International Analysis of Organization Design

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212

Entering the Global Arena

The Challenges of Global Design

Designing Structure to Fit Global Strategy

Additional Global Coordination Mechanisms

The Transnational Model of Organization Design Essentials

Learning Objectives After reading this chapter you should be able to: 1.

2. 3.

6CHAPTER

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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British grocery retailer Tesco isn’t accustomed to failure, but after spending five years and a billion pounds (about $1.61 billion), Tesco managers began preparing to sell or close the company’s 199 Fresh & Easy markets and get out of the United States for good. “It’s likely . . . that our presence in America will come to an end,” Tesco CEO Philip Clarke said when he made the announcement. Fresh & Easy was a novel format for Americans—stores that were larger than convenience stores but smaller than supermarkets and that focused on selling fresh foods. As it turned out, Americans found the format neither fresh nor easy. Managers imported British favorites instead of adapting to American tastes, and each store carried the same selection of prepackaged meals and other products, no matter its location. There was no deli section where food could be made to order. Prepackaged sandwiches are commonplace to the British, but to American shoppers they seemed like something from a vending machine. The timing didn’t help either. Fresh & Easy opened in the United States just before the subprime mortgage crisis and subsequent recession devastated many of the areas in California, Arizona, and Nevada where it located its earliest stores. The chain never turned a profit.1

That’s the reality of international business. When an organization decides to do business in another country, managers face a whole new set of challenges and roadblocks. They sometimes find that transferring their domestic success internationally requires a totally different approach. Tesco, a highly successful grocery retailer in the United Kingdom, has also had problems in other countries, particularly Poland, the Czech Republic, Slovakia, and China, although it has been successful in some global markets. In general, food retailers that succeed in overseas markets do so by buying local companies that already have strong businesses with local managers in place, such as when Walmart bought British supermarket chain Asda in 1999. In the fall of 2013, Yucaipa Companies of Los Angeles agreed to buy 150 Fresh & Easy stores, mostly in California.2

Before reading this chapter, please check whether you agree or disagree with each of the following statements:

1 The only way an organization can reasonably expect to be successful in different countries is to customize its products and services to suit the local interests, preferences, and values in each country.

I AGREE I DISAGREE

2 It is an especially difficult challenge to work on a global team to coordinate one’s own activities and share new ideas and insights with colleagues in different divisions around the world.

I AGREE I DISAGREE

3 The most advanced multinational corporations have developed systems for maintaining tight headquarters control over subsidiaries in dozens of countries. I AGREE I DISAGREE

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Other companies have also struggled in the international arena. Deere & Com- pany, the world’s largest maker of farm equipment, is trying hard to penetrate Rus- sia’s farm equipment market, but the Russian government passed a law excluding farm machinery built outside the country from financing, so farmers had no way to buy from Deere. The company has now opened a plant near Moscow but still faces tremendous risks and uncertainties in Russia. Giant retailer Walmart entered South Korea with high hopes in 1996, but 10 years later it sold all its South Korean stores to a local retailer and withdrew from that country. Similarly, the company abandoned the German market after spending eight years trying to break into the competitive discount retailing environment in that country.3 It is not the only suc- cessful organization to have pulled out of one or another foreign market battered and bruised, its managers scratching their heads over what went wrong.

Succeeding on a global scale isn’t easy. Managers have to make tough decisions about strategic approach, how best to get involved in international markets, and how to design the organization to reap the benefits of international expansion. Despite the challenges, managers in most organizations think the potential rewards outweigh the risks. U.S.-based firms set up foreign operations to provide goods and services needed by consumers in other countries, as well as to obtain lower costs or technical know-how for producing products and services to sell domestically. In return, companies from Japan, Germany, China, the United Kingdom, and other countries compete with U.S. organizations on their own turf as well as abroad. Understanding and addressing the challenges of international business is more important today than ever before.

Purpose of This Chapter This chapter explores how managers design an organization for the international environment. We begin by looking at some of the primary motivations for organiza- tions to expand internationally, the typical stages of international development, and the use of alliances and acquisitions as ways to expand internationally. Then, the chapter discusses some of the specific design challenges global organizations face, examines global strategic approaches, considers the application of various structural designs for global advantage, and looks at coordination mechanisms used in global organizations. Finally, the chapter takes a look at the transnational model, a type of global organization that achieves high levels of the varied capabilities needed to suc- ceed in a complex and volatile international environment.

Entering the Global Arena Only a few decades ago, many companies could afford to ignore the international environment. Not today. The world is rapidly developing into a unified global field, and every company and manager needs to think globally. Brazil, Russia, India, and China (often referred to as BRIC) as well as other emerging economies are grow- ing rapidly as providers of both products and services to the United States, Canada, Europe, and other developed nations. At the same time, these regions are becoming major markets for the products and services of North American firms.4 China, with the fastest-growing middle class in history, is the largest or second-largest market for a variety of products and services, including mobile phones, automobiles, con- sumer electronics, luxury goods, and Internet use.5

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Alay Mulally, CEO of U.S.-based Ford Motor Company, spends about a third of his time on matters related to China. Mulally is planning to build five additional plants in that country and double the number of dealerships.6 China also has 1.22 billion mobile phone subscribers, and leading smartphone manufacturers Apple and South Korea’s Samsung have new competition from Chinese mobile phone maker Xiaomi, as well as China’s Lenovo and Acer, which recently entered the smartphone market.7 Over the next few decades, the BRIC countries will have tremendous spending power as around a billion people become part of a new middle class.8 For today’s companies, the whole world is a source of business threats and opportunities. The BookMark discusses some of the factors contributing to our increasingly interconnected world and how this interconnection affects organizations.

Motivations for Global Expansion Economic, technological, and competitive forces have combined to push many com- panies from a domestic to a global focus. Extraordinary advances in communications, technology, and transportation have created a new, highly competitive landscape.9

The World Is Flat: A Brief History of the Twenty-First Century

New York Times

The World Is Flat

WHAT MAKES THE WORLD GO FLAT?

Work flow software

Supply chaining

The steroids

HOW TO BENEFIT FROM A FLATTER WORLD

The World Is Flat

BOOKMARK 6.0 HAVE YOU READ THIS BOOK?

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The importance of the global environment for today’s organizations is reflected in the shifting global economy. As one indication, Fortune magazine’s list of the Global 500, the world’s 500 largest companies by revenue, indicates that economic clout is being diffused across a broad global scale. Exhibit 6.1 lists the number of companies on the Global 500 for a variety of countries in 2006, 2008, and 2013. Note the general decline in North America and Western Europe and the increase in countries such as China, Brazil, Taiwan, and Russia. China, in particular, is coming on strong. China’s GDP surpassed Japan’s in the second half of 2010, making that country the second-largest economy in the world (after the United States).10 Consider that in 1993, China had only three companies on the Fortune Global 500 list and now has 89. Japan, on the other hand, has declined in importance, dropping from 149 companies in 1993 down to 64 by 2008 and 62 by 2013.11

As power continues to shift, organizations are viewing participation in global business as a necessity. Indeed, in some industries a company can be successful only by succeeding on a global scale. In general, three primary factors motivate companies to expand internationally: economies of scale, economies of scope, and

Number of Companies on the Global 500 List

2006 2008 2013

153 132

Japan 64 62

38 31

35 37

38 34 26

12 14 14

12 15 2

14 13 11

14 14

11 8

6 7 8

3 6 6

8 8 8

4 5 8

5 5 7

5 5 3

6 6 3

1 1 2

Fortune

EXHIBIT 6.1

Fortune

Chapter 6: Designing Organizations for the International Environment 217

low-cost production factors.12 Recall from Chapter 2 that companies are always striving for greater efficiency and effectiveness, and expanding globally is one way to achieve these goals.

Economies of Scale. Building a global presence expands an organization’s scale of operations, enabling it to realize economies of scale. The trend toward large organizations was initially sparked by the Industrial Revolution, which created pressure in many industries for larger factories that could seize the benefits of economies of scale offered by new technologies and production methods. Through large-volume production, these industrial giants were able to achieve the lowest possible cost per unit of production. However, for many companies, domestic markets no longer provide the high level of sales needed to maintain enough volume to achieve scale economies. For farm equipment manufacturers such as Deere & Company, for example, growth comes primarily from overseas, where more land is coming under cultivation and more farmers are mechanizing. Most farm equipment in North America is relatively new, according to a recent report on the farm machinery market. “While there could be some growth left [in North America], we’re nearer to the peak than the trough,” said the report. Deere is looking to the BRIC countries to lift sales outside the United States so the company can achieve scale economies.13

The Hollywood movie industry has also recently expanded its international outlook as sales of movie tickets and DVDs have declined in the United States and increased in other countries. The studios are using more international stars and retooling scripts to appeal to an international audience. One film industry veteran said, “No studio head is going to make a big expensive movie . . . unless it has worldwide appeal. You can’t pay back that production cost on the domestic model alone.”14 International ticket sales now account for up to 80 percent of a movie’s total gross. Paramount Pictures has tried hard to make “Star Trek Into Darkness,” the latest in the franchise, successful overseas. Cast members and producers traveled around the globe to do advanced marketing. Paramount went out of its way to cast foreign actors, and the writers tried to craft a story that would keep loyal fans interested but not turn off people in other countries who knew nothing about the other movies.15 Domestic markets have become saturated for many U.S. companies, and the only potential for growth lies overseas. Starbucks has targeted Asia for rapid international growth, planning to open thousands of stores in China, India, and Vietnam.16 Asia has been a successful source of growth for Starbucks, but Vietnam, unlike elsewhere in Asia, has its own deep-rooted coffee culture and the company is having to adapt how it brews and serves coffee to succeed.17 Economies of scale also enable companies to obtain volume discounts from suppliers, lowering the organization’s cost of production.

Economies of Scope. A second factor is the enhanced potential for exploiting economies of scope. Scope refers to the number and variety of products and services a company offers as well as the number and variety of regions, countries, and markets it serves. Hollywood’s DreamWorks SKG sold a 50 percent stake to India’s Reliance Big Entertainment because the company has a presence in every entertainment platform. It can sell DreamWorks movies through its theaters, its satellite networks, its movie rental service, its radio stations, and its mobile phones.18

BRIEFCASE As an organization manager, keep this guideline in mind: Consider building an international pres- ence to realize econo- mies of scale, exploit economies of scope, or obtain scarce or low- cost production factors such as labor and raw materials.

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Companies that have a presence in multiple countries gain marketing power and synergy compared to the same-size firm that has a presence in fewer countries. For example, an advertising agency with a presence in several global markets gains a competitive edge serving large companies that span the globe. Or consider the case of McDonald’s, which has to obtain nearly identical ketchup and sauce packets for its restaurants around the world. A supplier that has a presence in every coun- try McDonald’s serves has an advantage because it provides cost, consistency, and convenience benefits to McDonald’s, which does not have to deal with a number of local suppliers in each country. Economies of scope can also increase a company’s market power as compared to competitors, because the company develops broad knowledge of the cultural, social, economic, and other factors that affect its custom- ers in varied locations and can provide specialized products and services to meet those needs. Amway had to change everything about the company to survive and prosper in China, and the expanded scope has helped the company thrive in other areas as well.

