The Organization of International
Business
Chapter 13
© McGraw Hill Companies, Inc., 2000
Royal Dutch Shell
Shell organizational structure
Double matrix: Region/Business Activity.
McKinsey and Company
Business consequence:
Decision by consensus.
Structure decentralized decision making.
Reorganized along divisional lines.
No international division.
© McGraw Hill Companies, Inc., 2000
13-1
Shell Organizational Structure - 1998
© McGraw Hill Companies, Inc., 2000
13-2
Wiring Diagrams
What are they?
Why use wiring diagrams?
Important to the company.
Important to the manager
© McGraw Hill Companies, Inc., 2000
13-3
Vertical Differentiation
Concerned with where decisions are made.
Where is decision making power concentrated?
Two Approaches
Centralization
Decentralization
© McGraw Hill Companies, Inc., 2000
13-4
Centralization
Pros:
Facilitate coordination.
Consistency of decisions.
Easier to make changes.
Avoids duplication.
© McGraw Hill Companies, Inc., 2000
13-5
Centralization
Cons:
Overburdened top management.
Motivational research favors decentralization.
Decentralization permits flexibility.
Decentralization lets decisions be made closer
to the information source.
Decentralization can increase control.
© McGraw Hill Companies, Inc., 2000
13-6
Strategy and Centralization
Global strategy - centralization.
Multi-domestic firms - decentralization.
International firms - centralize for core
competencies (R&D) and decentralize for
operating decisions.
Transnational - use both.
© McGraw Hill Companies, Inc., 2000
13-7
Vertical Differentiation Decentralization
Top is over-burdened and makes poor
decisions.
Increased motivation at lower levels.
Greater flexibility.
Better on-the-spot decisions.
Increased accountability and control.
© McGraw Hill Companies, Inc., 2000
13-8
Horizontal Differentiation
How a firm divides itself into subunits - value creation activities.
Demands to great for one individual.
Firm diversifies its product offerings.
Typically: function, business area or
geography.
© McGraw Hill Companies, Inc., 2000
13-9
A Typical Functional Structure
Top
Management
Purchasing
Buying
units
Manufacturing
Plants
Marketing
Branch
sales units
Finance
Accounting
units
Figure 13.1
© McGraw Hill Companies, Inc., 2000
13-10
Horizontal Differentiation
Usually firms start with an international
division.
Leads to coordination problems, and
Conflict between domestic and foreign
operations.
© McGraw Hill Companies, Inc., 2000
13-11
A Typical Product Division Structure
Headquarters
Division product
line A
Department
Purchasing
Buying
units
Division product
line B
Department
manufacturing
Plants
Figure 13.2
© McGraw Hill Companies, Inc., 2000
Division product
line C
Department
marketing
Branch
sales units
Department
finance
Accounting
units
13-12
One Company’s International Division
Structure
Headquarters
Domestic
division
General
manager
Product line A
Figure 13.3
Domestic
division
General
manager
Product line B
Functional units
Domestic
division
General
manager
Product line C
Country 1
General
manager
(product A, B,
and / or C)
International
division
General
manager
area line
Country 2
General
manager
(product A, B,
and / or C)
Functional units
© McGraw Hill Companies, Inc., 2000
13-13
The International Structural Stages
Model
Foreign
Product
Diversity
Figure 13.4
Worldwide
Product
Division
Alternate Paths
of Development
International
Division
Global Matrix
(“Grid”)
Area
Division
Foreign Sales as a Percentage of Total Sales
© McGraw Hill Companies, Inc., 2000
13-14
Horizontal Differentiation - Two
Structures (A)
Worldwide area.
Used by firms with
Little diversification.
Domestic structure based on function.
Fits multi-domestic strategy because of
local responsiveness capability.
13-15
Worldwide Area Structure
Headquarters
North American
area
Figure 13.5
Latin American
area
© McGraw Hill Companies, Inc., 2000
European
area
Middle East /
Africa area
Far East
area
13-16
Horizontal Differentiation - Two
Structures (B)
Worldwide product division.
Used by firms with structure based on
product divisions.
Fits global strategy because of realization of
experience curve and location economies.
© McGraw Hill Companies, Inc., 2000
13-17
A Worldwide Product Division
Structure
Headquarters
Worldwide
product group
or division A
Worldwide
product group
or division B
Worldwide
product group
or division C
Area 1
Area 2
(domestic)
(international)
© McGraw Hill Companies, Inc., 2000
Functional units
Figure 13.6
13-18
Matrix Structures
Multinational and Transnational attempt to
use a matrix structure.
High failure rate because of bureaucratic
(turf) problems.
© McGraw Hill Companies, Inc., 2000
13-19
A Global Matrix Structure
Headquarters
Area 1
Area 2
Area 3
Product
division A
Product
division B
Product
division C
© McGraw Hill Companies, Inc., 2000
Manager here
belongs to
division B
and area 2
Figure 13.7
13-20
Dow Chemical
Triple matrix structure.
Function
Business
Geography
Flexibility.
© McGraw Hill Companies, Inc., 2000
13-21
Japanese Organizational
Structure
Matsushita
NEC
Regional ‘optimum
locations’
manufacture.
Work together,
with or w/o support
from Japan.
Rearranging 69
overseas plants into
a ‘global localization’
plan to supply four
major ‘poles’: NA,
Europe, Japan, rest
of Asia.
 Japanese accustomed to strong central control.
 Problems dealing with minorities.
 Problems with labor unions.
© McGraw Hill Companies, Inc., 2000
13-22
Formal Integrating Mechanisms
Direct contact
Liaison roles
Teams
Matrix structures
Increasing complexity
of integrating mechanism
© McGraw Hill Companies, Inc., 2000
Figure 13.8
13-23
Formal Integrating Mechanisms
Communications.
Inter and Intranets.
Direct contact and liaison
- requires leadership.
Management schools.
creates networks.
imposes culture.
© McGraw Hill Companies, Inc., 2000
13-24
Informal Integrating Mechanisms
Management networks.
Organization Culture.
© McGraw Hill Companies, Inc., 2000
13-25
A Simple Management Network
E
G
B
C
A
D
F
Figure 13.9
© McGraw Hill Companies, Inc., 2000
13-26
Control Systems
Personal.
Personal contact.
Bureaucratic.
Rules and procedures.
Output.
Goal-setting.
Cultural.
Establishment of value system.
© McGraw Hill Companies, Inc., 2000
13-27
Interdependence, Performance Ambiguity, and
the Costs of Control for the Four International
Business Strategies
Strategy
Multi-domestic
International
Global
Transnational
Inter-depend- Performance Costs of
ence
Ambiguity
Control
Low
Low
Low
Moderate
Moderate
Moderate
High
High
High
Very high
Very high
Very high
Table 13.1
© McGraw Hill Companies, Inc., 2000
13-28
A Synthesis of Strategy, Structure and
Control Systems
Structure and
control
Vertical
differentiation
Horizontal
differentiation
Need for
coordination
Integrating
mechanisms
Performance
Multi-domestic International
Global
Transnational
Decentralized
Core competency; Some
Mixed
rest decentralized centralized centralized and
decentralized
Worldwide
Worldwide product Worldwide Informal matrix
area structure division
product
division
Low
Moderate
High
Very high
None
Few
Many
Very many
Low
Moderate
High
Very high
Low
Moderate
ambiguity
Need for
cultural
controls
© McGraw Hill Companies, Inc., 2000
High
Very high
Table 13.2
13-29