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Chapter 09 - Entry Strategies and Organizational Structures
1) Specialization is an organizational characteristic that assigns individuals to specific, well-
defined tasks.
a) Horizontal specialization involves the assignment of jobs so that individuals are given
individuals are collectively responsible for performance.
Centralization
1) Centralization is a management system under which important decisions are made at the
top.
2) Many U.S. firms tend toward decentralization in which decision making is pushed down
the line and lower-level personnel are involved.
a) This hands-off approach promotes creativity, entrepreneurial effort, and personal
very tight financial discipline.
Putting Organizational Characteristics in Perspective
1) MNCs tend to organize their international operations in a manner similar to that used at
home.
a) If the MNC tends to have high formalization, specialization, and centralization at its
realize.
The World of International Management―Revisited
Questions & Suggested Answers
1. Which organizational structure described in the chapter does Volkswagen’s
“customer oriented” structure most closely resemble?
Answer: Volkswagen has pursued an ongoing global strategy that emphasizes both
centralization and regional adaptation and leverages the range of capabilities from
its various brands and their production. Volkswagen centralizes some functions but
2. How might such a structure help or hinder entry into new markets?
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Chapter 09 - Entry Strategies and Organizational Structures
Answer: The joint ventures formed by Volkswagen are fueled by opportunities
3. Does a matrix or customer-oriented structure lend itself better to forming joint
ventures and alliances?
Answer: Responses to this question will differ depending on the type of joint
venture or alliance being formed. In general however, the matrix structure tends to
Key Terms
Alliance―Any type of cooperative relationship among different firms
Centralization―A management system in which important decisions are made at the top
Decentralization―Pushing decision making down the line and getting the lower-level
personnel involved
Formalization―The use of defined structures and systems in decision making,
communicating, and controlling
Franchise―A business arrangement under which one party (the franchisor) allows another
(the franchisee) to operate an enterprise using its trademark, logo, product line, and methods
of operation in return for a fee
Global area division―A structure under which global operations are organized on a
geographic rather than a product basis
Global functional division―A structure that organizes worldwide operations primarily based
on function and secondarily on product
Global product division―A structural arrangement in which domestic divisions are given
worldwide responsibility for product groups
Horizontal specialization―The assignment of jobs so that individuals are given a particular
function to perform and tend to stay within the confines of this area
International division structure―A structural arrangement that handles all international
operations out of a division created for this purpose
Joint venture (JV)―An agreement under which two or more partners own or control a
business
License―An agreement that allows one party to use an industrial property right in exchange
for payment to the owning party
Merger/acquisition―The cross-border purchase or exchange of equity involving two or more
companies
Mixed organization structure―A structure that is a combination of a global product, area, or
functional arrangement
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Chapter 09 - Entry Strategies and Organizational Structures
Specialization―An organizational characteristic that assigns individuals to specific, well-
defined tasks
Wholly owned subsidiary―An overseas operation that is totally owned and controlled by an
MNC
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Chapter 09 - Entry Strategies and Organizational Structures
Review and Discussion Questions
1. One of the most common entry strategies for MNCs is the joint venture. Why are so
many companies opting for this strategy? Would a fully owned subsidiary be a
better choice?
Answer: What makes a fully owned subsidiary a desirable form of ownership is that
the MNC has total control, and the firm believes that managerial efficiency will be
2. A small manufacturing firm believes there is a market for handheld tools that are
carefully crafted for local markets. After spending two months in Europe,
the president of this firm believes that his company can create a popular line
of these tools. What type of organization structure would be of most value to
this firm in its initial efforts to go international?
Answer: This firm will probably benefit most by setting up an export arrangement.
Since there is not likely to be a great deal of competition for the handheld tools at
3. If the company in question 2 finds a major market for its products in Europe and
decides to expand into Asia, would you recommend any change in its
organization structure? If yes, what would you suggest? If no, why not?
Answer: At this point, an international division structure may be most appropriate.
The international operations have continued to grow and the subsidiaries should be
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4. If this same company finds after three years of international effort it is selling 50
percent of its output overseas, what type of organizational structure would
you suggest for the future?
Answer: At this point, the firm may opt for a global area (geographic) structural
design in which operations are organized on the basis of a geographic rather than a
product basis. This can be accomplished by dividing the operations into several
5. In what way do the concepts of formalization, specialization, and centralization
have an impact on MNC organization structures? In your answer, use a well-known
firm such as IBM or Ford to illustrate the effects of these three characteristics.
Answer: Formalization generally necessitates a greater use of budgets, financial
data, and other tools in controlling subsidiary operations. An informal structure
tends to make wider use of face-to-face, informal controls. It is important to note
learn and stay ahead of change.
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Chapter 09 - Entry Strategies and Organizational Structures
Internet Exercise: Organizing for Effectiveness
Suggestion for Using the Exercise
1. After the assigned activities have been completed, ask your students to visit two
sites from MNCs that are not in the auto industry. IBM, Intel, and GE (Internet
search may bring up the major divisions) would be excellent choices. Ask your
students to try to determine if a firm's global organizational arrangements are tied to
the industry they are in (i.e., auto versus the other industries) or whether it seems to
be more firm specific?
In The International Spotlight: Australia
Questions & Suggested Answers
1. What are some current issues facing Australia? What is the climate for doing
business in Australia today?
Answer: Australia is home to more than 22 million people, however, the population
tends to be spread mainly along the coast and over to Perth. While its government is
2. What type of organizational structural arrangement is the MNC going to use in
setting up its Australian operation?
Answer: The Chicago-based MNC is going to use a subsidiary arrangement with
this overseas operation. A close reading of the case shows that other overseas
operations are not being handled this way, but the Australian venture will be a
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3. Can this MNC benefit from any of the new organizational arrangements, such as a
joint venture, the Japanese concept of keiretsu, or electronic networks?
Answer: The company in this case seems more inclined to go it alone, drawing
from direct experience in the U.S. Because the culture and way to do business is so
similar to the U.S., a joint venture would not be as attractive as it would be in a
4. Will this operation be basically centralized or decentralized?
Answer: The operation clearly will be decentralized. Notice from the information
International Management in Action: Getting In on the Ground Floor
Questions & Suggested Answers
1. What type of organization design would you recommend that Reuhter use?
Answer: Because this is Reuhter's first acquisition overseas, the international
division structure or a global structural arrangement would be inappropriate to start
out with. Many firms who enter the international market initially use a subsidiary
2. If there were joint R&D efforts, would this be a problem?
Answer: It is possible that there might be problems in joint R&D. The same type of
work may be carried out differently in the Netherlands than in the U.S. because of
cultural differences. The pace of work would likely be slower, the amount of
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Chapter 09 - Entry Strategies and Organizational Structures
International Management in Action: Joint Venturing in Russia
Summary
1. Russia is looking for foreign capital to help tap its natural resources. Investors, on
the other hand, are wary. Kremlin power over industries is the first problem; others
are:
Russian partners are looking for travel abroad and access to foreign currency
more than they are interested in the business.
Thus, there is a reluctance to enter into joint ventures in Russia.
International Management in Action: Organizing in Germany
Summary
1. Despite economic ups and downs in Europe, a number of medium-sized and small
German companies continued to be some of the most successful in the world.
Reasons:
Carefully designed decentralized organization structures
Most subsidiaries are wholly owned by the company and have centralized
controls on profits.
2. Strategies:
Overserve the market by providing more than is needed
with in-house personnel
Results: Many relatively small companies hold world market shares in the 70 to 90
percent range. Every one of these companies is the market leader not only in
Europe but also throughout the world.
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