IN PRACTICE Amway

Low-Cost Production Factors. The third major force motivating global expansion relates to factors of production. One of the earliest, and still one of the most power- ful, motivations for U.S. companies to invest abroad is the opportunity to obtain raw materials, labor, and other resources at the lowest possible cost. Organizations have long turned overseas to secure raw materials that were scarce or unavailable in their home country. In the early twentieth century, for example, tire companies went abroad to develop rubber plantations to supply tires for America’s growing automobile industry. Today, U.S. paper manufacturers such as Weyerhaeuser and

Chapter 6: Designing Organizations for the International Environment 219

International Paper Co., forced by environmental concerns to look overseas for new timberlands, are managing millions of acres of tree farms in New Zealand and other areas.20

Many companies also turn to other countries as a source of cheap labor. Apple’s iPhones and iPads are made overseas by contract manufacturers such as Foxconn Technologies and Pegatron Corporation. Despite criticism of their labor practices, it is unlikely any of those jobs will come back to the United States. When he talked with President Barack Obama at a dinner in California in February 2011, Steve Jobs told Obama the scale, speed, and flexibility of the factories and the skills and diligence of the workers overseas were almost as important as the low costs.21

Textile manufacturing in the United States is now practically nonexistent as companies have lowered costs by shifting most production to Asia, Mexico, Latin America, and the Caribbean. Manufacturing of non-upholstered furniture has rapidly followed the same pattern, with companies closing plants in the United States and importing high-quality wooden furniture from China, where as many as 30 workers can be hired for the cost of one cabinetmaker in the United States.22 Mexico is taking center stage in the production of cars. One in 10 cars sold in the United States in 2011 was made in Mexico.23 But the trend isn’t limited to manufacturing. A growing number of service firms in India write software; perform consulting work; and handle technical support, accounting, and data processing for some of the biggest corporations in the United States. One index lists more than 900 business services companies in India that employ around 575,000 people.24

Stages of International Development No company can become a global giant overnight. Managers have to consciously adopt a strategy for global development and growth. Organizations enter foreign markets in a variety of ways and follow diverse paths. However, the shift from domestic to global typically occurs through stages of development, as illustrated in Exhibit 6.2.25 In stage one, the domestic stage, the company is domestically oriented,

EXHIBIT 6.2I. Domestic

II. International

III. Multinational

IV. Global

tation Multinational Global

Explosion Global

tial

International Dimensions of Organizational Behavior

Academy of Management Review

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but managers are aware of the global environment and may want to consider initial foreign involvement to expand production volume and realize economies of scale. Market potential is limited and is primarily in the home country. The structure of the company is domestic, typically functional or divisional, and initial foreign sales is handled through an export department. The details of freight forwarding, customs problems, and foreign exchange are handled by outsiders. Candy company Hershey is an example of a company in this stage. The company is domestically oriented, and managers are just beginning to consider expanding foreign markets, particularly China. To better cater to Chinese tastes, Hershey plans to open the Shanghai-based Asia Innovation Center.26

In stage two, the international stage, the company takes exports seriously and begins to think multidomestically. Multidomestic means competitive issues in each country are independent of other countries; the company deals with each country individually. The concern is with international competitive positioning compared with other firms in the industry. At this point, an international division has replaced the export department, and specialists are hired to handle sales, service, and warehousing abroad. Multiple countries are identified as a potential market. Purafil, with headquarters in Doraville, Georgia, manufactures air filters that remove pollution and cleanse the air in 60 different countries.27 The company first began exporting in the early 1990s and now earns 60 percent of its revenues from overseas. A service example is AlertDriving, a firm that provides online training courses to companies with vehicle fleets. The company must tailor its products and marketing to the expectations, driving habits, and geographical nuances in the 20 or so countries where it exports.28

In stage three, the multinational stage, the company has extensive experience in a number of international markets and has established marketing, manufacturing, or research and development (R&D) facilities in several foreign countries. The organization obtains a large percentage of revenues from sales outside the home country. Explosive growth occurs as international operations take off, and the company has business units scattered around the world along with suppliers, manufacturers, and distributors. Companies in the multinational stage include Siemens of Germany, Sony of Japan, and Coca-Cola of the United States. Aditya Birla Group is an example of a multinational based in India. The company began in 1850 as the Birla family’s trading company. Starting in the 1970s in Southeast Asia, the Birla Group has expanded around the world, operating in 33 countries and producing and selling such products as fiber, chemicals, cement, metals, yarns and textiles, apparel, fertilizer, and carbon black. In 2010, around 60 percent of the company’s revenues came from outside India.29

The fourth and ultimate stage is the global stage, which means the company transcends any single country. The business is not merely a collection of domestic industries; rather, subsidiaries are interlinked to the point where competitive position in one country significantly influences activities in other countries.30 Truly global companies no longer think of themselves as having a single home country and, indeed, have been called stateless corporations.31 This represents a new and dramatic evolution from the multinational company of the 1960s and 1970s. At this stage, ownership, control, and top management tend to be dispersed among several nationalities.32 Nestlé SA provides a good example. The company gets most of its sales from outside the “home” country of Switzerland, and its 280,000 employees are spread all over the world. CEO Paul Bulcke is Belgian, Chairman Peter Brabeck-Letmathe was born in Austria, and more than half of the company’s

Chapter 6: Designing Organizations for the International Environment 221

managers are non-Swiss. Nestlé has hundreds of brands and has production facilities or other operations in almost every country in the world.33 How effective would you be managing in a global corporation and interacting with people from many different cultures? Complete the questionnaire in the “How Do You Fit the Design?” box to assess your level of cultural intelligence.

HOW DO YOU FIT THE DESIGN?

WHAT IS YOUR CULTURAL INTELLIGENCE? Instructions:

Mostly True

Mostly False

___ ___

4. ___ ___

___ ___

8. ___ ___

___ ___

10.

___ ___

11.

___ ___

12.

___ ___

Scoring and Interpretation: cultural intelligence

Harvard Business Review

Man- agement and Organization Review

Cultural Intelligence: People Skills for Global Business

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Global companies operate in truly global fashion, and the entire world is their marketplace. Global companies such as Nestlé, Royal Dutch/Shell, Unilever, and Matsushita Electric may operate in more than a hundred countries. The structural problem of holding together this huge complex of subsidiaries scattered thousands of miles apart is immense. Organization structure for global companies can be ex- tremely complex and often evolves into an international matrix or transnational model, which will be discussed later in this chapter.

Global Expansion Through International Alliances and Acquisitions One of the most popular ways companies get involved in international operations is through international alliances. Companies in rapidly changing industries such as media and entertainment, pharmaceuticals, biotechnology, and software might have hundreds of these relationships.34

Typical alliances include licensing, joint ventures, and acquisitions.35 Recall our discussion of these techniques from the previous chapter as types of resource- dependence relationships. They are also used for expanding internationally. For example, when entering new markets, particularly in developing areas of the world, retailers such as Saks Fifth Avenue and Barneys New York limit their risks by licensing their names to foreign partners. Saks has licensed stores in Riyadh and Dubai, Saudi Arabia, and in Mexico, for instance, and Barneys has a licensed store in Japan. Both firms, as well as other U.S.-based department stores, are currently making a strong international push in light of weak sales and stiff competition in the United States.36 As described in the previous chapter, a joint venture is a separate entity created with two or more active firms as sponsors. This is a popular approach to sharing development and production costs and penetrating new markets.37 Joint ventures may be with either customers or competitors. Competing firms Sprint, Deutsche Telecom, and Telecom France cooperate with each other and with several smaller firms in a joint venture that serves the telecommunication needs of global corporations in 65 countries.38 Navistar International Corporation, based in Warrenville, Illinois, formed a joint venture with rival Mahindra & Mahindra Ltd., a fast-growing equipment maker in India, to build trucks and buses for export.39 Walmart thought it got a foothold in India’s fast-growing but difficult retail market through a joint venture with Bharti Enterprises to establish Bharti Walmart Private Limited.40 Unfortunately, the problems engulfing India’s economy, charges of corruption, and government regulations that created obstacles caused the two firms to end their partnership in late 2013, with Walmart buying out its part of the venture.41

Companies often seek joint ventures to achieve production cost savings through economies of scale, to share complementary technological strengths, to distribute new products and services through another country’s distribution channels, or to take advantage of a partner’s knowledge of local markets. However, when they can persuade senior managers of foreign companies to stay on, many companies prefer acquisitions because they offer greater control than joint ventures. Walmart, for instance, established a joint venture with Seiyu Ltd., a national grocery chain in Japan, and then acquired the chain in full several years ago after it gained more experience in the Japanese market.42 Acquisitions have been China’s preferred way of expanding internationally.

BRIEFCASE As an organization manager, keep this guideline in mind: Develop international strategic alliances, such as licensing and joint ventures, as fast and inexpensive ways to become involved in international sales and operations.

Chapter 6: Designing Organizations for the International Environment 223

Home-grown Chinese brands have struggled internationally, but Chinese companies have learned that they can succeed by buying strong brands overseas and keeping them healthy. In many cases, the Chinese companies keep local managers and let them run the companies. When China’s property conglomerate Dalian Wanda Group Corporation bought AMC Entertainment Holdings Inc., for example, it sent a financial team to the United States, but it let U.S. management decide how to use their strategic budget.44

The Challenges of Global Design Managers taking their companies international face a tremendous challenge in how to capitalize on the incredible opportunities that global expansion presents. Exhibit 6.3 illustrates the three primary challenges global organizational design faces: greater complexity and differentiation, an increased need for integration, and more difficulty transferring knowledge and innovation. Organizations have to accept an extremely high level of environmental complexity in the international domain and address the many differences that occur among countries. For instance, each country has its own history, culture, laws, and regulatory system. People eat different foods, observe different religions, have different attitudes, and subscribe to different social customs.45 This environmental complexity and country variations require greater organizational differentiation, as described in Chapter 4.

At the same time, organizations must find ways to effectively achieve coordination and collaboration among far-flung units and facilitate the development and transfer of organizational knowledge and innovation for global learning.46 Although many small companies are involved in international business, most international companies grow very large, creating a huge coordination problem. Exhibit 6.4 provides some understanding of the size and impact of international firms by comparing the revenues of several large multinational companies with the gross domestic product (GDP) of selected countries.

IN PRACTICE China’s International Expansion

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Increased Complexity and Differentiation When organizations enter the international arena, they encounter a greater level of internal and external complexity than anything experienced on the domestic front. Companies have to create a structure to operate in numerous countries that differ in economic development, language, political systems and government regulations, cultural norms and values, and infrastructure such as transportation and commu- nication facilities. For example, we mentioned computer maker Lenovo earlier as

EXHIBIT 6.3

en ga

ge Le

ar ni

ng ®

Complexity and Differentiation

Need for Coordination

Transfer of Knowledge and Innovation

Company Revenue* Country Annual GDP†

414.46 billion ExxonMobil 354.67 billion 318.85 billion

153.83 billion 152.83 billion 151.63 billion

EXHIBIT 6.4

†

Fortune/CNNMoney BusinessInsider.com

Chapter 6: Designing Organizations for the International Environment 225

a Chinese company, but Lenovo is incorporated in Hong Kong, it has nine opera- tional hubs, and its top managers and corporate functions are spread around the world. The CEO is in Singapore; the chairman in Raleigh, North Carolina; and the chief financial officer in Hong Kong. Worldwide marketing is coordinated in India.47

All the complexity in the international environment is mirrored in a greater internal organizational complexity. Recall from Chapter 4 that as environments become more complex and uncertain, organizations grow more highly differentiated, with many specialized positions and departments to cope with specific sectors in the environment. Top management might need to set up specialized departments to deal with the diverse government, legal, and accounting regulations in various countries, for example. In India, Internet companies such as Google, Yahoo, and Facebook are expected to help enforce certain standards and take down content considered incendiary, but the rules can be difficult to interpret. India is a democracy and in principle supports freedom of speech on the Internet as well as in print. Yet with the country’s volatile mix of religions and ethnic politics, the Indian government reserves the right to impose “reasonable restrictions” on free speech to maintain public order. Most companies want to follow local laws and sentiments, but they also want to exercise discretion regarding what they believe should be allowable, so they often use teams of lawyers and other experts to monitor complaints and decide how to respond.48

In addition to departments to deal with diverse laws and regulations, compa- nies operating internationally need more boundary-spanning departments to sense and respond to the external environment. Some companies disperse operations such as engineering, design, manufacturing, marketing, and sales around the world. In particular, many organizations have set up global product development systems to achieve greater access to international expertise and design products that are better suited to global markets. A Deloitte Research study found that 48 percent of North American and Western European manufacturers surveyed had set up engineering operations in other countries.49 International organizations also might implement a variety of strategies, a broader array of activities, and a much larger number of products and services on an international level.

Increased Need for Coordination As organizations become more differentiated, with multiple products, divisions, departments, and positions scattered across numerous countries, managers face a tremendous coordination challenge. Coordination refers to the quality of collabo- ration across organizational units. The question is how to achieve the integration and collaboration that is necessary for a global organization to reap the benefits of economies of scale, economies of scope, and labor and production cost efficiencies that international expansion offers. Recall from Chapter 4 that even in a domestic firm, high differentiation among departments requires that more time and resources be devoted to achieving coordination because employees’ attitudes, goals, and work orientations differ widely. Imagine what it must be like for an international organi- zation, whose operating units are divided not only by goals and work attitudes but by geographic distance, time differences, cultural values, and perhaps even language as well. Companies must find ways to share information, ideas, new products, and

226 Part 3: Open System Design Elements

technologies across the organization. All organizations working globally face the challenge of getting all the pieces working together in the right way at the right time and in the right place.

More Difficult Transfer of Knowledge and Innovation The third piece of the international challenge is for organizations to learn from their international experiences by sharing knowledge and innovations across the enterprise. The diversity of the international environment offers extraordinary opportunities for learning, development of diverse capabilities, and startling innovations in products and services. Essilor International SA, the world’s largest manufacturer of ophthalmic corrective lenses, for example, engineers its lenses in Germany, makes blanks from high-transparency polymers in the United States, and adds microthin coatings in Japan.50

Some experts believe a great percentage of radical innovations will come from companies in emerging markets such as China and India in the coming years.51 The old approach to innovation was for innovations in products and services to come primarily from developed countries and gravitate to less developed areas of the world, but a new approach referred to as trickle-up innovation or reverse innovation has companies paying attention more than ever to the need for mechanisms that encourage sharing across the international enterprise. Consider products for the healthcare profession. GE Healthcare had a solid presence in China, but its high-end ultrasound machines and other products didn’t meet the needs of healthcare practitioners working in poorly funded, low-tech hospitals or clinics in rural villages. Price, portability, and ease of use were the important criteria. GE Healthcare formed a semiautonomous “local growth team” in China that, drawing on local talent and combining product development, sourcing, manufacturing, and marketing in one business unit, created a portable ultrasound machine that sold for less than 15 percent of the cost of the company’s high- end ultrasound machines. GE now sells the product around the world, and it grew to a $278 million global product line within six years.52 GE’s CEO Jeffrey Immelt says, “If we don’t come up with innovations in poor countries and take them global, new competitors from the developing world—like Mindray, Suzlon, and Goldwind—will.”53 Exhibit 6.5 lists some additional examples of trickle-up innovation.

