International Business

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Chapter 10 The Organization of Global Business

Introduction to Global Business

Discuss the concept of stateless corporations.

Describe the importance of organizational structures for global businesses.

Discuss the role that export departments and international divisions play in the organization of global businesses.

Define functional, divisional, hybrid, and matrix structures, and illustrate their advantages and disadvantages for global business.

After studying this chapter, you should be able to:

The Stateless Corporation

Stateless corporation

A new phase in the evolution of the multinational corporation, where work is sourced wherever it is most efficient and the corporation transcends nationality altogether

Is a stateless corporation a realistic possibility?

To which government or international organization could a stateless corporation properly appeal for assistance if its assets are expropriated by a particular country?

Evolution of the Stateless Corporation

Stage 1

Stage 2

Stage 3

Stage 4

Global companies produce goods in one country and export them to other countries

Global businesses establish foreign subsidiaries to handle exports from their home countries

Global firms set up operations in other countries

Stateless firms locate core func-tions and top exec-utives in different countries to achieve compet-itive advantage via access to talent, capital, low costs, or proximity to im-portant customers

Organizing Global Business

Organization

A tool that people use to coordinate their actions to obtain something they seek or value

Organizational structure

The formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals

Division

A business subunit that consists of a collection of functions or departments that share responsibility for producing a particular product or service

Purposes of Organizational Structure

It allows for activities based upon a division of labor by departmentalization, standardization, and specialization of functions and tasks.

It facilitates coordination and integration of activities through hierarchical supervision, formal rules and procedures, and training and socialization.

It sets the organization’s boundaries and regulates its contacts with its environment and with other organizations.

Export Departments and International Divisions

Organizational structures vary widely around the world.

Early stages of a company’s globalization are represented by export departments and international divisions.

Creating an Export Department

The first step a domestic firm usually takes when entering the global arena is to export some of its products.

This is typically done by one or two sales representatives.

When demand for the export products grows, the number of people needed to handle the job increases as well, leading to the formation of an export department.

EXHIBIT 10.1 AN ORGANIZATIONAL STRUCTURE WITH AN EXPORT DEPARTMENT UNDER SALES

International Division

As the volume of exports grows, the export department may become an international division.

An international division is advantageous because

It permits global businesses to concentrate all international efforts and expertise in one location.

It signals to international customers their importance to the company.

It fosters a global mindset in those who work within the division.

It facilitates designing products that cater to local tastes of overseas cultures.

EXHIBIT 10.2 AN ORGANIZATIONAL STRUCTURE WITH AN INTERNATIONAL DIVISION

EXHIBIT 10.3 THE ORGANIZATIONAL STRUCTURE OF WALMART

International Division (continued)

Disadvantages of an international division

Potential conflict between domestic and international operations

Drawbacks that arise from separating domestic and international operations:

Lack of communication and coordination

Prevention of the design of products with both domestic and international appeal

Problems in sharing core competencies and knowledge

Complications in capturing learning-curve savings from consolidating production in manufacturing plants around the world

Organizational Structures for Global Business

Functional Structure

Groups people together because they hold similar positions, perform similar tasks, or use the same kinds of skills

Divisional Structure

Groups functions together to serve the needs of products, markets, or geographical regions

Hybrid Structure

A combination of different organizational structures

Matrix Structure

Groups people simultaneously by function and by division

Functional Structure

Most domestic firms start with a functional structure.

Businesses that use a functional structure typically have a narrow product line or a highly integrated product mix.

Advantages of the functional structure:

Promotes economies of scale

Promotes in-depth employee skill development

Encourages collaboration, efficiency, and quality within the function

Disadvantages of the functional structure:

Inability to respond to environmental changes that require coordination between functional areas

Employees have a restricted view of the firm’s primary goals

Accountability is diffused

EXHIBIT 10.4 A FUNCTIONAL ORGANIZATIONAL STRUCTURE FOR A GLOBAL BUSINESS

EXHIBIT 10.5 THE ORGANIZATIONAL STRUCTURE OF BOEING COMMERCIAL AIRPLANES

Divisional Structure

Divisional structure is organized according to various outputs of the global business.

Advantages of divisional structure:

Functions are able to focus their activities on a specific kind of product, market, or geographical region.

Divisions develop a common identity and approach to problem solving.

Divisions can respond to needs of products, markets, or regions and adapt quickly as needs change.

Disadvantages of divisional structure:

Requires high operating and managing costs

Communication problems may arise among division managers.

Divisions may start to compete for organizational resources.

Divisional Structures for Global Business

Groups products into divisions according to their similarities or differences

Product Structure

Groups products into divisions according to the needs of different customers

Market Structure

Groups products into divisions according to the needs of the different geographical regions the company serves

Geographical Structure

EXHIBIT 10. 6 A DIVISIONAL STRUCTURE FOR A GLOBAL BUSINESS WITH THREE DIVISIONS

EXHIBIT 10.7 A PRODUCT STRUCTURE FOR A GLOBAL BUSINESS WITH FOUR PRODUCT DIVISIONS

EXHIBIT 10.8 A MARKET STRUCTURE FOR A GLOBAL BUSINESS WITH THREE MARKET DIVISIONS

EXHIBIT 10.9 A GEOGRAPHICAL REGIONAL STRUCTURE FOR A GLOBAL BUSINESS WITH THREE DIVISIONS

Hybrid Structure

As global businesses grow, they sometimes adopt a combination of organizational structures that best fit their needs, called a hybrid structure.

Global businesses with hybrid structures are organized by more than one dimension at the top level.

EXHIBIT 10.10 A GLOBAL BUSINESS WITH A HYBRID STRUCTURE

Matrix Structure

Matrix structure is useful in special cases, when a company may need to coordinate across demands of function, products, and geographical locations.

Advantages of the matrix structure:

Allows the company to meet multiple demands from the environment; resources can be flexibly allocated.

Facilities innovation and creativity.

Disadvantages of the matrix structure:

Determining responsibility and authority relationships can be problematic.

There is role ambiguity by design.

Opportunities for promotion are limited because employees move laterally from division to division.

EXHIBIT 10.11 A GLOBAL BUSINESS WITH A MATRIX STRUCTURE

stateless corporation

organization

organizational structure

division

functional structure

divisional structure

product structure

market structure

geographical region structure

hybrid structure

matrix structure

Key Terms