Organization of Multinational

Operations

Ellen Devlin

International Management 446April 19, 2011

Class 4

Definition: Designing a structure that explains the nature and extent of formal relationships among various internal components.

Allows for distribution of power among the organization’s members.

Establishes formal communication lines. Tool for attainment of a MNC’s goals.

Organization of MNC’s Operations

Building an org. structure? Four Basic Questions must be answered:

What should the units of the organization be? Which components should be joined, and which

should be kept apart? What size and shape pertain to the different

components? What is the appropriate placement of and

relationship between different units?

NOTE: Organizational Design may become the responsibility of all managers at some point in their career.

Departmentalization: Clustering of activities.

TASKS

JOBS

DEPARTMENTS

BUSINESS UNITS

CORP.STRUC.

Departmentalization: Clustering of activities

Six bases…. Knowledge and skill (Engineering department) Work Process and Function (Supply Chain, HR, Finance) Time (shifts in factory) Output (Products/Services) Client (Customer or supplier) Place (Geographic)

Two Most Common Forms Geographic (where) Functional (what)

CEO

HRM Finance Manu. Mktg R&D

Type of Organization Structure?

CEO

SW Region

South Region

Midwest Region

East Region

Type of Organization Structure?

West Region

Organizing is really re-organizing influenced by many factors...

EXERCISE: DISCUSS IN GROUPS OF THREE(p. 408-412)

Left side-ExternalRight side-Company.

External Forces What are they? Which one is the most important? Why should you care?

Company Factors What are the factors? Give a company example What does structure follow?

Organization of MNC’s Operations

Two major factors influence development: From Simple to Complex (size) From Domestic Orientation to Global

Perspective (global presence)

Development of International Corporate Structure….It’s a process!

Phase 1: International: Introduction Competition is limited to domestic firms. Export International Operations is an extension of domestic.

Phase 2: Multinational: Growth Technology Diffusion and Price Competition- Manufacturing

Facilities in Low-Cost Countries International Division

Phase 3: Global: Maturity Most of The Corporate Revenues Are From Abroad

Organize Operations on a Global Basis

Development of International Corporate Structure: Where is your company?

The Extension of Domestic Structure Export Manager Reports to the Marketing

Executive (Narrow Product Line) Export Manager Reports to C.E.O. (Broad

Product Line) Increased Competition and Market

Maturity-- Local Manufacturing

MNC Corporate Structure Evolution

The Transition: Autonomous Foreign Subsidiary

( Distributor) Distant Operations Are Given Local

Decision-Making Control Through Financial Reporting Foreign Subsidiary May Have Local Board of

Directors Very typical originally with European MNCs, but

also practiced by P&G for a long time.

MNC Corporate Structure

Advantages and Disadvantages Can integrate into local economy and

operate as a local firm = fewer restrictions, take advantage of local resources.

Respond better to local consumers. Have the ear of top management because

of direct report to President/CEO = local prestige.

…and Disadvantages Can end up ignoring the common good

(overall objectives) of the wider corporation.

Can end up duplicating resources (e.g., manufacturing) and causing inefficiencies.

International Division Structure – 60% of all US firms go through this stage….(Owned) Four Factors Prompt The Establishment of

International Division Increased International Involvement -- Require a Senior

Executive Internal Specialists Are Needed A Desire to Be Proactive (Identify Opportunities).

EG Wal-Mart

MNC Corporate Structure (see figure 8.2, page 419)

The Geographic Division The Product Division The Functional Structure Mixed and Matrix Forms

The geographic division allows for the most local responsiveness. Why?

MNC Corporate Structure

CEO

Headquarters Staff

EuropeanDivision

North AmericanDivision

South AmericanDivision

Geographic Division Structure(Figure 8.3) is the most common structure

AdvantagesDisadvantages Regional economies of

scale Treatment of subsidiaries

as profit centers. Good when regional

customers are similar. Tend to be useful in

mature businesses w/narrow product lines.

Permits large manufacturing plants in low cost regional countries. Autos, beverages, food,

pharmaceuticals….e.g., Nestle

Not good for firms w/diverse product ranges (bad for coordination between product lines).

Coordination at corporate level suffers.

Rivalry among regions. Duplication of

resources/plants. Difficulty transferring new

technology and product ideas across regions/strong regional managers.

CEO

Headquarters Staff

Product Group A Product Group B Product Group C

Product Division Structure Figure 8.4 (page 426)

AdvantagesDisadvantages Good for firms w/diverse

product lines (often) w/hi technology content and different end users.

Permits fast diffusion of technology across a product line/simultaneous intro of product across the world.

Good when local manufacturing is favored (e.g., high tariffs) for certain product lines/concentration of key activities in one locale.

Facilitates quick response to global competitive pressures against certain products.

High technology firms (HP); Heinz

May result in wasteful duplication of plants and sales personnel.

Customers may be interacting with many representatives from the company.

Limited voice to local managers on needed adaptations.

CEO

R&D (Worldwide)

Marketing (Worldwide)

Manufacturing(Worldwide)

Finance (Worldwide)

International Function StructureFigure 8.5

Fairly rare (only 10% of US MNCs)…. Mostly used by natural resource extraction

firms (mining, oil). Narrow, standardized product. Technology is relatively stable, but

execution of the functions (e.g., extraction, marketing, finance) are keys to success.

Mixed or Matrix Structure A way of trying to gain the optimum

integration of inputs from regional, functional and product areas.

A normal hierarchy is overlaid by some form of authority, communication, and influence.

CEO

Product A (Worldwide,except US and Europe

USA DivisionEuropeanDivision

Product B (Worldwide,except US and Europe

International Mixed Structure Figure 8.6 (page 429)

Matrix Organization

Nike Matrix Organization (before 2009 Financial Crisis)

CorporateFunctions:HR/Finance/IT/Etc.

Equipment

Apparel

Footwear

USA Europe Asia/Pacific

The Americas

Regions

Product Type

Nike Matrix Organization(Post 2009 Financial Crisis)Why did they change? External factor? Internal factor?

CorporateFunctions:HR/Finance/IT/Etc.

Basketball

Soccer

Running

NorthAmerica

WesternEurope

Eastern Europe

ChinaGeographic Locations

Categories

Japan Emerging Markets

Training

Wm’s Fitness

Sports Culture

Other

Challenges of a matrix…“The Matrix is a state of mind.” HBR

It is an efficient use of specialists and equipment and can improve vertical and lateral communication and information flow.

BUT…..is costly, cumbersome and a lot of work for managers! Wearing two hats, and often leads to tensions. Lots of shared decision making.

e.g. Dow Chemical (now adapted).

Network Model

Suppliers, bankers, manufacturers, customers, etc.

Complex Process of Coordination and Cooperation

Large Flows of Components, Products, Resources and Information among the network

Network model is…. Good for unstable environments where

innovation and quick response are needed – which are increasing!

Has been made possible by the technological advances in communication, which makes coordination among numerous players less costly.

A network is inherently unstable itself.

Next Week Test 1 Group Project Time

BEFORE YOU LEAVE TODAY Piece of Paper-no name

What did I learn today? What is still a little foggy? Other comments.