Organizational units in each location acquire the skills and knowledge to meet environmental challenges that arise in that particular locale. As the trend toward trickle-up innovation shows, much of that knowledge, which may be related to product improvements, operational efficiencies, technological advancements, or myriad other competencies, is relevant across multiple coun- tries, so organizations need systems that promote the transfer of knowledge and innovation across the global enterprise. A classic example comes from Procter & Gamble (P&G). Liquid Tide was one of P&G’s most successful U.S. product launches in the 1980s, but the product came about from the sharing of innova- tions developed in diverse parts of the firm. Liquid Tide incorporated a technol- ogy for helping to suspend dirt in wash water from P&G headquarters in the United States, the formula for its cleaning agents from P&G technicians in Japan, and special ingredients for fighting mineral salts present in hard water from com- pany scientists in Brussels.54

Chapter 6: Designing Organizations for the International Environment 227

Getting employees to transfer ideas and knowledge across national boundaries can be exceedingly challenging. When Luxembourg-based steelmaker Arcelor Mittal wanted its Burns Harbor, Indiana, mill to begin using hypermodern equipment and techniques similar to a mill in Gent, Belgium, to boost productivity and profitabil- ity, employees weren’t overjoyed. They had long been accustomed to using paper and pencil to calculate the right mix of iron ore, coking coal, and limestone for every batch of steel; they resisted attending classes to learn to follow a comput- er’s instructions. In a process called “twinning,” two mills of similar size, age, and product mix are benchmarked against each other, with the weaker company told to copy the practices of the stronger one. So ArcelorMittal flew more than 100 U.S. engineers and managers to Gent, Belgium, and told them to “do as the Belgians do.” Today, the Burns Harbor mill has record output, with productivity approach- ing the level of the Belgian mill. Workers say twinning has helped avoid catastrophe and that their jobs are different, but better.55 Many organizations tap only a frac- tion of the potential that is available from the cross- border transfer of knowledge and innovation. People scattered at different locations around the world sometimes have trouble building trusting relationships. Other reasons include:56

Language barriers, cultural dissimilarities, and geographic distances can prevent managers from spotting the knowledge and opportunities that exist across dis- parate country units. Sometimes managers don’t appreciate the value of organizational integration and want to protect the interests of their own division rather than cooperate with other divisions.

Company Innovation and Application

Fast Company BusinessWeek

Harvard Business Review The Wall Street Journal Online

EXHIBIT 6.5

Innovation

228 Part 3: Open System Design Elements

Divisions sometimes view knowledge and innovation as power and want to hold onto it as a way to gain an influential position within the global firm. The “not-invented-here” syndrome makes some managers reluctant to tap into the know-how and expertise of other units. Much of an organization’s knowledge is in the minds of employees and cannot easily be written down and shared with other units.

Organizations have to encourage both the development and the sharing of knowledge, implement systems for tapping into knowledge wherever it exists, and share innovations to meet global challenges. Managers strive to find the right strat- egy and structure for their particular situations.

Designing Structure to Fit Global Strategy As we discussed in Chapter 3, an organization’s structure must fit its situation by providing sufficient information processing for coordination and control while focusing employees on specific functions, products, or geographic regions. Organi- zation design for international firms follows a similar logic, with special interest in global versus local strategic opportunities.

Strategies for Global Versus Local Opportunities When organizations venture into the international domain, managers attempt to formulate a coherent global strategy that will provide synergy among worldwide operations for the purpose of achieving common organizational goals. One dilemma they face is choosing whether to emphasize global standardization versus local responsiveness. Managers must decide whether they want each global affiliate to act autonomously or whether activities should be standardized across countries. These decisions are reflected in the choice between a globalization versus a multidomestic global strategy.

The globalization strategy means that product design, manufacturing, and marketing strategy are standardized throughout the world, which is less costly than creating different products for different markets.57 For example, Black & Decker became much more competitive internationally when it standardized its line of power hand tools. Some products, such as Coca-Cola, are naturals for globalization because only advertising and marketing need to be tailored for different regions. In general, services are less suitable for globalization because different customs and habits often require a different approach to providing service. Meliá Hotels International, the largest hotel chain in Spain and one of the top 20 hotel companies worldwide, for example, partners with local companies in joint ventures and other partnerships to acquire the know-how to operate in 35 different countries, including China, Bulgaria, the United States, Indonesia, Greece, Croatia, Brazil, Egypt, and the United Kingdom.58 A lack of local knowledge was part of Walmart’s trouble in the South Korean market. The retailer continued to use Western-style displays and marketing strategies, whereas successful South Korean retailers build bright, eye-catching displays and hire clerks to promote their goods using megaphones and hand-clapping. Walmart similarly flubbed in Indonesia, where it closed its stores after only a year. Customers didn’t like

Chapter 6: Designing Organizations for the International Environment 229

the brightly lit, highly organized stores, and because no haggling was permitted, they perceived the goods as being overpriced.59

Other companies have also begun shifting away from a strict globalization strategy. Economic and social changes, including a backlash against huge global corporations, have prompted consumers to be less interested in global brands and more in favor of products that have a local feel.60 However, a globalization strategy can save a company money because it helps reap economy-of-scale efficiencies by standardizing product design and manufacturing, using common suppliers, introducing products around the world faster, coordinating prices, and eliminating overlapping facilities.61 Gillette Company, which makes grooming products such as the Mach3 shaving system for men and the Venus razor for women, has large production facilities that use common suppliers and processes to manufacture products whose technical specifications are standardized around the world.62

ANSWER: Disagree.

ASSESS YOUR ANSWER

A multidomestic strategy means that competition in each country is handled independently of competition in other countries. Thus, a multidomestic strategy would encourage product design, assembly, and marketing tailored to the specific needs of each country. Some companies have found that their products do not thrive in a single global market. For instance, people in different countries have very different expectations for personal-care products such as deodorant or toothpaste. Many people in parts of Mexico use laundry detergent for washing dishes. Even American fast food chains, once considered ultimate examples of standardization for a world market, have felt the need to be more responsive to local and national differences. The menus at McDonald’s restaurants vary widely around the world, for example, although procurement and distributions systems are standardized and centralized.63 When KFC (Yum Brands) entered Asia in 1973, it tried to use a globalization strategy, but the 11 restaurants it opened closed within two years. Managers tried again with a multidomestic strategy and achieved remarkable success, particularly in China, where the chain gained a 40 percent market share, compared to 16 percent for McDonald’s.64

Different global organization designs are better suited to the need for either global standardization or local responsiveness. Research on more than 100 inter- national firms based in Spain provided support for the connection between inter- national structure and strategic focus.65 The model in Exhibit 6.6 illustrates how organization design and international strategy fit the needs of the environment.66

230 Part 3: Open System Design Elements

Companies can be characterized by whether their product and service lines have potential for globalization, which means advantages through worldwide standardization. Companies that sell similar products or services across many countries have a globalization strategy. On the other hand, some companies have products and services appropriate for a multidomestic strategy, which means local-country advantages through differentiation and customization to meet local needs.

As indicated in Exhibit 6.6, when forces for both global standardization and local responsiveness in many countries are low, simply using an international division with the domestic structure is an appropriate way to handle international business. For some industries, however, technological, social, or economic forces may create a situation in which selling standardized products worldwide provides a basis for competitive advantage because it enables the company to keep costs lower than if it had to provide products tailored to each market. In these cases, a global product structure is appropriate. This structure provides product managers with authority to handle their product lines on a global basis and enables the company to take advantage of a unified global marketplace. In other cases, companies can gain competitive advantages through local responsiveness—by responding to unique needs in the various countries in which they do business. For these companies, a worldwide geographic structure is appropriate. Each country or region will have subsidiaries that modify products and services to fit that locale. A good illustration is the advertising firm of Ogilvy & Mather, which divides its operations into four primary geographic regions because advertising approaches need to be modified to fit the tastes, preferences, cultural values, and government regulations in different

Text, Cases, and Readings in Cross-Border Man- agement

Business Quarterly Human Resource Management

Managing the Multinational Enterprise

Low

High

Forces for Global

Uniformity

Forces for Local Fit and

Responsiveness

Global Product

Structure

International Division

Global Geographic

Structure

Global Matrix

Structure

Globalization Strategy:

Export Strategy: Multidomestic Strategy:

Both Globalization and Multidomestic Strategy:

EXHIBIT 6.6

Chapter 6: Designing Organizations for the International Environment 231

parts of the world.67 Children are frequently used to advertise products in the United States, but this approach in France is against the law. The competitive claims of rival products regularly seen on U.S. television would violate government regulations in Germany.68

In many instances, companies need to respond to both global and local opportunities simultaneously, in which case the global matrix structure can be used. Part of the product line may need to be standardized globally and other parts tailored to the needs of local countries. In reality, there has been an escalating tension for most companies between the need for global uniformity and the need for local fit and responsiveness. Here’s what Panasonic has done to address the tension.

IN PRACTICE Panasonic

Thus, even companies that don’t use a matrix structure as shown in Exhibit 6.6 often use various mechanisms to address the tension between the need for global uniformity and the need for local responsiveness. Now let’s discuss each of the struc- tures in Exhibit 6.6 in more detail.

International Division As companies begin to explore international opportunities, they typically start with an export department that grows into an international division. The international division has a status equal to the other major departments or divisions within the company and is illustrated in Exhibit 6.7. Whereas the domestic divisions are typically organized along functional or product lines, the international division is organized according to geographic interests, as illustrated in Exhibit 6.7. The international division has its own hierarchy to handle business (licensing,

232 Part 3: Open System Design Elements

joint ventures) in various countries, selling the products and services created by the domestic divisions, opening subsidiary plants, and in general moving the organization into more sophisticated international operations.

Although functional structures are often used domestically, they are less frequently used to manage a worldwide business.70 Lines of functional hierarchy running around the world would extend too long, so some form of product or geographic structure is used to subdivide the organization into smaller units. Firms typically start with an international department and, depending on their strategy, later use product or geographic division structures or a matrix. One study found that 48 percent of organizations identified as global leaders use divisional structures, while 28 percent reported using matrix structures.71

Global Product Division Structure In a global product structure, the product divisions take responsibility for global operations in their specific product area. This is one of the most commonly used structures through which managers attempt to achieve global goals because it provides a fairly straightforward way to effectively manage a variety of businesses

EXHIBIT 6.7

CEO

Human Resources

Electrical Products Division

Scientific Products Division

Medical Products Division

International Division

Europe (Sales)

Brazil (Subsidiary)

Mideast (Sales)

Staff (Legal, Licensing)

Corporate Finance

Research & Development

en ga

ge Le

ar ni

ng ®

Chapter 6: Designing Organizations for the International Environment 233

and products around the world. Managers in each product division can focus on organizing for international operations as they see fit and directing employees’ energy toward their own division’s unique set of global problems or opportunities.72 In addition, the structure provides top managers at headquarters with a broad perspective on competition, enabling the entire corporation to respond more rapidly to a changing global environment.73 Service companies can also use a divisional structure. For example, Italian bank UniCredit, with headquarters in Milan and more than 9,600 branches in 22 countries, has three product divisions: Family and SME (household and small and mid-sized business banking), Corporate and Investment Banking, and Private Banking and Asset Management. The company also has one geographic-based division to focus on operations and growth in Central and Eastern European countries.74

With a global product structure, each division’s manager is responsible for planning, organizing, and controlling all functions for the production and distri- bution of its products or services for any market around the world. As we saw in Exhibit 6.6, the global product structure works best when the company has oppor- tunities for worldwide production and sale of standard products for all markets, thus providing economies of scale and standardization of production, marketing, and advertising.

Eaton Corporation has used a form of worldwide product structure, as illustrated in Exhibit 6.8. In this structure, the automotive components group, industrial group, and so on are responsible for the manufacture and sale of products worldwide. The vice president of the international division is responsible for coordinators in each region, including a coordinator for Japan, Australia, South America, and northern Europe. The coordinators find ways to share facilities and improve production and delivery across all product lines sold in their regions. These coordinators fulfill the same function as integrators described in Chapter 3.

