International Business
Sixteenth Edition, Global Edition
Chapter 9
The Organization and
Governance of
Foreign Operations
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Learning Objectives (1 of 2)
16-1 Profile the evolving idea of organization in the MNE
16-2 Interpret classical organization structures
16-3 Interpret neoclassical organization structures
16-4 Differentiate the systems used to coordinate
international activities
16-5 Differentiate the systems used to control
international activities
16-6 Explain the purpose and characteristics of
organizational culture
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Organizing International Business
Operations
▪ A well-defined organizational structure is usually
already in place for many international companies.
– Changes in the internal or external environment, the
decision to expand operations globally, or changes in
existing strategies often create the need for either a
new structure or at least an adaptation of the existing
structure.
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Organizational Structure
• Numerous forms of organizational structure can
be employed by international businesses.
• A company that engages solely in international
exporting will have a very different structure than
that of a truly multinational corporation.
• The important task for managers is to select and
install the organizational structure that most
effectively and efficiently enables the firm to reach
its international marketing goals.
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Direct Exporting Structure
• A simple structure often used by businesses new to
international business supports direct exporting.
– In this form of structure, international orders are shipped
to customers from the company either directly or through
an intermediary.
• The responsibility for the exporting function, along with
responsibility for international sales, falls within the marketing
function.
• It will be difficult for a firm to continue with a direct exporting
form of structure when international sales begin to account
for a relatively large portion of revenue.
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Direct Exporting
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Region-Based Organization
• A truly global organization may choose to have
distinct office locations, and strategic business
units in each specific region served, i.e., a region-
based organization.
– It offers the advantage of allowing the company to be
responsive to local market differences while presenting
a relatively simple organizational structure with clear
lines of authority and responsibility.
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Region-Based Organization
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Functional Structure
• The functional structure arranges the workplace
by business functions (i.e., production people
work with production people, marketing people
work with marketing people, finance people work
with finance people).
Limits: Horizontally differentiating people and
processes by business function constrains the
development of cross-functional knowledge-
generating and decision-making relationships.
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Cont’d…
• A functional organization is a common type of
organizational structure in which the organization is divided
into smaller groups based on specialized functional areas,
such as IT, finance, or marketing.
• Functional departmentalization arguably allows for greater
operational efficiency because employees with shared
skills and knowledge are grouped together by function.
• A disadvantage of this type of structure is that the different
functional groups may not communicate with one another,
potentially decreasing flexibility and innovation.
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Functional Structure
Figure 16.2 The Functional Structure
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Divisional Structure
▪ Divisional structures divide employees based on
the product type, customer segment, or
geographical location,
▪ It duplicate functions and resources across
divisions.
▪ The international division is charged with directing
value activities outside of the home market
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Divisional Structure
International Division Structure
▪ A MNE prefers this format when its international
activities represent a small share of its total
activity.
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Divisional Structure
Figure 16.3 The International Division Structure
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Example
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Divisional Structure
Worldwide Product Division
• The product division format is the most widely
used structure among MNEs.
• Its usefulness follows from the fact that many
MNEs make and sell a broad portfolio of similar
products based on overlapping competencies in
multiple markets.
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Example
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Divisional Structure
Worldwide Area Division Structure
• An MNE uses geographic divisions when its sales are not
dominated by a single country or region
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Matrix Structure
• A global matrix structure horizontally differentiates the MNE
along two dimensions; those dimensions are geography and
product.
• This structure requires managers from both divisions to
negotiate mutually agreeable plans.
• Operationally, the matrix format means that a manager
running a subsidiary now has two bosses: one represents the
product side, the other represents the geographic domain.
• Since the matrix structure assigns equal authority to the
product and area managers, both must work together to set
relationships, coordinate resources, and share rewards.
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Matrix Structure
Figure 16.6 The Matrix Structure
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