9-Organizing Strategy(international business)

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. International business Alan M. Rugman, Richard M. Hodgetts

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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 International business Alan M. Rugman, Richard M. Hodgetts

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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. International business Alan M. Rugman, Richard M. Hodgetts

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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. International business Alan M. Rugman, Richard M. Hodgetts

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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. International business Alan M. Rugman, Richard M. Hodgetts

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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

International business Alan M. Rugman, Richard M. Hodgetts

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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 widereaching 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 International business Alan M. Rugman, Richard M. Hodgetts

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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? International business Alan M. Rugman, Richard M. Hodgetts

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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 International business Alan M. Rugman, Richard M. Hodgetts

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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

International business Alan M. Rugman, Richard M. Hodgetts

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