EXHIBIT 6.8

New Directions in Multinational Corporate Organization

Chairman

President International

Regional Coordinators

Global Truck

Components Group

Global Materials Handling

Group

Global Instruments

Product Group

Global Automotive Components

Group

Global Industrial

Group

Finance Administration

&Engineering Law

Corporate Relations

234 Part 3: Open System Design Elements

The product structure is great for standardizing production and sales around the globe, but it also has problems. Often the product divisions do not work well together, competing instead of cooperating in some countries; and some countries may be ignored by product managers. The solution adopted by Eaton Corporation of using country coordinators who have a clearly defined role is a superb way to overcome these problems. Haier uses a radical type of product structure that breaks the company into 2,000 semiautonomous teams of 10 to 30 employees, each with its own P&L, and each focused on coordinating a specific product or project across several countries.75

Global Geographic Division Structure A regionally based organization is well suited to companies that want to emphasize adaptation to regional or local market needs through a multidomestic strategy, as illustrated earlier in Exhibit 6.6. The global geographic structure divides the world into geographic regions, with each geographic division reporting to the CEO. Each division has full control of functional activities within its geographic area. For example, Nestlé, with headquarters in Switzerland, puts great emphasis on the autonomy of regional managers who know the local culture. The largest branded food company in the world, Nestlé rejects the idea of a single global market and has used a partial geographic structure to focus on the local needs and competition in each country. Local managers have the authority to tinker with a product’s flavoring, packaging, portion size, or other elements as they see fit. Many of the company’s 8,000 brands are registered in only one country.76

Companies that use this type of structure have typically been those with mature product lines and stable technologies. They can find low-cost manufacturing within countries as well as meet different needs across countries for marketing and sales. However, several business and organizational trends have led to a broadening of the kinds of companies that use the global geographic structure.77 The growth of service organizations has outpaced manufacturing for several years, and services by their nature must occur on a local level. Starbucks Coffee Company uses a three-region organization structure: China and Asia Pacific, which consists of the Japan, Korea, Hong Kong, Thailand, Malaysia, Singapore, Indonesia, Philippines, Australia, and New Zealand markets; the Americas, which includes the United States, Canada, Mexico, and Latin America; and EMEA, which encompasses, Europe, the United Kingdom, Russia, the Middle East, and Africa.78

In addition, to meet new competitive threats, many manufacturing firms are emphasizing the ability to customize their products to meet specific needs, which requires a greater emphasis on local and regional responsiveness. All organizations are compelled by current environmental and competitive challenges to develop closer relationships with customers, which may lead companies to shift from product-based to geographic-based structures. India’s Bupharm, a young and growing pharmaceuticals company, created geographic divisions for its sales operation, such as Asia Pacific, Latin America, and Europe, to help the company better serve customers in the 40 countries where it does business.79

The problems encountered by senior management using a global geographic structure result from the autonomy of each regional division. For example, it is difficult to do planning on a global scale—such as new-product R&D—because

BRIEFCASE As an organization manager, keep these guidelines in mind: Choose a global prod- uct structure when the organization can gain competitive advantages through a globalization strategy (global unifor- mity). Choose a global geographic structure when the company has advantages with a multidomestic strategy (local fit and respon- siveness). Use an inter- national division when the company is primar- ily domestic and has only a few international operations.

Chapter 6: Designing Organizations for the International Environment 235

The success of the international business development group prompted Colgate’s top management to add two additional coordinating positions—a vice president of corporate development to focus on acquisitions and a worldwide sales and marketing group that coordinates sales and marketing initiatives across all geographic locations. With these worldwide positions added to the structure, Colgate maintains its focus on each region and achieves global coordination for overall planning, faster product introductions, and enhanced sales and marketing efficiency.80

Global Matrix Structure We’ve discussed how Eaton used a global product division structure and found ways to coordinate across worldwide divisions. Colgate-Palmolive used a global geographic division structure and found ways to coordinate across geographic re- gions. Each of these companies emphasized a single dimension. Recall from Chap- ter 3 that a matrix structure provides a way to achieve vertical and horizontal

IN PRACTICE Colgate- Palmolive Company

international business development group

each division acts to meet only the needs of its region. New domestic technologies and products can be difficult to transfer to international markets because each division thinks it will develop what it needs. Likewise, it is difficult to rapidly introduce products developed offshore into domestic markets, and there is often duplication of line and staff managers across regions. Because regional divisions act to meet specific needs in their own areas, tracking and maintaining control of costs can be a real problem. The following example illustrates how executives at Colgate-Palmolive overcame some of the problems associated with the geographic structure.

236 Part 3: Open System Design Elements

coordination simultaneously along two dimensions. A global matrix structure is similar to the matrix described in Chapter 3, except that for multinational corpora- tions the geographic distances for communication are greater and coordination is more complex.

The matrix works best when pressure for decision making balances the interests of both product standardization and geographic localization and when coordina- tion to share resources is important. The matrix can support a mixed globaliza- tion and multidomestic strategy, as illustrated in Exhibit 6.6; that is, it can enable a global firm to achieve aspects of both global uniformity and local diversification and responsiveness.81 For many years, ABB (Asea Brown Boveri), a global leader in power and automation technologies, with headquarters in Zurich, used a global matrix structure that worked extremely well to coordinate a 150,000-employee company operating in approximately 100 countries.

EXHIBIT 6.9

Chairman, President, & CE0

Latin America

Chief Operating Officer

South-Pacific Region

Far East

International Business

Development

Worldwide Sales &

Marketing

Corporate Development

Corporate Staff

EuropeNorthAmerica

Human Resources

Finance

Manufacturing

Marketing

Human Resources

Finance

Manufacturing

Marketing

Human Resources

Finance

Manufacturing

Marketing

Human Resources

Finance

Manufacturing

Marketing

Human Resources

Finance

Manufacturing

Marketing

Organizing for Global Competitiveness: The Geographic Design

Chapter 6: Designing Organizations for the International Environment 237

IN PRACTICE ABB Group

EXHIBIT 6.10

Local Divisions or Subsidiary Companies

International Executive Committee

Northern Europe

Low Voltage Products

South Asia South America Mediterranean Business Areas

Regional Managers

Discrete Automation

Power Systems ©

C en

ga ge

Le ar

ni ng

238 Part 3: Open System Design Elements

ABB is a large, successful company that achieved the benefits of both product and geographic organizations through this matrix structure. However, over the past several years, as ABB has faced increasingly complex competitive issues, leaders have transformed the company toward a complex structure called the transnational model, which will be discussed later in this chapter.

In the real world, as with the domestic hybrid structure, many international firms such as ABB, Colgate, UniCredit, Nestlé, or Eaton Corporation apply a global hybrid or mixed structure, in which two or more different structures or elements of different structures are used. Hybrid structures are typical in highly volatile environments. UniCredit, for example, combines elements of functional, geographic, and product divisions to respond to dynamic market conditions in the multiple countries where it operates.83

There is no ideal structure, and organizations that operate on a global scale frequently have to make adjustments to their structures to overcome the challenges of doing business in a global environment. In the following sections, we will look at some additional coordination mechanisms used to address the challenges of operat- ing on a global scale.

Additional Global Coordination Mechanisms There are many instances of well-known companies that have trouble transferring successful ideas, products, and services from their home country to the international domain. As we discussed earlier in the chapter, greater complexity and differentia- tion, an increased need for coordination, and more difficult transfer of knowledge and innovation present challenges for global organization design. In addition, man- agers have to address the tension between the desire to achieve worldwide efficiency and uniformity and the desire to achieve local fit and responsiveness in each market they serve. Managers meet these global challenges in a variety of ways. Some of the most common are the use of global teams, stronger headquarters planning and con- trol, and specific coordination roles.

Global Teams One of the most valuable mechanisms for global coordination and the transfer of knowledge and innovation has been the use of global teams. In addition to these uses of teams, today’s organizations are using teams specifically to address the tension between global uniformity and local responsiveness.84 Global teams, also called transnational teams, are cross-border work groups made up of multiskilled, multinational members whose activities span multiple countries.85 Typically, teams are of two types: intercultural teams, whose members come from different countries and meet face to face, and virtual global teams, whose members remain in separate locations around the world and conduct their work electronically.86 Heineken formed the European Production Task Force, a 13-member team made up of multinational members, to meet regularly and come up with ideas for optimizing the company’s production facilities across Europe.87 German steelmaker ThyssenKrupp uses global virtual teams, applying sophisticated computer networks and software to link and coordinate team members working across three continents to run a virtually integrated steel operation.88

However, building effective global teams is not easy. Cultural and language differences can create misunderstandings, and resentments and mistrust can quickly

Chapter 6: Designing Organizations for the International Environment 239

derail the team’s efforts. Consider what happened in one virtual team made up of members from India, Israel, Canada, the United States, Singapore, Spain, Brussels, Great Britain, and Australia:

Early on . . . team members were reluctant to seek advice from teammates who were still strangers, fearing that a request for help might be interpreted as a sign of incompetence. Moreover, when teammates did ask for help, assis- tance was not always forthcoming. One team member confessed to carefully calculating how much information she was willing to share. Going the extra mile on behalf of a virtual teammate, in her view, came at a high price of time and energy, with no guarantee of reciprocation.89

As this quote shows, it is easy for an “us against them” mentality to develop, which is just the opposite of what organizations want from global teams.90 No wonder when the executive council of CIO magazine asked global chief information officers to rank their greatest challenges, managing virtual global teams ranked as the most pressing issue.91 L’Oréal, the French global cosmetics giant, is one of the most effective companies at building teams that improve coordination, transfer knowledge and innovation, help resolve the tension between uniformity and local responsiveness, and thwart the “us against them” mentality.

IN PRACTICE L’Oréal

240 Part 3: Open System Design Elements

Headquarters Planning A second approach to achieving stronger global coordination is for headquarters to take an active role in planning, scheduling, and control to keep the widely distributed pieces of the global organization working together and moving in the same direction. In one survey, 70 percent of global companies reported that the most important function of corporate headquarters was to “provide enterprise leadership.”93 For example, Panasonic’s Global Consumer Marketing organization, described in the earlier In Practice, is directed from the top of the organization. Top leaders make decisions about resource allocation to further the goals of embracing the global– local tension. If top leaders don’t make decisions that both further the cultivation of a global mindset and promote greater understanding of local markets in various countries, instead acting as mere observers, the goals aren’t likely to be met.94

Without strong leadership, highly autonomous divisions can begin to act like independent companies rather than coordinated parts of a global whole. To counteract this, top management may delegate responsibility and decision-making authority in some areas, such as adapting products or services to meet local needs, while maintaining strong control through centralized systems in other areas to provide the coordination and integration needed.95 Plans, schedules, and formal rules and procedures can help ensure greater communication among divisions and with headquarters as well as foster cooperation and synergy among far-flung units to achieve the organization’s goals in a cost-efficient way. Top managers can provide clear strategic direction, guide far-flung operations, and resolve competing demands from various units.

Expanded Coordination Roles Organizations may also implement structural solutions to achieve stronger coordination and collaboration.96 Creating specific organizational roles or positions for coordination is a way to integrate all the pieces of the enterprise to achieve a strong competitive position. In successful international firms, the role of top functional managers, for example, is expanded to include responsibility for coordinating across countries, identifying and linking the organization’s expertise and resources worldwide. In an international organization, the manufacturing manager has to be aware of and coordinate with manufacturing operations of the company in various parts of the world so that the company achieves manufacturing efficiency and shares technology and ideas across units. A new manufacturing

2 It is an especially difficult challenge to work on a global team to coordinate one’s own activities and share new ideas and insights with colleagues in different divisions around the world.

ANSWER: Agree.

ASSESS YOUR ANSWER

Chapter 6: Designing Organizations for the International Environment 241

technology developed to improve efficiency in a company’s Brazilian operations may be valuable for European and North American plants as well. Manufacturing managers are responsible for being aware of new developments wherever they occur and for using their knowledge to improve the organization. Similarly, marketing managers, HR managers, and other functional managers at an international company are involved not only in activities for their particular location but in coordinating with their sister units in other countries as well.

Whereas functional managers coordinate across countries, country managers coordinate across functions. A country manager for an international firm has to co- ordinate all the various functional activities located within the country to meet the problems, opportunities, needs, and trends in the local market, enabling the organi- zation to achieve multinational flexibility and rapid response. The country manager in Venezuela for a global consumer products firm such as Colgate-Palmolive would coordinate everything that goes on in that country, from manufacturing to HR to marketing, to ensure that activities meet the language, cultural, government, and legal requirements of Venezuela. The country manager in Ireland or Canada would do the same for those countries. Country managers also help with the transfer of ideas, trends, products, and technologies that arise in one country and might have significance on a broader scale. Some organizations also use business integrators to provide coordination on a regional basis that might include several countries. These managers reach out to various parts of the organization to resolve problems and coordinate activities across groups, divisions, or countries.

