
using expansion models which are unique
• Many emerging market corporations avoid traditional
roadmap to internationalization
• Find niche markets where competition is limited
• Thriving old-economy industries that have been
abandoned by established M N Cs
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Business Groups
• An organizational form common in developed
economies and emerging economies
• Tend to be held together by both formal and informal relationships
− For example, South Korea has large family-run
conglomerates, known as chaebol—strong influence on the
economy and strong political influence
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Organizational Structure in the Digital
Economy
• Platform-Based Teaming
• Centralization and Decentralization
• Changing Role of the Headquarters
• Digital Organizational Readiness
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Global E-Corporation Network Structure
Exhibit 8-5
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The Transnational Corporation (TN C)
Network Structure
• Attempts to combine:
– The capabilities and resources of a multinational
corporation
– The economies of scale of a global corporation
– The local responsiveness of a domestic company
– The ability to transfer technology efficiently
typically of the international structure
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Learning Objective 8.5
To understand the role of technology in the evolution of
the networked structure and to appreciate the role of
teams in achieving business goals
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Choice of Organizational Form
Organizational Alternatives and
Development for Global Companies
Exhibit 8-6
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Structural Variables to Implement Global
Strategies Exhibit 8-7
Strategy
Organizatio
Delegation
Need to
Organizatio
nal
Coordinate nal Culture
Structure
Multidomesti Global area To national unit Low
Low impact
c
International Intl. Division
Centralize
core; rest to
units
Medium
Medium
Global
Locate where
globally
optimum
High
Important
Very high
Crucial
Product
Group
Transnational Global Matrix Centralized
and
decentralized
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Organizational Change and Design
Variables Exhibit 8-8
• Changes that may necessitate new structural designs:
• Clashes among divisions, subsidiaries, or individuals over
territories or customers
• Duplication of administrative or personnel services, sales
offices, account executives
• An increase in overseas customer service complaints
• Downturn in profitability or finances
• Conflict between overseas and domestic staff
• New management with different goals and strategies
• Underutilization of overseas manufacturing or distributing
facilities
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Locus of Decision Making in an
International Organization
Exhibit 8-9
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Learning Objective 8.6
To realize how organizational design affects the
manager’s job, for example, on the level and location of
decision making
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Control Systems for Global Operations
Direct Coordinating
Indirect Coordinating
Mechanism
Mechanism
• Examples: Sales quotas,
• McDonald’s in Moscow
budgets, and financial tools
a) Problem: quality
and reports
control
• Three financial statements
b) Solution: built
a) One for accounting
processing plant in
standards in host
Moscow and
country
provided managerial
b) One for the
training
standards in the
• Other options: visits by
home country
head-office personnel and
c) One for
regular meetings
consolidation
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Learning Objective 8.7
To emphasize the role of control and monitoring
systems suitable for specific situations in the firm’s
international operations
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Managing Effective Monitoring Systems
Appropriateness of
Monitoring and
Reporting Systems
Evaluation
Variables Across
Countries
Role of
Information
Systems
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Conclusion
• An organization must be designed to facilitate the
implementation of strategic goals and reflect its
international entry strategy and changes over time
• MNCs can be regarded as inter-organizational
networks
• Transitional structure allows a company to “be global
& act local” by using decentralized networks
• Indications of the need for structural changes
include, inefficiency, conflicts among units, etc.
• Appropriate monitoring systems must be in place
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