INTERNATIONAL BUSINESS MANAGEMENT
UNIT 3
Structure of Global Organization
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports
turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports
turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports
turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports
turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports
turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports
turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2
Type # 1.
Expo-documents against acceptancert Department:
Exports are often looked after by a company’s marketing or sales department in the initial stages
when the volume of exports sales is low. However, with increase in exports turnover, an
independent exports department is often setup and separated from domestic marketing, as shown
in Fig. 17.2.
Exports activities are controlled by a company’s home-based office through a designated head of
export department, i.e. Vice President, Director, or Manager (Exports). The role of the HR
department is primarily confined to planning and recruiting staff for exports, training and
development, and compensation.
Sometimes, some HR activities, such as recruiting foreign sales or agency personnel are carried
out by the exports or marketing department with or without consultation with the HR
department.
International Organizational Structures: Type # 2.
International division structure:
As the foreign operations of a company grow, businesses often realize the overseas growth
opportunities and an independent international division is created which handles all of a
company’s international operations (Fig. 17.3). The head of international division, who directly
reports to the chief executive officer, coordinates and monitors all foreign activities.
The in-charge of subsidiaries reports to the head of the international division. Some parallel but
less formal reporting also takes place directly to various functional heads at the corporate
headquarters.
The corporate human resource department coordinates and implements staffing, expatriate
management, and training and development at the corporate level for international assignments.
Further, it also interacts with the HR divisions of individual subsidiaries.
The international structure ensures the attention of the top management towards developing a
holistic and unified approach to international operations. Such a structure facilitates cross-
product and cross-geographic co-ordination, and reduces resource duplication.
Although an international structure provides much greater autonomy in decision-making, it is
often used during the early stages of internationalization with relatively low ratio of foreign to
domestic sales, and limited foreign product and geographic diversity.
International Organizational Structures: Type # 3.
Global Organizational Structures:
Rise in a company’s overseas operations necessitates integration of its activities across the world
and building up a worldwide organizational structure.
While conceptualizing organizational structure, the internationalizing firm often has to
resolve the following conflicting issues:
i. Extent or type of control exerted by the parent company headquarters over subsidiaries
ii. Extent of autonomy in making key decisions to be provided by the parent company
headquarters to subsidiaries (centralization vs. decentralization)
It leads to re-organization and amalgamation of hitherto fragmented organizational interests into
a globally integrated organizational structure which may either be based on functional,
geographic, or product divisions. Depending upon the firm strategy and demands of the external
business environment, it may further be graduated to a global matrix or trans-national network
structure.
Global functional division structure:
It aims to focus the attention of key functions of a firm, as shown in Fig. 17.4, wherein each
functional department or division is responsible for its activities around the world. For instance,
the operations department controls and monitors all production and operational activities;
similarly, marketing, finance, and human resource divisions co-ordinate and control their
respective activities across the world.
Such an organizational structure takes advantage of the expertise of each functional division and
facilitates centralized control. MNEs with narrow and integrated product lines, such as
Caterpillar, usually adopt the functional organizational structure.
Such organizational structures were also adopted by automobile MNEs but have now been
replaced by geographic and product structures during recent years due to their global expansion.
The major advantages of global functional division structure include:
i. Greater emphasis on functional expertise
ii. Relatively lean managerial staff
iii. High level of centralized control
iv. Higher international orientation of all functional managers
The disadvantages of such divisional structure include:
i. Difficulty in cross-functional coordination
ii. Challenge in managing multiple product lines due to separation of operations and marketing in
different departments
iii. Since only the chief executive officer is responsible for profits, such a structure is favoured
only when centralized coordination and control of various activities is required.
Global product structure:
Under global product structure, the corporate product division, as depicted in Fig. 17.5, is given
worldwide responsibility for the product growth.
The heads of product divisions do receive internal functional support associated with the product
from all other divisions, such as operations, finance, marketing, and human resources. They also
enjoy considerable autonomy with authority to take important decisions and operate as profit
centres.
The global product structure is effective in managing diversified product lines.
Such a structure is extremely effective in carrying out product modifications so as to meet
rapidly changing customer needs in diverse markets. It enables close coordination between the
technological and marketing aspects of various markets in view of the differences in product life
cycles in these markets, for instance, in case of consumer electronics, such as TV, music players,
etc.
However, creating exclusive product divisions tends to replicate various functional activities and
multiplicity of staff. Besides, little attention is paid to worldwide market demand and strategy.
Lack of cooperation among various product lines may also result into sales loss. Product
managers often pursue currently attractive markets neglecting those with better long-term
potential.
Global geographic structure:
Under the global geographic structure, a firm’s global operations are organized on the basis of
geographic regions, as depicted in Fig. 17.6. It is generally used by companies with mature
businesses and narrow product lines. It allows the independent heads of various geographical
subsidiaries to focus on the local market requirements, monitor environmental changes, and
respond quickly and effectively.
The corporate headquarter is responsible for transferring excess resources from one country to
another, as and when required. The corporate human resource division also coordinates and
provides synergy to achieve company’s overall strategic goals between various subsidiaries
based in different countries.
TYPES OF STRATEGIES USED IN STRATEGIC PLANNING FOR
ACHIEVING COMPETITIVE ADVANTAGE
1. MAKE TIME FOR MARKET RESEARCH & PLANNING
2. KNOW YOUR CUSTOMER BETTER THAN ANY COMPETITIOR
3. AVOID REACTIVENESS
DIFFERENT STRATEGIES USED
1. BALANCE SCORE CARD :The term balanced scorecard (BSC) refers to a strategic
management performance metric used to identify and improve various internal business
functions and their resulting external outcomes. Used to measure and provide feedback
to organizations, balanced scorecards are common among companies in the United
States, the United Kingdom, Japan, and Europe. Data collection is crucial to providing
quantitative results as managers and executives gather and interpret the information.