Another coordination role is that of formal network coordinator to coordinate information and activities related to key customer accounts. These coordinators would enable a manufacturing organization, for example, to provide knowledge and integrated solutions across multiple businesses, divisions, and countries for a large retail customer such as Tesco, Walmart, or Carrefour. Top managers in success- ful global firms also encourage and support informal networks and relationships to keep information flowing in all directions. Much of an organization’s information exchange occurs not through formal systems or structures but through informal channels and relationships. By supporting these informal networks, giving people across boundaries opportunities to get together and develop relationships, and then ways to keep in close touch, executives enhance organizational coordination.97

Benefits of Coordination International companies have a hard time staying competitive without strong inter-unit coordination and collaboration. Those firms that stimulate and support collaboration are typically better able to leverage dispersed resources and capabilities to reap operational and economic benefits.98 Benefits that result from inter-unit collaboration include the following:

Cost savings. Collaboration can produce real, measurable results in the way of cost savings from the sharing of best practices across global divisions. For example, at BP, a business unit head in the United States improved inventory turns and cut the working capital needed to run U.S. service stations by learning the best practices from BP operations in the United Kingdom and the Netherlands. Better decision making. By sharing information and advice across divisions, managers can make better business decisions that support their own unit as well as the organization as a whole.

BRIEFCASE As an organization manager, keep these guidelines in mind: Use mechanisms such as global teams, head- quarters planning, and specific coordination roles to provide needed coordination and inte- gration among far-flung international units. Emphasize information and knowledge sharing to help the organization learn and improve on a global scale.

242 Part 3: Open System Design Elements

Greater revenues. By sharing expertise and products among various divisions, organizations can reap increased revenues. BP again provides an example. More than 75 people from various units around the world flew to China to assist the team developing an acetic acid plant there. As a result, BP finished the project and began realizing revenues sooner than project planners had expected. Increased innovation. The sharing of ideas and technological innovations across units stimulates creativity and the development of new products and services. McDonald’s is taking an approach called “freedom within a framework” that allows regional and national managers to develop practices and products suited to the local area. The company then makes sure international managers have plenty of both formal and informal ways to communicate and share ideas. The Big Tasty, a whopping 5.5-oz. beef patty slathered in barbeque sauce and topped with three slices of cheese, was created in a test kitchen in Germany and launched in Sweden, but as word spread, the sandwich was adopted by restaurants in places like Brazil, Italy, and Portugal, where it became a huge hit.99

The Transnational Model of Organization Because traditional approaches have been inadequate to meet the demands of a rapidly changing, complex global environment, many large international companies are moving toward a transnational model of organization, which is highly differentiated to address the increased complexity of the global environment yet offers very high levels of coordination, learning, and transfer of organizational knowledge and innovations. The transnational model represents the most advanced kind of international organization. It reflects the ultimate in both organizational complexity, with many diverse units, and organizational coordination, with mechanisms for integrating the varied parts. The transnational model is useful for large, multinational companies with subsidiaries in many countries that try to exploit both global and local advantages as well as technological advancements, rapid innovation, and global learning and knowledge sharing. Rather than building capabilities primarily in one area, such as global efficiency, local responsiveness, or global learning, the transnational model seeks to achieve all three simultaneously. Dealing with multiple, interrelated, complex issues requires a complex form of organization and structure.

The transnational model represents the most current thinking about the kind of structure needed by highly complex global organizations such as Philips NV, illustrated in Exhibit 6.11. Incorporated in the Netherlands, Philips has hundreds of operating units all over the world and is typical of global companies such as Unilever, Matsushita, or Procter & Gamble.100 Large professional service firms such as KPMG and PricewaterhouseCoopers (PwC) also use the transnational structure. PwC, for example, has more than 160,000 people in 757 offices in 151 countries. The company provides a highly diversified range of knowledge-based services that have to be customized to specific clients in specific locales, so local offices need discretion and autonomy. At the same time, PwC needs consistent operating standards and control systems worldwide.101

The units of a transnational organization network, as illustrated in Exhibit 6.11, are far-flung. Achieving coordination, a sense of participation and involvement by subsidiaries, and a sharing of information, knowledge, new technology, and customers is a tremendous challenge. For example, a global corporation like Philips,

BRIEFCASE As an organization manager, keep these guidelines in mind: Appreciate cultural value differences and strive to use coordina- tion mechanisms that are in tune with local values. When broader coordination mecha- nisms are needed, focus on education and corpo- rate culture as ways to gain understanding and acceptance.

Chapter 6: Designing Organizations for the International Environment 243

The Academy of Management Review

CANADA

BRAZIL

EL SALVADOR ECUADOR

CHILE

BOLIVIA

VENEZUELA

COLOMBIA

PARAGUAY

PORTUGAL

SWEDEN

SWITZERLAND

FINLAND SPAIN

NORWAY

LUXEMBOURG FRANCE GREECE

EGYPT KENYA SOUTH AFRICA

DEM. REP. CONGO

TUNISIA

NIGERIA TANZANIA MOROCCO

PAKISTAN

BANGLADESH

INDIA

THAILAND

SINGAPORE

TAIWAN

KOREA

HONG KONG IRAQ

SYRIA

LEBANON

AUSTRALIA

NEW ZEALAND

AUSTRIA

HOLLAND

U.K.

U.S.A.

JAPAN

PHILIPPINES

ZIMBABWEIRELAND ZAMBIA

URUGUAY

ARGENTINA

MEXICO

PERU

TURKEY

BELGIUM DENMARK

ITALY

INDONESIA

MALAYSIA

IRAN

ISRAEL

FRG

EXHIBIT 6.11

244 Part 3: Open System Design Elements

Unilever, or PwC is so large that size alone is a huge problem in coordinating global operations. In addition, some subsidiaries become so large that they no longer fit a narrow strategic role defined by headquarters. While being part of a larger organization, individual units need some autonomy for themselves and the ability to have an impact on other parts of the organization.

3 The most advanced multinational corporations have developed systems for maintaining tight headquarters control over subsidiaries in dozens of countries. ANSWER: Disagree.

ASSESS YOUR ANSWER

BRIEFCASE As an organization manager, keep this guideline in mind: Strive toward a trans- national model of organization when the company has to re- spond to multiple global forces simultaneously and needs to promote worldwide integration, learning, and knowl- edge sharing.

The transnational model addresses these challenges by creating an integrated network of individual operations that are linked together to achieve the multi- dimensional goals of the overall organization.102 The management philosophy is based on interdependence rather than either full divisional independence or total dependence of these units on headquarters for decision making and control. The transnational model is more than just an organization chart. It is a managerial state of mind, a set of values, a shared desire to make a worldwide learning system work, and an idealized structure for effectively managing such a system. The following characteristics distinguish the transnational organization from other global organi- zation forms such as the matrix, described earlier.

1. Assets and resources are dispersed worldwide into highly specialized operations that are linked together through interdependent relationships. Resources and capa- bilities are widely distributed to help the organization sense and respond to diverse stimuli such as market needs, technological developments, or consumer trends that emerge in different parts of the world. To manage this increased complexity and differentiation, managers forge interdependent relationships among the vari- ous product, functional, or geographic units. Mechanisms such as cross-subsidiary teams, for example, compel units to work together for the good of their own unit as well as the overall organization. Rather than being completely self-sufficient, each group has to cooperate to achieve its own goals. At PwC, for example, the client management system connects teams of people drawn from various units, ser- vice lines, and areas of expertise around the world. Such interdependencies encour- age the collaborative sharing of information and resources, cross-unit problem solving, and collective implementation demanded by today’s competitive interna- tional environment. Materials, people, products, ideas, resources, and information are continually flowing among the dispersed parts of the integrated network. In addition, managers actively shape, manage, and reinforce informal information networks that cross functions, products, divisions, and countries.

2. Structures are flexible and ever-changing. The transnational operates on a princi- ple of flexible centralization. It may centralize some functions in one country, some in another, yet decentralize still other functions among its many geographically

Chapter 6: Designing Organizations for the International Environment 245

dispersed operations. An R&D center may be centralized in Holland and a pur- chasing center may be located in Sweden, while financial accounting responsibili- ties are decentralized to operations in many countries. A unit in Hong Kong may be responsible for coordinating activities across Asia, while activities for all other countries are coordinated by a large division headquarters in London. The trans- national model requires that managers be flexible in determining structural needs based on the benefits to be gained. Some functions, products, and geographic re- gions by their nature may need more central control and coordination than others. In addition, coordination and control mechanisms will change over time to meet new needs or competitive threats. Some companies have begun setting up mul- tiple headquarters in different countries as the organization gets too large and too complex to manage from one place and to get closer to important markets. Irdeto Holdings BV, for example, has headquarters in both Hoofddorp, the Netherlands, and Beijing, and the CEO moved to China with his family. IBM created a growth- markets headquarters in Shanghai that is responsible for Asia (non-Japan), Latin America, Russia, Eastern Europe, the Middle East, and Africa. Japan’s Nissan lo- cated global headquarters for its luxury Infiniti brand in Hong Kong.103

3. Subsidiary managers initiate strategy and innovations that become strategy for the corporation as a whole. In traditional structures, managers have a strategic role only for their division. In a transnational structure, various centers and subsidiaries can shape the company from the bottom up by developing creative responses and initiating programs in response to local needs, then dispersing those innovations worldwide. Transnational companies recognize each of the worldwide units as a source of capabilities and knowledge that can be used to benefit the entire organization. In addition, environmental demands and opportunities vary from country to country, and exposing the whole organization to this broader range of environmental stimuli triggers greater learning and innovation.

4. Unification and coordination are achieved primarily through corporate culture, shared vision and values, and management style, rather than through formal structures and systems. A study by Hay Group found that one of the defining characteristics of companies that succeed on a global scale is that they successfully coordinate worldwide units and subsidiaries around a common strategic vision and values rather than relying on formal coordination systems alone.104 Achieving unity and coordination in an organization in which employees come from a variety of different national backgrounds, are separated by time and geographic distance, and have different cultural norms is more easily accomplished through shared understanding than through formal systems. Top leaders build a context of shared vision, values, and perspectives among managers who in turn cascade these elements through all parts of the organization. Selection and training of managers emphasizes flexibility and open-mindedness. In addition, people are often rotated through different jobs, divisions, and countries to gain broad experience and become socialized into the corporate culture. Achieving coordination in a transnational organization is a much more complex process than simple centralization or decentralization of decision making. It requires shaping and adapting beliefs, culture, and values so that everyone participates in information sharing and learning.

Taken together, these characteristics facilitate strong coordination, organizational learning, and knowledge sharing on a broad global scale. The transnational model is truly a complex and messy way to conceptualize organization structure, but it is becoming increasingly relevant for large, global firms that treat the whole world

246 Part 3: Open System Design Elements

as their playing field and do not have a single country base. The autonomy of organizational parts gives strength to smaller units and allows the firm to be flexible in responding to rapid change and competitive opportunities on a local level, while the emphasis on interdependency enables global efficiencies and organizational learning. Each part of the transnational company is aware of and closely integrated with the organization as a whole so that local actions complement and enhance other company parts.

Design Essentials

■ This chapter examined how managers design organizations for a complex in- ternational environment. Almost every company today is affected by significant global forces, and many are developing overseas operations to take advantage of global markets. Three primary motivations for global expansion are to real- ize economies of scale, exploit economies of scope, and achieve scarce or low- cost factors of production such as labor, raw materials, or land. One popular way to become involved in international operations is through strategic alli- ances with international firms. Alliances include licensing, joint ventures, and acquisitions.

■ Organizations typically evolve through four stages, beginning with a domestic orientation, shifting to an international orientation, then changing to a multina- tional orientation, and finally moving to a global orientation that sees the whole world as a potential market. Organizations typically use an export department, then use an international department, and eventually develop into a worldwide geographic or product structure.

■ Succeeding on a global scale is not easy. Three primary challenges facing global organizational design are addressing environmental complexity through greater organizational complexity and differentiation, achieving integration and coordi- nation among the highly differentiated units, and implementing mechanisms for the transfer of knowledge and innovations.

■ Organizations try to match their design to fit their strategic goals. Geographic structures are most effective for organizations that can benefit from a multido- mestic strategy, meaning that products and services will do best if tailored to local needs and cultures. A product structure supports a globalization strategy, which means that products and services can be standardized and sold world- wide. Huge global firms might use a matrix structure to respond to both local and global forces simultaneously. Many firms use hybrid structures by combin- ing elements of two or more different structures to meet the dynamic conditions of the global environment.

■ Additional coordination mechanisms to address the problem of integration and knowledge transfer are through global teams, stronger headquarters planning and control, and specific coordination roles. Teams can also be a good way to help resolve the tension between the desire for global uniformity and the desire for local responsiveness.

■ Companies operating globally need broad coordination methods, and some are moving toward the transnational model of organization. The transnational model is based on a philosophy of interdependence. It is highly differentiated

Chapter 6: Designing Organizations for the International Environment 247

yet offers very high levels of coordination, learning, and transfer of knowledge across far-flung divisions. The transnational model represents the ultimate global design in terms of both organizational complexity and organizational integration. Each part of the transnational organization is aware of and closely integrated with the organization as a whole so that local actions complement and enhance other company parts.

KEY CONCEPTS

domestic stage economies of scale economies of scope factors of production global companies global geographic structure global matrix structure

global product structure global stage global teams globalization strategy international division international stage joint venture

multidomestic multidomestic strategy multinational stage standardization transnational model

DISCUSSION QUESTIONS

1. Name some companies that you think could succeed to- day with a globalization strategy and explain why you selected those companies. How does the globalization strategy differ from a multidomestic strategy?

