Chapter 8:

The organizational structure

 International Business
Sixteenth Edition, Global Edition

Chapter 16
The Organization and
Governance of Foreign
Operations

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 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
 Learning Objectives (2 of 2)
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
 Evolving MNE’s
Objective 16-1
• Organizing an MNE
– Factors to consider
 Classical Organization Structures
Objective 16-2
• Organization Structure
– Vertical Differentiation
• Centralization
• Decentralization
– Horizontal Differentiation
• Functional
• Divisional
• Global Matrix
• Mixed Structure
 Considerations for Centralization vs. Decentralization

Objective 16-2
Figure 16.1 Factors Affecting Organizing Operations
 Functional and Divisional Structure
Objective 16-2
Figure 16.2 The Functional Structure Figure 16.3 The International Division Structure
 Matrix Structure
Objective 16-2
Figure 16.6 The Matrix Structure
 Neoclassical Structures
Objective 16-3
• Boundaries versus Boundaryless
• Network Structure
 Network Structure
Objective 16-3
Figure 16.7 A Network Structure
 Virtual Organizations
Objective 16-3
• Virtual Organization
– Technology
– “Work across space and time”
 Coordination Systems
Objective 16-4
• What is a coordination System
– Coordination by standardization
– Coordination by plan
– Coordination by mutual adjustment
 Control Systems
Objective 16-5
• What is a control system?
• Bureaucratic Control
• Market Controls
• Clan Control
• Control Mechanisms
 The role of Organizational Culture
Objective 16-6
• Organizational Culture Definition
• How organizational culture influences people’s jobs
• The Power of a Common Cause
 Company Culture
Objective 16-6
• Key features of company culture
 Vertical
differentiation

Organizational
structure

Integrating Horizontal
mechanism differentiation

13-17
Vertical Differentiation
Where decision-making power is concentrated

- Centralized decision-making
- Decentralized decision-making
Centralized decision-making
• Decision is being centralized at the headquarter
• Decisions are consistent and go through the
whole organization’s body organization’s
objectives
• Lower managers do not have right to change the
upper level decisions
• Tight – control in all decisional actions
• Avoids the duplication of activities and decisions
Decentralized decision-making
• Decisions may be made at all level of
organization
• Relieves the burden of centralized decision-
making for the head- quarter
• Motivate individuals and personal innovation
• Greater flexibility
• Decision suitable with the real situation of
market
Horizontal Differentiation
How the firm divides into sub-units

- Functional Structure
- Product Divisional Structure
 Functional Structure
Top Management
Manufactu Human
Purchasing Marketing Finance
ring resource
 Product Divisional Structure
D
D
e Headquarters
D e
p ep
p D
ar ar
t ar e
Product Line A tProduct Line Bp Product Line C
t
m m
m ar
e en
t e t
nt M
nt m
P an
M e
ur uf
ar nt
c ac
k H
h tu
et R
as ri
in
in ng
g
g
 Go global…
What should they do
1 they often group all of their international activities into an international division
• firms with a functional structure at home would replicate the functional structure in the
foreign market
• firms with a divisional structure would replicate the divisional structure in the foreign
market

Headquarter

Product Product Product International

Line A Line B Line C Division

Pro Pro Pro

duct duct duct
line line line
A B C

Potential for conflicts and coordination problems between domestic and foreign operations
2 Worldwide product divisional structure - adopted by firms that already have
domestic product divisions.
• Transfer core competencies among subsidiaries
• Helps realize location and experience curve economies
• Effective where the local responsiveness low
• Not good for local responsiveness

Headquarter

Worldwide Worldwide Worldwide Worldwide

product line A product line B product line C product line D

Area Area Are

1 2
(USA (Asia
a3
) ) (EU)
3 Worldwide area structure - favored by firms with low degree of diversification
and a domestic structure based on function
• divides the world into autonomous geographic areas
• decentralizes operational authority
• Effective where the local responsiveness high  localization strategy
• can result in a fragmentation of the organization

Headquarter

Area 1 Area 2
(America) (Europe)
Area 3 (Asia) Area 4 (Africa)

Prod Prod Prod

uct uct uct
line line line
A B C
4 Global Matrix Structure - is an attempt to minimize the limitations of the
worldwide area structure and the worldwide product divisional structure
• allows for differentiation along two dimensions - product division and geographic area
• has dual decision–making - product division and geographic area have equal responsibility
for operating decisions
• can be bureaucratic and slow
• can result in conflict between areas and product divisions
• can result in finger-pointing between divisions when something goes wrong
 Tea
Formal integrating mechanism
m
Liaiso
n role
– Simplest formal integrating mechanism is Direc
t
direct contact between subunit Cont
act
managers, followed by liaisons Matri
x
– temporary or permanent teams Struct
ure
composed of individuals from each
subunit is the next level of formal
integration
– the matrix structure allows for all roles to
be integrating roles
 Informal mechanism

• A knowledge network is a network for transmitting information within an

organization that is based not on formal organization structure, but on informal
contacts between managers within an enterprise and on distributed information
systems D

B E

C F
G
 Strategy - Structure

Structure International business Strategies

Multi-domestic International Global Transnational

Vertical Core competency more Mixed Centralization

differentiation Decentralization centralized. Rest Centralization and decentralization
decentralized

Horizontal World-wide area World-wide product World-wide product Matrix

differentiation structure divisional structure divisional structure

Integrating
mechanism None Few Many Very Many
Activity
Imagine Trung Nguyen coffee corporation intend to expanse their business
globally, based on your study:
- Draw the most suitable organizational structure for their global business
- Identify their decision – making model
- The integrating mechanism in cross – culture environment.