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Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

Introduction
 Once an organization decides to go
international, it must begin to implement
the decision.
 Some companies do so by simply shipping
their goods to a foreign market and having
a third party handle sales activates.

Organizational structures
 The strategy sets forth the plan of Action,
but the structure is critical in ensuring that
the desired goals are met efficiently.
 Arrangement, and a number of factors will
influence this choice, for example, firms
that are just getting into the international
arena are likely to choose a structure that
differs from that of firm’s seasoned
overseas operations. Conversely,
companies that use their structures as
worldwide sales organizations will have a
different arrangement from those that
locally manufacture and sell goods in
various international markets.
 If a structure is proving to be unwieldy or
inefficient, it will be scrapped in favor of
one the addresses these problems.

Early organizational structures


 Firm’s primary focus continues to be the
local market, and international involvement
is of secondary importance.
Steps to address this growth structurally.
One way is by having the marketing department
handle international sales.
 All overseas operations are coordinated
through this department; and if sales
warrant it, some of the salespeople will
handle international transactions
exclusively.
 Company develops marketing specialists
who learn the specific needs and
marketing techniques to employ in
overseas selling.
 Alternative arrangement is to create an
export department.

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

 Report directly to the chief executive


officer {CEO}
If the department operates independently of the
marketing department
 It is either staffed by in-house marketing
people whose primary focus is on the
international market or it is operated by an
outside export management company that
is hired for the purpose of providing
The company with an international arm.
 MNEs planning to increase their
international presence must ensure the
export department is a full-fledged
marketing department and just a sales
organization.
 Another possible arrangement is the use of
overseas subsidiaries individual ventures
in various geographic locales head of the
venture is given a great deal of autonomy
and reports directly to the CEO.
 Subsidiary shows sufficient profit,

The international division


Provides a number of advantages.
 One is that it reduces the CEO’s burden of
direct operation of overseas subsidiaries
and domestic operation.
 second benefit of this structure is that it
raises the status of overseas operations to
that of the domestic divisions.
Some Significant drawbacks.
 One is that separating operation into two
categories, domestic and international, can
create on the home office to think in global.
 Terms and to allocate resources based on
overall market opportunity.

International division structure:


An organizational arrangement in which all
international operations are centralized in one
division

Global organizational structures


 MNEs generate more and more revenues
from their overseas operation, their
strategies become more global in focus and

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

the structures used to implement these


strategies domestic markets are small,
theses companies have traditionally had
global structures.
 In all, there are six basic types:
1. global product,
2. global area,
3. global function,
4. mixed,
5. matrix, and
6. Transnational network.

Global product structure


 In this arrangement each product division sells
its output throughout the world.
 This arrangement employs a product division
structure that relies on the “profit center”
concept.
 Each product line is expected to generate a
predetermined return on investment (ROL), and
the performance of each line is measured on this
profit basis.

Number of benefits associated with a global


product division structure.
 Firm produces a large number of diverse
products; the structure allows each major
product line to focus on the specific needs of its
customers.
 Difficult to achieve if the company were trying to
sell these products out of one centralized
marketing department.
 Develop experienced, well-trained managers
who understand a product line.
 A third benefit of the product structure is that it
helps the company to match its marketing
strategy to the specific needs of the customer.
 Product structure also helps the organization to
establish and maintain the necessary link
between the product development people and
the customer.
 By continually feeding back information from the
field to the home office, the product division
personnel ensure that new product offerings
meet consumer needs.

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

Drawbacks to the product division arrangement.


 One is the necessity of duplicating facilities and
staff personnel within each division.
 second is that products that sell well are often
given primary attention and those that need
special handling or promotion are often
sidetracked, even though this may result in the
long run loss of profit.
 Third is that an effective product division
requires manager’s tanagers that are
knowledgeable about the worldwide demand for
their products.
 Fourth shortcoming is the difficulty of
coordinating the activities of different product
divisions.
 Finally, lack of cooperation among the various
product lines a result in lost sales, given that
each division may have information that can be
of value to the other.

Global product structure:


an organizational arrangement in which domestic
divisions are given worldwide responsibility for
product groups
Global area structure:
An organizational arrangement in which primary
operational responsibility is delegated to area
managers, each of whom is responsible for a
specific geographic region

Polycentric (host-country-oriented) structure.


 Under this arrangement each regional
division is responsible for all functions
within its area that is production,
marketing, personnel, and finance.
 With a global product arrangement, each
product division is responsible for its
output throughout the world.
 With a global area structure, on the other
hand, the individual product lines are
subsumed within each of the geographic
areas.
Global area structure is commonly used by MNEs
that are in mature businesses and have narrow
product lines that are differentiated by geographic
area.

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

 Global area structure provides division


managers with the autonomy to make rapid
decisions that depend on local tastes and
regulations;
 Company gains a wealth of experience
regarding how to satisfy these local tastes
and, in the process, often builds a strong
competitive advantage.
 The global area structure works well where
economies of scale in production require a
region-sized unit for basic production.
 Finally, under this structure the company
can eliminate costly transportation
associated with importing goods produced
overseas.
Area structure (the opposite viewpoint holds);
The product must be adapted to the local tastes.
 But this means that the usual product
emphasis in a company must be subsumed
to the company’s geographic orientation
and the authority of the area managers.
 Another shortcoming with this
organization structure is the expense
associated with duplicating facilities.
 Companies using global area division
structure also find it difficult to coordinate
geographically dispersed divisions into the
overall strategic plan.
 Finally, companies that rely heavily on
R&D to develop new products often find
that the global area divisions do not readily
accept these offerings.