2. Why do you think the tension between a desire for global uniformity and local responsiveness is greater today than in the past?

3. Many American companies enter China through joint ventures with local firms, but China is succeeding in the United States primarily with a strategy of buying companies outright. What are some factors that might account for this difference?

4. Do you think it makes sense for a transnational orga- nization to have more than one headquarters? What might be some advantages associated with two head- quarters, each responsible for different things? Can you think of any drawbacks?

5. What are some of the primary reasons a company de- cides to expand internationally? Identify a company in the news that has recently built a new overseas facility. Which of the three motivations for global expansion described in the chapter do you think best explains the company’s decision? Discuss.

6. When would an organization consider using a matrix structure? How does the global matrix differ from the domestic matrix structure described in Chapter 3?

7. Name some of the elements that contribute to greater com- plexity for international organizations. How do organiza- tions address this complexity? Do you think these elements apply to a company such as Spotify that wants to expand its music streaming service internationally? Discuss.

8. Traditional values in Mexico support high power dis- tance and a low tolerance for uncertainty. What would you predict about a company that opens a division in Mexico and tries to implement global teams character- ized by shared power and authority and the lack of for- mal guidelines, rules, and structure?

9. Do you believe it is possible for a global company to si- multaneously achieve the goals of global efficiency and integration, national responsiveness and flexibility, and the worldwide transfer of knowledge and innovation? Discuss.

10. Compare the description of the transnational model in this chapter to the elements of organic versus mecha- nistic organization designs described in Chapter 1. Do you think the transnational model seems workable for a huge global firm? Discuss.

CHAPTER 6 WORKSHOP Made in the U.S.A.?

In March 2011, ABC World News ran a special series called “Made in America.” In the opening program, correspondents David Muir and Sharyn Alfonsi removed all foreign made products from a family’s Dallas, Texas, home and found that

there was virtually nothing left when they finished. How many items in your home were made in America? For this exercise, pick three different consumer products from your home (e.g., a shirt, a toy or game, a phone, a shoe, a sheet

248 Part 3: Open System Design Elements

or pillowcase, a coffeemaker). Try to find the following in- formation for each product, as shown in the table. To find this information, use websites, articles on the company from

various business newspapers and magazines, and the labels on the items or user manuals. You could also try calling the company and talking with someone there.

Product

What country do materials come

from?

Where is it manufactured or

assembled?

Which country does the marketing and

advertising?

In what different countries is the product sold?

What can you conclude about international products and organizations based on your analysis?

CASE FOR ANALYSIS | TopDog Software105

At the age of 39, after working for nearly 15 years at a leading software company on the West Coast, Ari Weiner and his soon-to-be-wife, Mary Carpenter, had cashed in their stock options, withdrawn all their savings, maxed out their credit cards, and started their own business, naming it TopDog Software after their beloved Alaskan malamute. The two had developed a new software package for root cause analysis (RCA) applications that they were certain was far superior to anything on the market at that time. TopDog’s software was particularly effective for use in design engineering organizations because it provided a highly efficient way to eliminate problems in new digital manufacturing processes, including product development, software engineering, hardware design, manufacturing, and installation. The software, which could be used as a standalone product or easily integrated with other software packages, dramatically expedited problem identification and corrective actions in the work of design engineering firms. The use of TopDog’s RCA software would find an average of 30 to 50 root cause problems and provide 20 to 30 corrective actions that lowered defect rates by 50 percent, saving tens and sometimes hundreds of thousands of dollars with each application.

The timing proved to be right on target. RCA was just getting hot, and TopDog was poised to take advantage of the trend as a niche player in a growing market. Weiner and Carpenter brought in two former colleagues as partners and were soon able to catch the attention of a venture capitalist firm to gain additional funding. Within a couple of years, TopDog had 28 employees and sales had reached nearly $4 million.

Now, though, the partners are facing the company’s first major problem. TopDog’s head of sales, Samantha Jenkins, has learned of a new company based in Norway that is beta testing a new RCA package that promises to outpace TopDog’s—and the Norway-based company,

FastData, has been talking up its global aspirations in the press. “If we stay focused on the United States and they start out as a global player, they’ll kill us within months!” Sam moaned. “We’ve got to come up with an international strategy to deal with this kind of competition.”

In a series of group meetings, off-site retreats, and one- on-one conversations, Weiner and Carpenter have gathered opinions and ideas from their partners, employees, advisors, and friends. Now they have to make a decision—should TopDog go global? And if so, what approach would be most effective? There’s a growing market for RCA software overseas, and new companies such as FastData will soon be cutting into TopDog’s U.S. market share as well. Samantha Jenkins isn’t alone in her belief that TopDog has no choice but to enter new international markets or get eaten alive. Others, however, are concerned that TopDog isn’t ready for that step. The company’s resources are already stretched to the limit, and some advisors have warned that rapid global expansion could spell disaster. TopDog isn’t even well established in the United States, they argue, and expanding internationally could strain the company’s capabilities and resources. Others have pointed out that none of the managers has any international experience, and the company would have to hire someone with significant global exposure to even think about entering new markets.

Although Mary tends to agree that TopDog for the time being should stay focused on building its business in the United States, Ari has come to believe that global expansion of some type is a necessity. But if TopDog does eventually decide on global expansion, he wonders how on earth they should proceed in a huge, complex world environment. Sam, the sales manager, is arguing that the company should set up its own small foreign offices from scratch and staff them primarily with local people. Building a U.K. office and an Asian office, she asserts, would give TopDog an ideal base for

Chapter 6: Designing Organizations for the International Environment 249

penetrating markets around the world. However, it would be quite expensive, not to mention the complexities of dealing with language and cultural differences, legal and government regulations, and other matters. Another option would be to establish alliances or joint ventures with small European and Asian companies that could benefit from adding RCA applications to their suite of products. The companies could share expenses in setting up foreign production facilities and a global sales and distribution network. This would be a much less costly operation and would give TopDog the benefit of the expertise of the foreign partners. However, it might also require lengthy negotiations and would certainly mean giving up some control to the partner companies.

One of TopDog’s partners is urging still a third, even lower-cost approach, that of licensing TopDog’s software to foreign distributors as a route to international expansion. By giving foreign software companies rights to produce, market, and distribute its RCA software, TopDog could build brand identity and customer awareness while keeping a tight rein on expenses. Ari likes the low-cost approach, but he wonders if licensing would give TopDog enough participation and control to successfully develop its international presence. As another day winds down, Weiner and Carpenter are no closer to a decision about global expansion than they were when the sun came up.

CASE FOR ANALYSIS | Rhodes Industries

David Javier was reviewing the consulting firm’s proposed changes in organization structure for Rhodes Industries (RI). As Javier read the report, he wondered whether the changes recommended by the consultants would do more harm than good for RI. Javier had been president of RI for 18 months, and he was keenly aware of the organizational and coordination problems that needed to be corrected in order for RI to improve profits and growth in its interna- tional businesses.

Company Background Rhodes Industries was started in the 1950s in Southern Ontario, Canada, by Robert Rhodes, an engineer who was an entrepreneur at heart. He started the business by first making pipe and then glass for industrial uses. As soon as the initial business was established, however, he quickly branched into new areas such as industrial sealants, coat- ings, and cleaners, and even into manufacturing mufflers and parts for the trucking industry. Much of this expan- sion occurred by acquiring small firms in Canada and the United States during the 1960s. RI had a conglomerate- type structure with rather diverse subsidiaries scattered around North America, all reporting directly to the On- tario headquarters. Each subsidiary was a complete local business and was allowed to operate independently so long as it contributed profits to RI.

During the 1970s and 1980s, the president at the time, Clifford Michaels, brought a strong international focus to RI. His strategy was to acquire small companies worldwide with the belief that they could be formed into a cohesive unit that would bring RI synergies and profits through low cost of manufacturing and by serving businesses in inter- national markets. Some of RI’s businesses were acquired

simply because they were available at a good price, and RI found itself in new lines of business such as consumer products (paper and envelopes) and electrical equipment (switchboards, light bulbs, and security systems), in addition to its previous lines of business. Most of these products had local brand names or were manufactured for major interna- tional companies such as General Electric or Corning Glass.

During the 1990s, a new president of RI, Sean Rhodes, the grandson of the founder, took over the business and ad- opted the strategy of focusing RI on three lines of business— Industrial Products, Consumer Products, and Electronics. He led the acquisition of more international businesses that fit these three categories and divested a few businesses that didn’t fit. Each of the three divisions had manufactur- ing plants as well as marketing and distribution systems in North America, Asia, and Europe. The Industrial Products division included pipe, glass, industrial sealants and coat- ings, cleaning equipment, and truck parts. The Electronics division included specialty light bulbs, switchboards, com- puter chips, and resistors and capacitors for original equip- ment manufacturers. Consumer Products included dishes and glassware, paper and envelopes, and pencils and pens.

Structure In 2004 David Javier replaced Sean Rhodes as president. He was very concerned about whether a new organization structure was needed for RI. The current structure was based on three major geographic areas—North America, Asia, and Europe—as illustrated in Exhibit 6.12. The vari- ous autonomous units within those regions reported to the office of the regional vice president. When several units existed in a single country, one of the subsidiary presi- dents was also responsible for coordinating the various

250 Part 3: Open System Design Elements

businesses in that country, but most coordination was done through the regional vice president. Businesses were largely independent, which provided flexibility and motivation for the subsidiary managers.

The headquarters functional departments in Ontario were rather small. The three central departments—Corporate Relations and Public Affairs, Finance and Acquisitions, and Legal and Administrative—served the corporate business worldwide. Other functions such as HR management, new product development, marketing, and manufacturing all existed within individual subsidiaries and there was little coordination of these functions across geographic regions. Each business devised its own way to develop, manufacture, and market its products in its own country and region.

Organizational Problems The problems Javier faced at RI, which were confirmed in the report on his desk, fell into three areas. First, each subsidiary acted as an independent business, using its own reporting systems and acting to maximize its own profits. This autonomy made it increasingly difficult to consolidate financial reports worldwide and to gain the efficiencies of uniform information and reporting systems.

Second, major strategic decisions were made to benefit individual businesses or for a country’s or region’s local in- terests. Local projects and profits received more time and resources than did projects that benefited RI worldwide. For example, an electronics manufacturer in Singapore re- fused to increase production of chips and capacitors for sale in the United Kingdom because it would hurt the bot- tom line of the Singapore operation. However, the econo- mies of scale in Singapore would more than offset shipping costs to the United Kingdom and would enable RI to close expensive manufacturing facilities in Europe, increasing RI’s efficiency and profits.

Third, there had been no transfer of technology, new product ideas, or other innovations within RI. For example, a cost-saving technology for manufacturing light bulbs in Canada had been ignored in Asia and Europe. A techni- cal innovation that provided homeowners with cell phone access to home security systems developed in Europe had been ignored in North America. The report on Javier’s desk stressed that RI was failing to disperse important innovations throughout the organization. These ignored innovations could provide significant improvements in both manufacturing and marketing worldwide. The report said, “No one at RI understands all the products and locations in a way that allows RI to capitalize on manufacturing

EXHIBIT 6.12

President and CE0

Corporate Relations and Public Affairs

Vice President Asia

Vice President North America

Vice President Europe

Finance and Acquisitions

Legal and Administrative

Asian Subsidiaries

North American Subsidiaries

European Subsidiaries

en ga

ge Le

ar ni

ng ®

Chapter 6: Designing Organizations for the International Environment 251

improvements and new product opportunities.” The report also said that better worldwide coordination would reduce RI’s costs by 7 percent each year and increase market po- tential by 10 percent. These numbers were too big to ignore.

Recommended Structure The report from the consultant recommended that RI try one of two options for improving its structure. The first alternative was to create a new international department at headquarters with the responsibility to coordinate tech- nology transfer and product manufacturing and marketing worldwide (Exhibit 6.13). This department would have a product director for each major product line—Industrial, Consumer, and Electronics—who would have authority to coordinate activities and innovations worldwide. Each product director would have a team that would travel to each region and carry information on innovations and im- provements to subsidiaries in other parts of the world.

The second recommendation was to reorganize into a worldwide product structure, as shown in Exhibit 6.14. All subsidiaries worldwide associated with a product line would report to the product line business manager. The business manager and staff would be responsible for de- veloping business strategies and for coordinating all manu- facturing efficiencies and product developments worldwide for its product line.

