Lecture International business (11/e) - Chapter 14: Organizational design and control

chapter fourteen
Organizational Design and
Control

McGraw­Hill/Irwin
International Business, 11/e

Copyright © 2008 The McGraw­Hill Companies, Inc. All rights reserved.


Learning Objectives
 Explain why the design of organizational structure
is important to international companies

 Discuss the organizational dimensions that must
be considered when selecting organizational
structures

 Discuss the various organizational forms available
for structuring international companies

 Explain the concept of the virtual corporation
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Learning Objectives
 Explain why decisions are made where they are
among parent and subsidiary units of an
international company

 Discuss how an IC can maintain control of a joint

venture or of a company in which the IC owns less
than 50 percent of the voting stock

 List the types of information an IC needs to have
reported to it by its units around the world

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Organizational Structure

• Organizational structure
– The way that an organization formally
arranges its domestic and international units
and activities, and the relationships among
these various organizational components

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Organization Design
• Organization design for international
– how an international business is organized in order
to ensure worldwide business activities are able to
be integrated efficiently and effectively
• Structures and systems must be consistent with
each other and with the environmental context
• Size and complexity of the organization must be

considered
• Structure must be able to evolve over time in
order to respond to change

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The relationship among International
Environment, Competitive Strategy, and
Organizational Structure

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Design Concerns
• Find the most effective way to
departmentalize to take advantage of
efficiencies gained from specialization of
labor
• Coordinate the activities of those
departments to enable the firm to meet
its overall objectives

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Design Dimensions
• Product and technical expertise
regarding the businesses
• Geographic expertise regarding the

countries and regions
• Customer expertise regarding the client
groups, industries, market segments, or
population groups
• Functional expertise regarding the value
chain activities
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Evolution of the International Company
• International Division
– A division in the organization that is at the same
level as the domestic division and is responsible for
all non-home country activities

• Worldwide organizations were established, as
a result of growth
–
–
–
–

Product
Function
Region
Customer classes
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Evolution of the International Company

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Global Corporate Form
• Product

• Geographic

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Global Corporate Form
• Function

• Hybrid Forms

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Global Corporate Form
• Matrix Organizations

– Matrix overlay
• An organization in which top-level divisions are required to
heed input from a staff composed of experts of another
organizational dimension in an attempt to avoid the double
reporting difficulty of a matrix organization but still mesh
two or more dimensions
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Global Corporate Form

• Strategic Business Unit
– Business entity with a clearly defined
market, specific competitors, the ability to
carry out business mission, and a size
appropriate for control by single manager

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Changes in Organizational Form
• Result from pressure to act more quickly,
reduce costs and improve quality
• Reengineering to
–
–
–
–
–
–
–

reduce levels of middle management
restructure work processes
reduce fragmenting across departments
Improve speed and quality of strategy execution
Empower employees

Communicate instantly
Transmit information swiftly
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Current Organizational Trends
• Virtual
Corporation
– An organization that
coordinates
economic activity to
deliver value to
customers using
resources outside the
traditional boundaries
of the organization

• Advantages
– Permits greater
flexibility
– Forms a network of
dynamic relationships
taking advantage of
the competencies of
other organizations

• Disadvantage
– Potential to reduce
management’s control
over the corporation’s

activities 14-17


Current Organizational Trends
• Horizontal Corporation
– A form of organization characterized by lateral
decision processes, horizontal networks, and a
strong corporate wide business philosophy
– Employees worldwide create, build, and market
products through cultivated system of
interrelationships

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Control
• Where Are Decisions Made?
– All at IC headquarters
– All at subsidiary level
– Combination

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Control
• Variables determining the location of decision making
–
–
–
–

Product and Equipment
Competence of subsidiary management
Size of international company and duration
Detriment of a subsidiary for the benefit of the
enterprise
– Level of subsidiary frustration

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Control
• Subsidiaries
– Companies controlled by other companies
through ownership of enough voting stock to
elect board-of-directors majorities

• Affiliates
– A term sometimes used interchangeably
with subsidiaries, but more forms exist than
just stock ownership

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Control
• Product and Equipment
– Existence of global product policy
– Degree standardized or localized

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Control
• Competence of Subsidiary Management
depends on
– How well executives know one another
– How well executives know company policies
– Whether headquarters management feels it
understands
• Host country conditions
• Distances between home and host countries
• Size and age of parent company
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Benefiting Enterprise Detriment of
Subsidiary
• Subsidiary detriment
– Situation in which a small loss for a subsidiary
results in a greater gain for the total IC

• Moving Production Factors
– Cost, labor, taxes, market, currency, political stability

• Which Subsidiary Gets the Order?
– Transportation, production, tariffs, currency, backlogs

• Multicountry Production
– Economies of scale

• Which Subsidiary Books the Profits?
– Taxes, currency controls, labor relations, political climate,
social unrest
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Subsidiary Frustration
• Subsidiary Frustration
– Management of subsidiaries must be
motivated and loyal
• If all decisions made at HQ they can lose
incentive and prestige or face with their
employees and the community
• They may become hostile and disloyal

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