Company personnel can use this information to make better decisions for the future of
their organizations.
2. STRATEGY MAP
SWOT ANALYSIS SWOT (strengths, weaknesses, opportunities, and threats) analysis is a
framework used to evaluate a company's competitive position and to develop strategic planning.
SWOT analysis assesses internal and external factors, as well as current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the
strengths and weaknesses of an organization, initiatives, or within its industry. The organization
needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead
focusing on real-life contexts. Companies should use it as a guide and not necessarily as a
prescription.
Strengths
Strengths describe what an organization excels at and what separates it from the competition: a
strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For
example, a hedge fund may have developed a proprietary trading strategy that returns market-
beating results. It must then decide how to use those results to attract new investors.
Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where
the business needs to improve to remain competitive: a weak brand, higher-than-average
turnover, high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities
Opportunities refer to favorable external factors that could give an organization a competitive
advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a
new market, increasing sales and market share.
Threats
Threats refer to factors that have the potential to harm an organization. For example, a drought
is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other
common threats include things like rising costs for materials, increasing competition, tight labor
supply. and so on.
3. PEST MODEL In business analysis, PEST analysis ("political, economic, socio-
cultural and technological") describes a framework of macro-environmental factors used
in the environmental scanning component of strategic management. It is part of an
external analysis when conducting a strategic analysis or doing market research, and
gives an overview of the different macro-environmental factors to be taken into
consideration. It is a strategic tool for understanding market growth or decline, business
position, potential and direction for operations.
4. GAP PLANNING The planning gap is a concept that is used to clarify the extent of
revenue or profits gap that might emerge if current strategies are left unchanged.
Gap analysis can identify gaps in the market. Thus, comparing forecast profits to desired
profits reveals the planning gap
5. BLUE OCEAN STRATEGY Blue Ocean Strategy is referred to a market for a
product where there is no competition or very less competition. This strategy revolves
around searching for a business in which very few firms operate and where there is no
pricing pressure.
6. PORTER’S FIVE FORCES Porter's Five Forces is a simple but powerful tool that you
can use to identify the main sources of competition in your industry or sector.
When you understand the forces affecting your industry, you'll be able to adjust your strategy,
boost your profitability, and stay ahead of the competition. For example, you could take fair
advantage of a strong position or improve a weak one, and avoid taking wrong steps in the
future.
Porter's Five Forces is a simple but powerful tool that you can use to identify the main sources of
competition in your industry or sector.
When you understand the forces affecting your industry, you'll be able to adjust your strategy,
boost your profitability, and stay ahead of the competition. For example, you could take fair
advantage of a strong position or improve a weak one, and avoid taking wrong steps in the
future.
According to Porter, there are five forces that represent the key sources of competitive pressure
within an industry. They are:
1. Competitive Rivalry.
2. Supplier Power.
3. Buyer Power.
4. Threat of Substitution.
5. Threat of New Entry.
Distinctive competitive advantage: A capability that is visible to the customer, superior
to other firms' competencies to which it is compared, and difficult to imitate. Competitive
advantage: A capability or resource that is difficult to imitate and valuable in helping
the firm outper- form its competitors.
The six factors of competitive advantage are: Price, location, quality, selection, speed,
turnaround and service.
What Are Mergers and Acquisitions (M&A)?
Mergers and acquisitions (M&A) is a general term that describes the consolidation of
companies or assets through various types of financial transactions, including mergers,
acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.
The term M&A also refers to the desks at financial institutions that deal in such activity.
When one company takes over another and establishes itself as the new owner, the purchase is
called an acquisition.
On the other hand, a merger describes two firms, of approximately the same size, that join
forces to move forward as a single new entity, rather than remain separately owned and
operated. This action is known as a merger of equals. Case in point: Both Daimler-Benz and
Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was
created. Both companies' stocks were surrendered, and new company stock was issued in its
place.1
A purchase deal will also be called a merger when both CEOs agree that joining together is in
the best interest of both of their companies.
Unfriendly or hostile takeover deals, in which target companies do not wish to be purchased, are
always regarded as acquisitions. A deal can be classified as a merger or an acquisition based on
whether the acquisition is friendly or hostile and how it is announced. In other words, the
difference lies in how the deal is communicated to the target company's board of directors,
employees, and shareholders.
Types of Mergers and Acquisitions
The following are some common transactions that fall under the M&A umbrella:
Mergers
In a merger, the boards of directors for two companies approve the combination and seek
shareholders' approval. For example, in 1998, a merger deal occurred between the Digital
Equipment Corporation and Compaq, whereby Compaq absorbed the Digital Equipment
Corporation. Compaq later merged with Hewlett-Packard in 2002. Compaq's pre-merger ticker
symbol was CPQ. This was combined with Hewlett-Packard's ticker symbol (HWP) to create
the current ticker symbol (HPQ).2
Acquisitions
In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm,
which does not change its name or alter its organizational structure. An example of this type of
transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial
Services, wherein both companies preserved their names and organizational structures. 3
Consolidations
Consolidation creates a new company by combining core businesses and abandoning the old
corporate structures. Stockholders of both companies must approve the consolidation, and
subsequent to the approval, receive common equity shares in the new firm. For example, in
1998, Citicorp and Travelers Insurance Group announced a consolidation, which resulted in
Citigroup.4
Financial integration is a phenomenon in which financial markets in neighboring,
regional and/or global economies are closely linked together