Global function structure


Global functional structure: an organizational
arrangement in which all area of activity are built
around the enterprise

 Manufacturing firms’ production,


marketing, and finance are the three
primary functions that must be carried out
for the enterprise to survive.
 This arrangement the head of the
production department is responsible for
all domestic and international
manufacturing.

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

 The head of marketing responsible for the


sales of all products here and abroad.
Advantages
 A primary advantage of the global
functional structure is that it allows a small
group of managers to maintain control over
a wide-reaching organization.
 A second advantage is that there is little
duplication of facilities.
 Finally, the structure allows tight,
centralized control.
Disadvantage
 A disadvantage of this structural
arrangement is that it can be difficult to
coordinate the production and marketing
areas since each operates independently of
the other.
 A second disadvantage is that
responsibility for profits rests primarily
with the CEO because there is little
diffusion of operating authority far down
the line.

Mixed structure
A hybrid organization design that combines
structural arrangement in a way that best meets the
needs of the enterprise
Matrix structure
An organization that blends two organizational
responsibilities such as functional and product
structures or regional and product structures
 The functional emphasis provides attention
to the activities to be performed, whereas
the product emphasis provides attention to
the good that is being produced.
 This structure is characterized by a dual
command system that emphasizes both
inputs (functions) and outputs (products).
Three types of managers in this geocentric matrix
structure:
1. Regional managers, 2. Product managers, 3.
And matrix managers.
Regional managers in a geocentric matrix,
managers charged with selling products in their
geographic locale

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

Product managers: managers responsible for


coordinating the efforts o f their people in such a
way as to ensure the profitability of a particular
business or product line
Matrix managers
Managers responsible for coordinating the efforts
or people in a corporate organization, for example,
in a matrix structure

 Budgets for these operations include


selling any of the products made by the
MNE, subject to the decision of each
regional manager.
 These regional managers have a
polycentric focus.
 Product managers are responsible for
coordinating these managers have an
ethnocentric attitude.
 The matrix managers are responsible to
both regional and product managers-they
have two bosses.
 Matrix organizational arrangement can be
used to coordinate and mange wide-
reaching international operations.

Resource managers are charred with


providing the people for operations, whereas
business managers are responsible for
coordinating the people to make profits for
the product line.
 The resource managers are concerned with
inputs:

The business managers are concerned with


output.

Matrix design in figure 9.9 is sometimes referred to


as a three-dimensional model because, when it is
drawn, it has width, height, and depth.
Multidimensional matrix addresses three major
areas:
1. function, 2. Product, 3. And geography.

Advantages
 One of the major advantages of the
multinational matrix is that it allows man

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

agent to address more than one primary


area of consideration.
 The company is able to focus on functional,
product, and geographic consideration.
Number of drawbacks to the use; of the matrix
structure in international operations.
 One is the complexity of the design and the
use of dual command.
 Result in confusion regarding what
everyone is the responsible for doing and
to whom one reports on various matters.
 Second drawback is the large number of
meetings and discussions that often result
from efforts to coordinate a variety of
different groups, each with its own agenda.
 third is that it often takes time for managers
to learn to operate in a matrix structure
and, if the enterprise has rapid turnover,

Making matrix work (three important criteria)


All three achieved matrix works well; if one or more
missing the structural design is often ineffective
1. clarity : refers to how will people
understands what they are doing and why they
are doing it
2. continuity: the company remains committed
to the same core objectives and values
3. consistency: relates to how well all parts of
the organization are moving in accord with
each other

Transnational network structure


An organization design, which helps MNEs take
advantage of global, while also being responsive to
local customer demands; consists of three
components:
1. dispersed subunits, 2. Specialized operations 3.
Interdependent relationships

Strategic management and organizing strategy


Determining the best structure, three questions
must be answered
1. Can the company operate efficiently with
domestic divisions or are international
divisions also necessary?

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

2. On what basis should the organization be


structured: product, area, function, mixed, or
matrix?
3. How the necessary coordination and
cooperation; most effectively achieved?

Analysis of key structural variables


Answers determined through a careful analysis of
five key variables
1. evaluate the relative importance of
international operations at the present time and
project what the situation might be within three
to five years
2. take into account its past history and
experience in he international arena
3. company’s business and product strategy
4. managements philosophy of operating
5. enterprises ability to adjust to organizational
changes

Organizational processes
Structure is designed to answer the question: what
is to be done?
 The organizational process
 Decision making
 Communicating
 And controlling

Decision making:
The process of choosing from among alternatives
Centralized decision making in overseas operations
such as marketing, policies, financial matters, and
decisions on production capacity
Ringsei or decision making by consensus:
This process is widely used in Japan
MNEs work to increase economies of scale and to
attain higher operational efficiency through
outsourcing, thus simplifying their structures and
delegating the authority for some operations to
their suppliers

Communication
The process of transferring meanings from sender
to receiver

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Organizing Strategy Chapter # 9 (page 241-267).

Kinesics: a from of non-verbal communication


which deals with conveying information through the
use of body movement and facial expression
Proximal: a form of non-verbal communication,
which deals with how people use physical space to
convey messages

Organizational epigrams (9.11)

Controlling
The process of deterring that everything goes
according to plan
This process is to reward performance and it
consists of three steps:
1. establishing standards
2. comparing performance against standards,
3. correcting deviations

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Alan M. Rugman, Richard M. Hodgetts

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