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Chapter 14 ‒ The Organization of International Business
14-8
are centralized and others are decentralized, coordination needs are high, and an array of
formal and informal integrating mechanisms are used.
Environment, Strategy, Architecture, and Performance
For a firm to succeed, two conditions must be met:
1. The firm’s strategy must be consistent with the environment in which the firm
operates.
2. The firm’s organization architecture must be consistent with its strategy.
Firms need to change their architecture to reflect changes in the environment in which
they are operating and the strategy they are pursuing.
Slides 14-47 ‒ 14-48 Implementing Organizational Change
There are three basic principles for successful organization change:
1. Unfreeze the organization through shock therapy.
2. Move the organization to a new state through proactive change in architecture.
3. Refreeze the organization in its new state.
Sources of inertia include:
• the existing distribution of power and influence
• the current culture
• senior managers’ preconceptions about the appropriate business model or
paradigm
• institutional constraints
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: “The choice of strategy for a multinational firm must depend on a
comparison of the benefits of that strategy (in terms of value creation) with the costs of
implementing that strategy (as defined by organizational architecture necessary for
implementation). On this basis, it may be logical for some firms to pursue a localization
strategy, others a global or international strategy, and still others a transnational strategy.”
Is this statement correct?
ANSWER 1: Yes, this statement is correct. There is a cost–benefit trade-off with strategy
choice. The costs of structure and controls for different strategies can differ widely.
QUESTION 2: Discuss this statement: “An understanding of the causes and
consequences of performance ambiguity is central to the issue of organizational design in
multinational firms.”
Chapter 14 ‒ The Organization of International Business
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ANSWER 2: Organizational design creates interdependence, which may lead to
performance ambiguities. Different organizational designs can remove performance
QUESTION 3: Describe the organizational architecture a transnational firm might adopt
to reduce the costs of control.
ANSWER 3: A transnational, like all multinational firms, can use bureaucratic and output
controls to some extent. However, the use of output controls is limited due to
QUESTION 4: What is the most appropriate organizational architecture for a firm that is
competing in an industry where a global strategy is most appropriate?
ANSWER 4: When a global strategy is appropriate, a company believes that its market is
QUESTION 5: If a firm is changing its strategy from an international to a transnational
strategy, what are the most important challenges it is likely to face in implementing this
change? How can the firm overcome these challenges?
ANSWER 5: The most important challenges are likely to be related to control, as the firm
QUESTION 6: Reread the Management Focus on Walmart’s International Division and
answer the following questions:
Chapter 14 ‒ The Organization of International Business
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a. Why did the centralization of decisions at the headquarters of Walmart’s international
division create problems for the company’s different national operations? Has Walmart’s
response been appropriate?
b. Do you think that having an international division is the best structure for managing
Walmart’s foreign operations? What problems might arise with this structure? What other
structure might work?
ANSWER 6:
a. When Walmart began its international expansion, it set up an international division to
handle all foreign operations. However, over time, this approach proved to be
b. Most students will probably suggest that while the international division may have
been a good strategy at the beginning of Walmart’s expansion into foreign markets, as
QUESTION 7: Reread the Management Focus on Dow Chemical; then answer the
following questions:
a. Why did Dow first adopt a matrix structure? What were the problems with this
structure? Do you think these problems are typical of matrix structures?
b. What drove the shift away from the matrix structure for companies such as Dow and
ABB? Does Dow’s structure now make sense given the nature of its businesses and the
competitive environment it competes in?
ANSWER 7:
a. Dow Chemical initially adopted the matrix structure because it would allow the
company to be responsive to both local market needs and corporate objectives. However,
Chapter 14 ‒ The Organization of International Business
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b. In the mid-1990s, Dow divested itself of its pharmaceuticals activities, and changed its
Another Perspective: To find out more about Dow Chemical’s current strategy and
organizational architecture, go to the company’s website at {http://www.dow.com}.
QUESTION 8: Reread the Management Focus on Lincoln Electric; then answer the
following questions:
a. To what extent is the organizational culture of Lincoln Electric aligned with the firm’s
strategy?
b. How was the culture at Lincoln Electric created and nurtured over time?
c. Why did Lincoln Electric’s culture and incentive systems work well in the United
States? Why did it not take in other nations?