This worldwide product structure would be a huge change for RI. Many questions came to Javier’s mind. Would the subsidiaries still be competitive and adaptive in local markets if forced to coordinate with other sub- sidiaries around the world? Would business managers be able to change the habits of subsidiary managers toward more global behavior? Would it be a better idea to appoint product director coordinators as a first step or jump to the business manager product structure right away? Javier had a hunch that the move to worldwide product coordination made sense, but he wanted to think through all the poten- tial problems and how RI would implement the changes.

en ga

ge Le

ar ni

ng ®

EXHIBIT 6.13

President and CEO

Corporate Relations and Public Affairs

International Product Directors

Vice President Asia

Vice President North America

Vice President Europe

Finance and Acquisitions

Legal and Administrative

Asian Subsidiaries

North American Subsidiaries

European Subsidiaries

Asia EuropeNorthAmerica

252 Part 3: Open System Design Elements

NOTES

1. Paul Sonne and Peter Evans, “The $1.6 Billion Grocery Flop: Tesco Poised to Quit U.S.,” The Wall Street Journal, December 5, 2012, http://online.wsj.com/news/articles/SB10 001424127887324640104578160514192695162 (accessed December 6, 2012); and Shan Li, “Tesco May Sell All Fresh & Easy Stores,” Los Angeles Times, December 6, 2012, http:// articles.latimes.com/2012/dec/06/business/la-fi-tesco-fresh- easy-20121206 (accessed December 6, 2012).

2. Stuart Pfeifer, “Ron Burkle’s Yucaipa Buying Fresh & Easy Stores from Tesco,” Los Angeles Times, September 10, 2013, http://articles.latimes.com/2013/sep/10/business/la-fi-burkle -fresh-easy-20130911 (accessed March 14, 2014).

3. Bob Tita, “Deere Enhances Focus on Russia,” The Wall Street Journal, March 24, 2011, http://online.wsj.com/ article/SB100014240527487046047045762206840038 08072.html (accessed August 9, 2011);Choe Sang-Hun, “Wal-Mart Selling Stores and Leaving South Korea,” The New York Times, May 23, 2006, C5; and Miguel Bustillo, Robb Stewart, and Paul Sonne, “Wal-Mart Bids $4.6 Billion for South Africa’s Massmart,” The Wall Street Journal, September 28, 2010), http://online.wsj.com/article/SB100014 24052748704654004575517300108186976.html (accessed September 28, 2010).

4. Michael A. Hitt and Xiaoming He, “Firm Strategies in a Changing Global Competitive Landscape,” Business Horizons 51 (2008), 363–369.

5. George Stalk and David Michael, “What the West Doesn’t Get About China,” Harvard Business Review, June 2011, 25–27; and Zoe McKay, “Consumer Spending in China: To Buy or Not To Buy,” Forbes.com, June 15, 2012, www.forbes .com/sites/insead/2012/06/15/consumer-spending-in-china -to-buy-or-not-to-buy/ (accessed June 29, 2012); and Adam Davidson, “Come On, China, Buy Our Stuff!” The New York Times, January 25, 2012, www.nytimes.com/2012/01/29 /magazine/come-on-china-buy-our-stuff.html?pagewanted=all (accessed June 29, 2012).

6. Mike Ramsey, “Ford’s CEO Revs up Auto Maker’s China Role,” The Wall Street Journal, April 16, 2013, B7.

7. Ian DeMartino, “Xiaomi Soars Past Apple and Samsung, Best Selling Smartphone in China in December,” GizChina .com, http://www.gizchina.com/2014/02/08/xiaomi-soars -past-apple-samsung-best-selling-smartphone-china -december/ (accessed March 14, 2014); and Bruce Einhorn, “Lenovo Takes on Apple and Samsung in Smartphone Market,” Bloomberg BusinessWeek, January 30, 2014, http://www.businessweek.com/articles/2014-01-30

en ga

ge Le

ar ni

ng ®

EXHIBIT 6.14

President and CE0

Corporate Relations and Public Affairs

Worldwide Business Manager— Industrial Products

Worldwide Business Manager— Consumer Products

Worldwide Business Manager— Electronic Products

Finance and Acquisitions

Legal and Administrative

Industrial Products Subsidiaries Worldwide

Consumer Products Subsidiaries Worldwide

Electronic Products Subsidiaries Worldwide

Chapter 6: Designing Organizations for the International Environment 253

/lenovo-takes-on-apple-and-samsung-in-smartphone-market (accessed March 14, 2014).

8. Qamar Rizvi, “Going International: A Practical, Comprehensive Template for Establishing a Footprint in Foreign Markets,” Ivey Business Journal, May–June 2010, http://www.iveybusinessjournal.com/topics/global-business /going–international-a-practical-comprehensive-template -for-establishing-a-footprint-in-foreign-markets (accessed August 9, 2011).

9. Michael A. Hitt and Xiaoming He, “Firm Strategies in a Changing Global Competitive Landscape,” Business Horizons 51 (2008), 363–369.

10. D. Barboza, “China Passes Japan as Second-Largest Economy,” The New York Times, August 14, 2010, http:// www.nytimes.com/2010/08/16/business/global/16yuan.html (accessed August 12, 2011).

11. Jenny Mero, “Power Shift,” Fortune, July 21, 2008, 161; and “The Fortune Global 500,” Fortune, http://money.cnn.com /magazines/fortune/global500/2013/ (accessed March 14, 2014).

12. This discussion is based heavily on Christopher A. Bartlett and Sumantra Ghoshal, Transnational Management: Text, Cases, and Readings in Cross-Border Management, 3rd ed. (Boston: Irwin McGraw-Hill, 2000), 94–96; and Anil K. Gupta and Vijay Govindarajan, “Converting Global Presence into Global Competitive Advantage,” Academy of Management Executive 15, no. 2 (2001), 45–56.

13. Shruti Date Singh with Ganesh Nagarajan, “Small Is Beautiful,” Bloomberg Businessweek (September 26–October 2, 2011), 33–34.

14. Lauren A.E. Schuker, “Plot Change: Foreign Forces Transform Hollywood Films,” The Wall Street Journal, July 31, 2010, A1.

15. Brooks Barnes, “Paramount Hopes New ‘Star Trek’ Is a Global Crowd-Pleaser,” The New York Times, May 3, 2013, B1.

16. Mariko Sanchanta, “Starbucks Plans Major China Expansion,” The Wall Street Journal, April 13, 2010, http://online.wsj.com /article/SB100014240527023046042045751814908912316 72.html (accessed April 16, 2010); and Paul Beckett, Vibhuti Agarwal, and Julie Jargon, “Starbucks Brews Plan to Enter India,” The Wall Street Journal, January 14, 2011, http://online .wsj.com/article/SB1000142405274870358340457607959355 8838756.html (accessed July 16, 2011).

17. James Hookway, “Starbucks Brings Its Culture to Vietnam,” The Wall Street Journal, May 18, 2013, B3.

18. Eric Bellman, “Indian Firm Takes a Hollywood Cue, Using DreamWorks to Expand Empire,” The Wall Street Journal, September 22, 2009, B1.

19. Doug DeVos, “How I Did It . . . Amway’s President on Reinventing the Business to Succeed in China,” Harvard Business Review, April 2013, 41–44.

20. Jim Carlton, “Branching Out; New Zealanders Now Shear Trees Instead of Sheep,” The Wall Street Journal, May 29, 2003, A1, A10.

21. Charles Duhigg and Keith Bradsher, “How U.S. Lost Out on iPhone Work,” The New York Times, January 22, 2012, A1; and David Barboza and Charles Duhigg, “China Plant Again Faces Labor Issue on iPhones,” The New York Times, September 11, 2012, B1.

22. Dan Morse, “Cabinet Decisions; in North Carolina, Furniture Makers Try to Stay Alive,” The Wall Street Journal, February 20, 2004, A1.

23. Nicholas Casey, “In Mexico, Auto Plants Hit the Gas,” The Wall Street Journal, November 20, 2012, A1.

24. Keith H. Hammonds, “Smart, Determined, Ambitious, Cheap: The New Face of Global Competition,” Fast Company, February 2003, 91–97; and W. Michael Cox and Richard Alm, “China and India: Two Paths to Economic Power,” Economic Letter, Federal Reserve Bank of Dallas (August 2008), http://dallasfed.org/assets/documents/research /eclett/2008/el0808.pdf (accessed October 14, 2014).

25. Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, OH: South-Western, 2002); Theodore T. Herbert, “Strategy and Multinational Organizational Structure: An Interorganizational Relationships Perspective,” Academy of Management Review 9 (1984), 259–271; and Laura K. Rickey, “International Expansion—U.S. Corporations: Strategy, Stages of Development, and Structure” (unpublished manuscript, Vanderbilt University, 1991).

26. Colum Murphy and Laurie Burkitt, “Hershey Launches New Brand in China,” The Wall Street Journal, May 21, 2013, B1.

27. Julia Boorstin, “Exporting Cleaner Air,” segment of “Small and Global,” Fortune Small Business, June 2004, 36–48; and Purafil website, http://www.purafil.com/company/facts.aspx (accessed August 8, 2011).

28. Emily Maltby, “Expanding Abroad? Avoid Cultural Gaffes,” The Wall Street Journal, January 19, 2010.

29. Vikas Sehgal, Ganesh Panneer, and Ann Graham, “A Family-Owned Business Goes Global,” Strategy + Business (September 13, 2010), http://www.strategy-business.com /article/00045?gko=aba49 (accessed August 9, 2011).

30. Michael E. Porter, “Changing Patterns of International Competition,” California Management Review 28 (Winter 1986), 9–40.

31. William J. Holstein, “The Stateless Corporation,” BusinessWeek, May 14, 1990, 98–115.

32. Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, OH: South-Western, 2002), 8–9; and William Holstein, Stanley Reed, Jonathan Kapstein, Todd Vogel, and Joseph Weber, “The Stateless Corporation,” BusinessWeek, May 14, 1990, 98–105.

33. Deborah Ball, “Boss Talk: Nestlé Focuses on Long Term,” The Wall Street Journal, November 2, 2009; Transnationale website, http://www.transnationale.org/companies/nestle .php (accessed March 17, 2010); Company-Analytics website, http://www.company-analytics.org/company/nestle.php (accessed March 17, 2010); and Nestle website, http://www .nestle.com (accessed March 17, 2010).

34. Debra Sparks, “Partners,” BusinessWeek, Special Report: Corporate Finance, October 25, 1999, 106–112.

35. David Lei and John W. Slocum, Jr., “Global Strategic Alliances: Payoffs and Pitfalls,” Organizational Dynamics, 19, no. 3 (Winter 1991), 17–29.

36. Vanessa O’Connell, “Department Stores: Tough Sell Abroad,” The Wall Street Journal, May 22, 2008, B1.

37. Paul W. Beamish and Nathaniel C. Lupton, “Managing Joint Ventures,” Academy of Management Perspectives, 23, no. 2 (May 2009), 75–94; Stratford Sherman, “Are Strategic Alliances Working?” Fortune, September 21, 1992, 77–78; and David Lei, “Strategies for Global Competition,” Long- Range Planning 22 (1989), 102–109.

254 Part 3: Open System Design Elements

38. Cyrus F. Freidheim, Jr., The Trillion-Dollar Enterprise: How the Alliance Revolution Will Transform Global Business (New York: Perseus Books, 1998).

39. Pete Engardio, “Emerging Giants,” BusinessWeek, July 31, 2006, 40–49.

40. Eric Bellman and Kris Hudson, “Wal-Mart to Enter India in Venture,” The Wall Street Journal, November 28, 2006, A3.

41. Neha Thirani Bagri, “Wal-Mart Drops Ambitious Expansion Plan for India,” The Wall Street Journal, October 20, 2013, B3.

42. Shelly Banjo, “Japan Ready for Wal-Mart,” The Wall Street Journal, September 28, 2012, B6.

43. Laurie Burkitt, “USA Inc., a Division of China Corp.,” The Wall Street Journal, May 31, 2013, B1; and Joel Backaler, “What the Shuanghui-Smithfield Acquisition Means for Chinese Overseas Investment,” Forbes, November 5, 2013, http://www.forbes.com/sites/joelbackaler/2013/11/05/what -the-shuanghui-smithfield-acquisition-means-for-chinese -overseas-investment/ (accessed March 18, 2014).

44. Burkitt, “USA Inc., A Division of China Corp.” 45. C.K. Prahalad and Hrishi Bhattacharyya, “Twenty Hubs

and No HQ,” Strategy + Business (February 26, 2008), http://www.strategy-business.com/article/08102?gko=8c379 (accessed July 25, 2009).

46. The discussion of these challenges is based on Bartlett and Ghoshal, Transnational Management.

47. Phred Dvorak, “Why Multiple Headquarters Multiply,” The Wall Street Journal, November 19, 2007, B1.

48. Amol Sharma and Jessica E. Vascellaro, “Google and India Test the Limits of Liberty,” The Wall Street Journal, January 4, 2010, A16.

49. Peter Koudal and Gary C. Coleman, “Coordinating Operations to Enhance Innovation in the Global Corporation,” Strategy & Leadership 33, no. 4 (2005), 20–32; and Steven D. Eppinger and Anil R. Chitkara, “The New Practice of Global Product Development,” MIT Sloan Management Review 47, no. 4 (Summer 2006), 22–30.

