9
The Impact of Globalisation on the
Chapter
Organisation of Activities
Key Points
International Division Structures
Area Division Structures
Global Product Division Structures
Transnational Structures
Affiliates
International Division Structure
CEO
VP Product A
VP Product B
VP Product C
VP International
Domestic
Market
Domestic
Market
Domestic
Market
International
Market
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.)
Multidomestic Affiliates

In multidomestic affiliates, local CEOs report to
area presidents, manage a wide array of the
parent company’s product lines, but have
considerable leeway in making production,
marketing, and servicing decisions.

Host countries have long used the term
miniature replica to describe the traditional
multidomestic affiliate.
Multidomestic Affiliates

Multidomestic affiliates are typically evaluated by
profit center criteria keyed to results rather than
adherence to head office policies.

Usually, local nationals are appointed as country
managers and management turnover is
relatively slow.

Each affiliate often takes on a character and
personality of its own, and formulates its own
internal strategy.
Problems with Multidomestic
Affiliates

Communications between home country product
divisions and distant overseas affiliates are often
more complex and risk breaking down.

Corporate policies and standards may not be
effectively communicated to or adopted by the
affiliates.
Problems with Multidomestic
Affiliates

Affiliate autonomy is not conducive to global
MNC learning.

As affiliates develop self-sufficiency, the power
of home country managers may be challenged.
Global Product Division Structure
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
Global Affiliates

Affiliates




Do not operate with a great deal of autonomy.
Become an integrated part of a global
organization and often play no independent
strategic role at all.
Are evaluated as cost centers. The profit
center concept just does not fit the strategy.
Largely treated as a source of supply or as
sales offices.
Contrasting Structures
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 Structures


Represents an attempt to concurrently capture
all of the advantages of area and global product
division structures.
In transnational 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.
Transnational Structures

In transnational structures
 Company acts essentially as a network of
activities with multiple headquarters spread
across different countries.
 Affiliate roles shift over time and learning and
sharing are emphasized.
 Emphasis on extensive horizontal linkages,
effective communication and extreme
flexibility.
Affiliate Competence and Affiliate
Initiative
Low affiliate
capability
High affiliate
capability
Form Alliances or Take strategic
High
make
Initiative
localization
Acquisitions
pressures
Follow Parent
Influence Parent
High
Instructions
Strategies
globalization
pressures
*This diagram is adapted from a diagram in Bartlett and Ghoshal's "Tap Your Affiliates for Global Reach".
Seamless Organisations

A driving goal of an increasing number of
companies is the development of a seamless
organization.

Barriers prevent learning, produce inefficiencies,
and blunt responsiveness.

Seamlessness comes only through destroying
barriers inside and outside the organization.

Teams are the primary unit of analysis in the
seamless organization.
Seamless Organisations

Seamless organizations are also pre-occupied with
erasing 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.
Chapter
The Evolving Multinational
Key Points
Dimensions of Evolution
MNC Evolution – An Integrated Process
10
Dimensions of Evolution

Geographic Expansion




Line of Business Diversification


Geographic Proximity
Cultural Similarity
Similarity in Economic Development
Liability of Foreignness
Functional Migration
Geographic Expansion

Geographic Proximity
 MNC enters neighboring country/countries,
 Sequential move to farther places

Cultural Similarity
 Move into country with low “psychic distance”
vis-à-vis home country
 Enables effective communication, better
understanding of local customs and markets
Geographic Expansion

Similarity in Economic Development
 Entry into countries with high levels of
disposable income
 Similar buying habits as home market
consumers
Line of Business Diversification

Entry facilitated by competing in single line of
business, other businesses progressively
added
Competitive advantage
versus local firms
Exhibit 10-1
Typical Pattern of
Line of Business
Diversification
LOB 1
LOB 2
LOB 3
LOB 4
Time
Liability of foreignness
Functional Migration

Refers to development of activities performed
by lines of business within a country
Strategic
Leadership
Exhibit 10-2
Typical Pattern of
Functional Migration
Business Planning
Local Design and Procurement
Assembly
Marketing and Distribution
Time
MNC Evolution – An Integrated
Process


The dimensions of evolution are interconnected
Ways of integration across dimensions
 Accelerated Evolution
 MNC evolves along all the dimensions at
the same time
 Punctuated Evolution
 Evolution is discontinuous and skips steps
 Efficient evolution that maximizes salutary
effects of scale and scope economies
MNC Evolution – An Integrated
Process

Reverse Evolution

Restructuring of operations

Consolidation of lines of business and
shutting down subsidiaries