ANSWER 8:
a. Lincoln Electric stresses that individuals should be rewarded for their individual
efforts, and that everyone who works for the company should be treated equally.
b. Lincoln Electric has a long tradition of equality and fairness. Since 1934, employees
c. In the United States, a country that encourages individualism, Lincoln Electric’s
emphasis on individual performance has been very successful. However, in other
countries, this approach has met with some resistance. In some countries, Lincoln
Another Perspective: For additional information on Lincoln Electric, go to the company’s
website at {www.lincolnelectric.com}.
CLOSING CASE: Organizational Architecture at P&G
Chapter 14 ‒ The Organization of International Business
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Summary
The closing case explores the extensive reorganization undertaken by Proctor & Gamble,
the U.S. household products conglomerate. P&G is one of the world’s largest companies,
with customers in more than 180 countries and annual revenues in excess of $80 billion.
CEO Alan “A.G.” Lafley decided that the company would cut approximately 100 brands
from its portfolio in order to focus on its most profitable product lines. In addition, P&G
reduced its advertising agency roster by 50 percent. Discussion of the case can begin with
the following questions:
QUESTION 1: Advertising is important for most companies, especially companies such
as P&G that sells mostly to end customers. But, most people already know about P&G
products like Charmin bathroom tissue and moist towelettes, Crest toothpaste, and so on.
Does P&G really need to constantly put money into advertising when its products already
have a strong hold in the global marketplace?
ANSWER 1: Students will have their own opinions as to whether P&G needs to
continually spend advertising dollars to maintain its position in the market. The company
QUESTION 2: P&G is cutting its marketing and advertising agency roster by 50 percent
over the past three years from around 6,000 to 3,000 companies in a bid to increase its
marketing productivity, efficiency, and effectiveness. At a $9 billion worldwide spend on
advertising, should P&G have more or fewer marketing and advertising agencies doing
its advertising?
ANSWER 2: Students will probably be divided on this question. Some will probably
argue that the streamlining is both necessary given the highly competitive market P&G
operates in, and doable. Students taking this position may suggest that the company
QUESTION 3: By consolidating and cutting 100 brands from its consumer portfolio of
brands, does P&G run the risk of ultimately losing out on global market opportunities?
Chapter 14 ‒ The Organization of International Business
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ANSWER 3: P&G CEO Alan Lafley argued that reducing the number of brands owned
by P&G would make the company easier to manage and operate. This approach reflected
Another Perspective: To learn more about P&G, go to
{https://www.cnbc.com/2017/09/07/trian-proposes-shake-up-to-pgs-structure-and-
strategy.html} and {https://us.pg.com/our-brands}.
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library which provides an
ongoing stream of updated video suggestions correlated by key concept and major topic.
Every new clip posted is supported by teaching notes and discussion questions. Please
feel free to leave comments in the library that you feel might be helpful to your
colleagues.
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
Fortune conducts an annual survey and publishes the rankings of the world’s most
admired companies. Locate the most recent ranking available, and focus on the factors
used to determine which companies are most admired. Prepare an executive summary of
the strategic and organizational success factors for a company of your choice.
Exercise 2
You work at a European-based pharmaceutical company that is planning to expand
operations to other parts of the world. To design the structure of the organization as it
expands internationally, management has requested additional information on the
pharmaceutical sector worldwide. Use the Industry Profiles section on the globalEDGE™
site to prepare a risk assessment of the food and beverage industry that can help
management gain a better understanding of the external environment in foreign markets.
Answers to Exercises
Exercise 1 Answer
Chapter 14 ‒ The Organization of International Business
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Resource Name: Fortune: World's Most Admired Companies
Website: http://money.cnn.com/magazines/fortune/most-admired/
globalEDGE™ Category: Rankings
Additional Info:
Fortune’s annual World’s Most Admired Companies ranking is a corporate reputation
ranking that is put together by surveying the Fortune Global 500 companies and asking
them to rate companies in their industry on nine criteria, from investment value to social
responsibility.
Exercise 2 Answer
