• To identify key MNE organizational characteristics
• To highlight home-country influences on MNE organizational features
• To describe the structure of MNES’ internal networks
• To describe the headquarters-affiliate relationships
• To describe MNEs’ internal geographies

KEY MNE ORGANIZATIONAL
CHARACTERISTICS
• Structured as networks within networks
• Consist of internal corporate networks
• Embedded in external networks
• Internal and external boundaries not easy to determine
• Possession of “legal personality” partial answer
• In the external arena, in the inter-jurisdictional context, international law does not materially diminish ambiguity

• Source of organizational distinctiveness (“national corporate culture”) which persists, without resulting in entirely uniform national patterns
• Recruitment of senior executives from home country reinforces the trend
• Some cross-border convergence taking place because of need to adapt to local conditions, but
MNEs not transformed into host-country clones
• Result: persistent, but diminishing, national differentiation

STRUCTURE OF MNES’ INTERNAL
NETWORKS
• Diverse patterns
• Functional structure (firm subdivided into major functional units; effective coordination but lack of flexibility)
• Divisional structure (each product division responsible for its own functions; each division act as a separate profit center; handful of functions performed centrally; greater flexibility and ability to adapt to different conditions; crossdivisional coordination a problem)

STRUCTURE OF MNES’ INTERNAL
NETWORKS, CON’T
• International division added to divisional structure (short-term solution when international exposure limited; tension arises between product-based and geographically-based units when international exposures increases)
• Two possible solutions
• First, to organize the firm on a global product basis (i.e., apply the product division structure throughout the world and eliminate the international division)

STRUCTURE OF MNES’ INTERNAL
NETWORKS, CON’T
• Second, to organize the firm on a worldwide geographic basis
• Neither option resolves the tension between product- and geographically-based units
• Large MNEs thus often adopt a global grid or matrix structure, containing elements of both product and area elements and involving dual reporting links (conflicts of interests common;
“managerial supremo” may be needed to resolve differences)

STRUCTURE OF MNES’ INTERNAL
NETWORKS
• Integrated network organization, based on a web of cooperative and lateral relationships
(as distinct from a pyramid of vertical control relationships) and flexible coordinating processes (heterarchical rather than hierarchical structure (great flexibility but coordination challenging; requires cultural transformation/cooperative and fluid culture)
• No structure fully meets needs of MNEs

STRUCTURE OF MNES’ INTERNAL
NETWORKS, CON’T
• “Front-end-back-end” structure (frontend/customer-facing component designed to meet needs of global customers; backend/production-related component designed to adjust flexibly to demands flowing from the front-end)

HEADQUARTERS-AFFILIATE
RELATIONSHIPS
• Inevitably contested
• Varies from one organization to another depending on structural characteristics
• In a state of flux
• Nevertheless, three broad patterns may be discerned

HEADQUARTERS-AFFILIATE
RELATIONSHIPS, CON’T
• First, local implementer (limited geographic scope and functions; focus on adapting MNE products for host market)
• Second, specialized contributor (possesses specific expertise extensively relied upon by other MNE affiliates; makes distinct contribution, although narrow in nature, within an organizational framework marked by a high degree of interdependence)

HEADQUARTERS-AFFILIATE
RELATIONSHIPS, CON’T
• Third, world mandate carrier (exercises worldwide or regional responsibility for a particular product or business

• Different business functions have different locational needs
• Some tend to be concentrated and others dispersed
• Geographic configuration particularly relevant for control and coordination, R&D, marketing and sales, and production

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Corporate headquarters is locus of overall/strategic control and coordination
• Regional headquarters also common, performing similar role at regional level, and acting as intermediaries between corporate headquarters and affiliates within a particular region

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Both require a strategic location on the global transportation and communications network
• Both require access to high-quality external services and particular range of labor market skills
• Strong agglomeration forces involved
• Preference for location rich in social and cultural amenities
• Characteristics displayed by a handful of global cities, the geographic “control points” of the global economy

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Geographic inertia for corporate headquarters
• Greater willingness to move regional headquarters
• However, within countries, tendency to decentralize corporate headquarters, but refraining from wide dispersal

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• R&D undertaken by MNEs falls into three categories
• First, support laboratory, whose purpose is to adapt parent company technology to host market and provide technical back-up
• Second, locally integrated laboratory, a more substantial unit, carrying out product innovation and development for host market

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Third, international independent R&D units, serving the integrated global firm as a whole rather than any individual or regional market
• “Open innovation” blurring these distinctions, but they persist
• Support laboratories widely dispersed and close to production units
• Locally integrated laboratories and, even more so, international independent R&D units tend to be confined to particular types of location (large urban complexes with ample supply of highly skilled workers and proximity to academic and research institutions; often close to corporate and regional headquarters, in an amenity-rich, intellectually stimulating, and physically attractive environment )

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Marketing and sales units most geographically dispersed
• Some difference between marketing and sales, with marketing more concentrated, often close to corporate and regional headquarters, at times also close to R&D activities, particularly those at developmental stage
• Sales units normally smaller and more widely dispersed

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Locational requirements of production units vary greatly, depending on organizational and technological factors and distribution of production resources
• Nevertheless, four patterns may be discerned
• First, globally concentrated production (at single location and exported)

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Second, host-country production (located in and oriented toward a specific host market; designed to reflect host-market and/or overcome host-market barriers)
• Third, product specialization for global or large regional market (focus on one product to serve a global or large regional market; substantial plant size; few locations but may be in different regions)

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Fourth, transnational vertical integration
(geographic specialization by process or semifinished product)
• There two ways to achieve this
• First, materials, semi-finished products, components, and finished products are transported between geographically dispersed units, with each performing a separate part of a production sequence, whereby output of one is the input of the next one

MNES’ INTERNAL GEOGRAPHIES,
CON’T
• Second, (nearly) finished product is exported to the home market of the parent firm or a third-country market, where the assembly plant is located, for final processing, with the host country serving as an “export platform”
• The choice of location for a production unit at the global scale partly reflects difference in labor costs and incentives offered by host-country governments, although proximity to home-country also plays a role, as is the desire to avoid the risk of over-reliance on a single source whose operations may be disrupted

FUNCTIONAL ORGANIZATIONAL STRUCTURE

IMPROVING INTEGRATION IN A FUNCTIONAL STRUCTURE
BY COMBINING SALES AND MARKETING

DIFFERENTIATION AND INTEGRATION: HOW ORGANIZATIONS
INCREASE CONTROL OVER THEIR ACTIVITIES

PRODUCT DIVISION STRUCTURE

THE ASSIGNMENT OF PRODUCT-ORIENTED TEAMS TO INDIVIDUAL
FUNCTIONS

MULTIDIVISIONAL STRUCTURE

A MULTIDIVISIONAL STRUCTURE IN WHICH EACH DIVISION
HAS A DIFFERENT STRUCTURE

PRODUCT TEAM STRUCTURE

GEOGRAPHIC STRUCTURE

WAL-MART’S CORPORATE STRUCTURE

MARKET STRUCTURE

MATRIX STRUCTURE

MULTIDIVISIONAL MATRIX STRUCTURE

TARGET’S HYBRID STRUCTURE

NETWORK STRUCTURE