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C H A P T E R 9
Organizing strategy
Chapter objectives
2. Describe the international division and global structures that are used as firms increase their
international presence.
4. Review the role of the organizational processes in ensuring that the structure is both
effective and efficient.
Chapter summary
1. There is an unresolved debate about whether structure follows strategy or whether strategy
2. When a company first enters the international arena, it is common to find that these efforts
are mere extensions of domestic operations. The multinational enterprise (MNE) will
3. As multinationals generate increased revenues from their overseas operations, they are
4. There are five key variables that MNEs examine in choosing from among alternative
organizational structures. These are (a) the relative importance of international operations;
5. The formal structure provides the skeletal framework within which the personnel operate.
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
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Chapter outline
Introduction
Organizational structures
Early organizational structures
The international division
Global organizational structures
Global product structure
Strategic management and organizing strategy
Analysis of key structural variables
Coordination
Decision making
Communication
Controlling
Lecture outline
A. Introduction
1. The issues of organizational structure to be discussed in this chapter are linked to the
FSACSA matrix discussed in Chapter 2. For example, a centralized and hierarchical
structure is usually followed by firms pursuing a cell 1 strategy of economic integration.
In contrast, in cell 4, a multinational firm may need to adapt its product or service to
2. Once an organization decides to go international, it must begin to implement this
decision. Some companies do so by simply shipping their goods to a foreign market and
B. Organizational structures
1. There are a number of choices available to an MNE when deciding on an organizational
2. When a company first begins international operations, it is typical for these activities to
be extensions of domestic operations. International transactions are conducted on a
case-by-case basis, and there is no attempt to consolidate these operations into a
3. The international division structure centralizes all international operations. This
arrangement provides a number of advantages: (a) it reduces the CEOs burden of
directing the operations of both domestic divisions and overseas subsidiaries; (b) it
4. As MNEs generate more and more revenues from their overseas operations, their
5. A global product structure is a structural arrangement in which domestic divisions are
given worldwide responsibility for product groups. In this arrangement, each product
division sells its output throughout the world. All production, marketing, personnel and
finance activities associated with a product are under the control of the product division
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6. A global area structure is one in which primary operational responsibility is delegated to
area managers, each of whom is responsible for a specific geographic region. This is a
polycentric structure. Under this arrangement, each regional division is responsible for
all functions within its area, that is, production, marketing, personnel and finance. A
7. A global functional structure is built around the basic tasks of the organization. Under
this arrangement, the head of the production department is responsible for all domestic
and international manufacturing. Similarly, the head of marketing is responsible for the
sales of all products both at home and abroad. This structure is most commonly used by
8. A matrix structure is an organizational arrangement that blends two organizational
responsibilities, such as functional and product structures, or regional and product
structures. A matrix structure is characterized by a dual command system that
9. The matrix design in Figure 9.8 is more complex than that in Figure 9.7, as it has three
dimensions. It illustrates how the matrix organizational arrangement can be used to
coordinate and manage wide-reaching international operations. Resource managers are
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10. A transnational network structure is designed to help MNEs take advantage of global
economies of scale while also being responsible to local customer demands. This
structure combines elements of the functional, product and geographic designs, while
relying on a network arrangement to link the various worldwide subsidiaries. At the
10. A mixed structure is a hybrid organizational design that combines structural
arrangements in a way that best meets the needs of the enterprise. The primary
C. Strategic management and organizing strategy
1. In determining the best structure, three questions must be answered. (a) Can the
company operate efficiently with domestic divisions, or are international divisions also
necessary? (b) On what basis should the organization be structured: product, area,
function, mixed or matrix? (c) How can the necessary coordination and cooperation be
most effectively achieved?
2. An MNE examines five variables in choosing from among alternative organizational
structures. First, it evaluates the relative importance of international operations at the
3. The formal structure provides the skeletal framework within which the personnel
4. Decision making is the process of choosing from among alternatives. In international
operations, one of the primary areas of consideration is where the ultimate decision-
making authority will rest on important matters. Research shows that decision-making
5. Communication is the process of transferring meanings from sender to receiver. The
way in which this is done often varies from one MNE to another. The US MNEs use
6. Controlling is the process of determining that everything goes according to plan. One of
the major differences between US and Japanese firms is the use of explicit versus
implicit control. An important difference between US and European firms is that US
MNEs tend to rely more heavily on reports and other performance-related data, while
Europeans make heavy use of behavioral control. Other differences include the
Answers to review and discussion questions
1. How does an export department structure function? Who handles the overseas sales?
2. If a companys initial international expansion is conducted through the use of
subsidiaries, how closely does it control these subsidiaries? Why?
3. Why do MNEs use an international division structure? Are there any drawbacks to
this organizational arrangement?
4. How does a global product structure work? Why would an MNE opt for this
arrangement? What are two drawbacks to using this structure?
A global product structure gives domestic divisions a worldwide responsibility for product
groups. So Product A Division is responsible for selling its product domestically as well as
internationally. The reasons why an MNE opts for this arrangement include the following:
5. When would an MNE use a global area structure? When would the firm reject this
structural arrangement in favor of a different structure?
An MNE would use a global area structure for a number of reasons, including the following: (a)
divisional managers need to make rapid decisions in responding to local market conditions; (b)
the company wants to gain a wealth of experience regarding how to satisfy local tastes and thus
6. How does a global functional structure work? When would it be a popular approach?
When would it be of very little value in organizing international operations?
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
7. When would a company opt for a mixed structure? Why? Defend your answer.
8. How does a matrix structure work? When would an MNE opt for this organizational
arrangement?
9. There are five key variables that MNEs examine in choosing from among alternative
organizational structures. What are these five? Identify and briefly describe each.
10. Why are some overseas operations highly decentralized while others are very
centralized? What factors influence this arrangement?
11. Why are US international operations more centralized than those in Sweden? Why is
the US model becoming more popular among MNEs?
12. In what way is implicit versus explicit communication important in understanding
how home-office managements coordinate international activities?
13. What type of control techniques do US MNEs prefer? How does this preference differ
from that of the Japanese? Compare and contrast the two.
Answers to real cases
LVMH: organizing luxury products in the international arena
1. What type of organizational structure does LMVH have?
2. What is the role of SBUs in the organizational structure of LVMH? What problems
might arise if each SBU were run independently?
3. Compare the organizational structure of LVMH to that of Procter & Gamble. Are
there any similarities? How are these organizations different?
4. What are some of LVMHs firm-specific advantages (FSAs) that are listed in this case?
5. How would outsourcing to less developed countries affect LVMH?
Command Alkon: a small business
1. Why does a small business like Command Alkon usually have little or no foreign direct
investment? How does it go international?
2. What is the typical type of organizational structure for a small business like Command
Alkon?
3. Why are software businesses usually ethnocentric in their organizational structure?