50. Yves Doz and Keeley Wilson, “Leading Ideas: Overcoming the Global Innovation Trade-Off,” Strategy + Business 69 (Winter 2012), http://www.strategy-business.com/article/00145?pg=all (accessed March 18, 2014).

51. David W. Norton and B. Joseph Pine II, “Unique Experiences: Disruptive Innovations Offer Customers More ‘Time Well Spent,’ ” Strategy & Leadership 37, no. 6 (2009), 4; and “The Power to Disrupt,” The Economist, April 17, 2010, 16.

52. Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting Itself,” Harvard Business Review, October 2009, 3–11; C.K. Prahalad and Hrishi Bhattacharyya, “How to Be a Truly Global Company,” Strategy + Business 64 (Autumn 2011), http://www.strategy -business.com/article/11308?pg=all (accessed March 19, 2014); Daniel McGinn, “Cheap, Cheap, Cheap,” Newsweek.com, January 21, 2010, http://www.newsweek.com/2010/01/20 /cheap-cheap-cheap.html (accessed September 3, 2010); and Reena Jana, “Inspiration from Emerging Economies,” BusinessWeek, March 23 & 30, 2009, 38–41.

53. Jeffrey Immelt, quoted in Vijay Govindarajan and Chris Trimble, “Reverse Innovation: Is It in Your Strategic Plan?” Leadership Excellence, May 2012, 7.

54. P. Ingrassia, “Industry Is Shopping Abroad for Good Ideas to Apply to Products,” The Wall Street Journal, April 29, 1985, A1.

55. John W. Miller, “Indiana Steel Mill Revived with Lessons from Abroad,” The Wall Street Journal, May 21, 2012, A1.

56. Based on Gupta and Govindarajan, “Converting Global Presence into Global Competitive Advantage”; Yves Doz and Keeley Wilson, “Leading Ideas: Overcoming the Global Innovation Trade-Off,” Strategy + Business 69 (Winter 2012), http://www.strategy-business.com/article/00145?pg=all (accessed March 18, 2014); Giancarlo Ghislanzoni, Risto Penttinen, and David Turnbull, “The Multilocal Challenge: Managing Cross-Border Functions,” The McKinsey Quarterly, March 2008, http://www.mckinseyquarterly .com/The_multilocal_challenge_Managing_cross-border _functions_2116 (accessed August 11, 2011); and Bert Spector, Henry W. Lane, and Dennis Shaughnessy, “Developing Innovation Transfer Capacity in a Cross- National Firm,” The Journal of Applied Behavioral Science 45, no. 2 (June 2009), 261–279.

57. Kenichi Ohmae, “Managing in a Borderless World,” Harvard Business Review, May–June 1989, 152–161.

58. Paloma Almodóvar Martínez and José Emilio Navas López, “Making Foreign Market Entry Decisions,” Global Business and Organizational Excellence, January–February 2009, 52–59.

59. Choe Sang-Hun, “Wal-Mart Selling Stores and Leaving South Korea”; and Constance L. Hays, “From Bentonville to Beijing and Beyond,” The New York Times, December 6, 2004, C6.

60. Conrad de Aenlle, “Famous Brands Can Bring Benefit, or a Backlash,” The New York Times, October 19, 2003, Section 3, 7.

61. Cesare R. Mainardi, Martin Salva, and Muir Sanderson, “Label of Origin: Made on Earth,” Strategy + Business 15 (Second Quarter 1999), 42–53; and Joann S. Lublin, “Place vs. Product: It’s Tough to Choose a Management Model,” The Wall Street Journal, June 27, 2001, A1, A4.

62. Mainardi, Salva, and Sanderson, “Label of Origin.” 63. Prahalad and Bhattacharyya, “How to Be a Truly Global

Company.” 64. William Mellor, “Local Menu, Managers Are KFC’s

Secret in China,” The Washington Post, February 12, 2011, http://www.washingtonpost.com/wp-dyn/content /article/2011/02/12/AR2011021202412.html (accessed February 13, 2011); and Julie Jargon and Laurie Burkitt, “KFC’s Crisis in China Tests Ingenuity of Man Who Built Brand,” The Wall Street Journal, January 12, 2014, http:// online.wsj.com/news/articles/SB10001424052702303754404 579312681624114274 (accessed March 19, 2014).

65. José Pla-Barber, “From Stopford and Wells’s Model to Bartlett and Ghoshal’s Typology: New Empirical Evidence,” Management International Review 42, no. 2 (2002), 141–156.

66. Sumantra Ghoshal and Nitin Nohria, “Horses for Courses: Organizational Forms for Multinational Corporations,” Sloan Management Review 34, no. 2 (Winter 1993), 23–35; and Roderick E. White and Thomas A. Poynter, “Organizing for Worldwide Advantage,” Business Quarterly, Summer 1989, 84–89.

Chapter 6: Designing Organizations for the International Environment 255

67. Robert J. Kramer, Organizing for Global Competitiveness: The Country Subsidiary Design (New York: The Conference Board, 1997), 12.

68. Laura B. Pincus and James A. Belohlav, “Legal Issues in Multinational Business: To Play the Game, You Have to Know the Rules,” Academy of Management Executive 10, no. 3, 1996, 52–61.

69. Toshiro Wakayama, Junjiro Shintaku, and Tomofumi Amano, “What Panasonic Learned in China,” Harvard Business Review, December 2012, 109–113.

70. John D. Daniels, Robert A. Pitts, and Marietta J. Tretter, “Strategy and Structure of U.S. Multinationals: An Exploratory Study,” Academy of Management Journal 27 (1984), 292–307.

71. Hay Group Study, reported in Mark A. Royal and Melvyn J. Stark, “Why Some Companies Excel at Conducting Business Globally,” Journal of Organizational Excellence, Autumn 2006, 3–10.

72. Robert J. Kramer, Organizing for Global Competitiveness: The Product Design (New York: The Conference Board, 1994).

73. Robert J. Kramer, Organizing for Global Competitiveness: The Business Unit Design (New York: The Conference Board, 1995), 18–19.

74. Tina C. Ambos, Bodo B. Schlegelmilch, Björn Ambos, and Barbara Brenner, “Evolution of Organisational Structure and Capabilities in Internationalising Banks,” Long Range Planning 42 (2009), 633–653; “Divisions,” UniCredit website, http://www.unicreditgroup.eu/en/Business/Strategic_Business _Areas.htm (accessed August 10, 2011); and “Organizational Model,” UniCredit website, http://www.unicreditgroup.eu/en /Business/Organizational_structure.htm (accessed August 10, 2011).

75. John Jullens, “How Emerging Giants Can Take on the World,” Harvard Business Review, December 2013, 121–125.

76. Carol Matlack, “Nestlé Is Starting to Slim Down at Last; But Can the World’s No. 1 Food Colossus Fatten Up Its Profits As It Slashes Costs?” BusinessWeek, October 27, 2003, 56.

77. Robert J. Kramer, Organizing for Global Competitiveness: The Geographic Design (New York: The Conference Board, 1993).

78. Starbucks Corporation 2012 Annual Report, http://www .google.com/url?sa=t&rct=j&q=starbucks%20company%20 structure%202012&source=web&cd=7&ved=0CDUQFjAG &url=http%3A%2F%2Fphx.corporate-ir.net%2FExternal.Fi le%3Fitem%3DUGFyZW50SUQ9NDkxNTE3fENoaWxkSU Q9NTI4OTE2fFR5cGU9MQ%3D%3D%26t%3D1&ei=zvY pU9GmLeWwygH3nYGACg&usg=AFQjCNE7nmyBSaYAZ PruBGBP-Gn6u797Lw (accessed March 19, 2013).

79. Rakesh Sharma and Jyotsna Bhatnagar, “Talent Management—Competency Development: Key to Global Leadership,” Industrial and Commercial Training 41, no. 3 (2009), 118–132.

80. Kramer, Organizing for Global Competitiveness: The Geographic Design, 29–31.

81. Jane XJ. Qiu and Lex Donaldson, “Stopford and Wells Were Right! MNC Matrix Structures Do Fit a ‘High-High’ Strategy,” Management International Review 52 (2012), 671–689.

82. “Group Structure,” ABB website, http://new.abb.com/about /abb-in-brief/group-structure (accessed March 10, 2014); William Taylor, “The Logic of Global Business: An Interview with ABB’s Percy Barnevik,” Harvard Business Review, March–April 1991, 91–105; Carla Rappaport, “A Tough Swede Invades the U.S.,” Fortune, January 29, 1992, 76–79; Raymond E. Miles and Charles C. Snow, “The New Network Firm: A Spherical Structure Built on a Human Investment Philosophy,” Organizational Dynamics 23, no. 4 (Spring 1995), 5–18; and Manfred F.R. Kets de Vries, “Making a Giant Dance,” Across the Board, October 1994, 27–32.

83. Ambos et al., “Evolution of Organisational Structure and Capabilities in Internationalising Banks”; and “Organizational Structure Map,” UniCredit website, http:// www.-nicreditgroup.eu/ucg-static/downloads/-Organizational _structure_map.pdf (accessed August 10, 2011).

84. Hae-Jung Hong and Yves Doz, “L’Oréal Masters Multiculturalism,” Harvard Business Review, June 2013, 114–199; and Prahalad and Bhattacharyya, “How to Be a Truly Global Company.”

85. Vijay Govindarajan and Anil K. Gupta, “Building an Effective Global Business Team,” MIT Sloan Management Review 42, no. 4 (Summer 2001), 63–71.

86. Charlene Marmer Solomon, “Building Teams Across Borders,” Global Workforce, November 1998), 12–17.

87. Charles C. Snow, Scott A. Snell, Sue Canney Davison, and Donald C. Hambrick, “Use Transnational Teams to Globalize Your Company,” Organizational Dynamics 24, no. 4 (Spring 1996), 50–67.

88. Robert Guy Matthews, “Business Technology: Thyssen’s High-Tech Relay—Steelmaker Uses Computer Networks to Coordinate Operations on Three Continents,” The Wall Street Journal, December 14, 2010, B9.

89. Benson Rosen, Stacie Furst, and Richard Blackburn, “Overcoming Barriers to Knowledge Sharing in Virtual Teams,” Organizational Dynamics 36, no. 3 (2007), 259–273.

90. Gupta and Govindarajan, “Converting Global Presence into Global Competitive Advantage”; and Nadine Heintz, “In Spanish, It’s Un Equipo; in English, It’s a Team; Either Way, It’s Tough to Build,” Inc., April 2008, 41–42.

91. Richard Pastore, “Global Team Management: It’s a Small World After All,” CIO, January 23, 2008, http://www.cio .com/article/174750/Global_Team_Management_It_s_a _Small_World_After_All (accessed May 20, 2008).

92. Hong and Doz, “L’Oréal Masters Multiculturalism.” 93. Robert J. Kramer, Organizing for Global Competitiveness:

The Corporate Headquarters Design (New York: The Conference Board, 1999).

94. Wakayama, Shintaku, and Amano, “What Panasonic Learned in China.”

95. Ghislanzoni et al., “The Multilocal Challenge.” 96. Based on Christopher A. Bartlett and Sumantra Ghoshal,

Managing Across Borders: The Transnational Solution, 2nd ed. (Boston: Harvard Business School Press, 1998), Chapter 11, 231–249.

97. See Jay Galbraith, “Building Organizations Around the Global Customer,” Ivey Business Journal, September–October 2001, 17–24, for a discussion of both formal and informal lateral networks in multinational companies.

256 Part 3: Open System Design Elements

98. This section and the BP examples are based on Morten T. Hansen and Nitin Nohria, “How to Build Collaborative Advantage,” MIT Sloan Management Review 46, no. 1 (Fall 2004), 22ff.

99. Peter Gumbel, “Big Mac’s Local Flavor,” Fortune, May 5, 2008, 114–121.

100. Sumantra Ghoshal and Christopher Bartlett, “The Multinational Corporation as an Interorganizational Network,” Academy of Management Review 15 (1990), 603–625.

101. Royston Greenwood, Samantha Fairclough, Tim Morris, and Mehdi Boussebaa, “The Organizational Design of Transnational Professional Service Firms,” Organizational Dynamics 39, no. 2 (2010), 173–183.

102. The description of the transnational organization is based on Bartlett and Ghoshal, Transnational Management and Managing Across Borders.

103. Bettina Wassener, “Living in Asia Appeals to More Company Leaders,” The New York Times, June 21, 2012, B3; Nirmalya Kumar and Phanish Puranam, “Have You Restructured for Global Success?” Harvard Business Review, October 2011, 123–128; and Dvorak, “Why Multiple Headquarters Multiply.”

104. Royal and Stark, “Why Some Companies Excel at Conducting Business Globally.”

105. Based on Timo O.A. Lehtinen, Mika V. Mäntylä, and Jari Vanhanen, “Development and Evaluation of a Lightweight Root Cause Analysis Method (ARCA Method): Field Studies at Four Software Companies,” Information and Software Technology 53 (2011), 1045–1061; and Walter Kuemmerle, “Go Global—Or No?” Harvard Business Review, June 2001, 37–49.