Organization of Multinational
Operations
Ellen Devlin
International Management 446
April 19, 2011
Class 4
Organization of MNC’s Operations
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.
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)
Type of Organization Structure?
CEO
HRM Finance Manu. Mktg R&D
Type of Organization Structure?
CEO
West SW South Midwest East
Region Region Region Region Region
Organization of MNC’s Operations
Organizing is really re-organizing
influenced by many factors...
EXERCISE: DISCUSS IN GROUPS OF THREE(p. 408-412)
Left side-External
Right 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?
Development of International
Corporate Structure….It’s a process!
Two major factors influence
development:
From Simple to Complex (size)
From Domestic Orientation to Global
Perspective (global presence)
Development of International
Corporate Structure: Where is your
company?
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
MNC Corporate Structure
Evolution
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
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.
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.
MNC Corporate Structure
(see figure 8.2, page 419)
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
The Geographic Division
The Product Division
The Functional Structure
Mixed and Matrix Forms
The geographic division allows for the most
local responsiveness. Why?
Geographic Division Structure
(Figure 8.3) is the most common structure
CEO
Headquarters Staff
European North American South American
Division Division Division
Advantages Disadvantages
Regional economies of scale Not good for firms
Treatment of subsidiaries w/diverse product ranges
as profit centers. (bad for coordination
Good when regional between product lines).
customers are similar. Coordination at corporate
Tend to be useful in mature level suffers.
businesses w/narrow Rivalry among regions.
product lines. Duplication of
Permits large resources/plants.
manufacturing plants in low Difficulty transferring new
cost regional countries. technology and product
Autos, beverages, food, ideas across
pharmaceuticals….e.g., regions/strong regional
Nestle managers.
Product Division Structure
Figure 8.4 (page 426)
CEO
Headquarters Staff
Product Group A Product Group B Product Group C
Advantages Disadvantages
Good for firms w/diverse May result in wasteful
product lines (often) w/hi duplication of plants and sales
technology content and personnel.
different end users. Customers may be interacting
Permits fast diffusion of with many representatives
technology across a product from the company.
line/simultaneous intro of Limited voice to local
product across the world. managers on needed
Good when local adaptations.
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
International Function Structure
Figure 8.5
CEO
R&D Marketing Manufacturing Finance
(Worldwide) (Worldwide) (Worldwide) (Worldwide)
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.
International Mixed Structure
Figure 8.6 (page 429)
CEO
Product A Product B European
USA Division
(Worldwide, (Worldwide, Division
except US except US
and Europe and Europe
Matrix Organization
Nike Matrix Organization
(before 2009 Financial Crisis)
Corporate R
Functions: USA e
Europe Asia/ The
HR/ g Pacific Americas
Finance/ i
IT/Etc. o
Product Type n
Footwear s
Apparel
Equipment
Nike Matrix Organization(Post 2009 Financial Crisis)
Why did they change? External factor? Internal factor?
Corporate Geographic Locations
Functions: North Western Eastern China Japan Emerging
America Europe Europe Markets
HR/
Finance/
IT/Etc.
Categories
Running
Soccer
Basketball
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.
Large Flows of Components, Products, Resources
and Information among the network
Complex Process of Coordination and
Cooperation
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.