Organization of Multinational Operations

Ellen Devlin International Management 446 April 19, 2011 Class 4

Organization of MNCs Operations

Definition: Designing a structure that explains the nature and extent of formal relationships among various internal components.

Allows for distribution of power among the organizations members. Establishes formal communication lines. Tool for attainment of a MNCs goals.

Building an org. structure? Four Basic Questions must be answered:

What should the units of the organization be? Which components should be joined, and which should be kept apart? What size and shape pertain to the different components? What is the appropriate placement of and relationship between different units?

NOTE: Organizational Design may become the responsibility of all managers at some point in their career.

Departmentalization: Clustering of activities.

TASKS

JOBS

DEPARTMENTS

BUSINESS UNITS CORP. STRUC.

Departmentalization: Clustering of activities

Six bases.

Knowledge and skill (Engineering department) Work Process and Function (Supply Chain, HR, Finance) Time (shifts in factory) Output (Products/Services) Client (Customer or supplier) Place (Geographic)
Geographic (where) Functional (what)

Two Most Common Forms

Type of Organization Structure? CEO

HRM

Finance

Manu.

Mktg

R&D

Type of Organization Structure? CEO

West Region

SW Region

South Region

Midwest Region

East Region

Organization of MNCs Operations

Organizing is really re-organizing influenced by many factors... EXERCISE: DISCUSS IN GROUPS OF THREE(p. 408-412)

Left side-External Right side-Company.

External Forces

Company Factors

What are they? Which one is the most important? Why should you care? What are the factors? Give a company example What does structure follow?

Development of International Corporate Structure.Its a process!

Two major factors influence development:

From Simple to Complex (size) From Domestic Orientation to Global Perspective (global presence)

Development of International Corporate Structure: Where is your company?

Phase 1: International: Introduction

Competition is limited to domestic firms. Export International Operations is an extension of domestic.

Technology Diffusion and Price CompetitionManufacturing Facilities in Low-Cost Countries International Division Most of The Corporate Revenues Are From Abroad
Organize Operations on a Global Basis

Phase 2: Multinational: Growth

Phase 3: Global: Maturity

MNC Corporate Structure Evolution

The Extension of Domestic Structure

Export Manager Reports to the Marketing Executive (Narrow Product Line) Export Manager Reports to C.E.O. (Broad Product Line) Increased Competition and Market Maturity- Local Manufacturing

MNC Corporate Structure

The Transition: Autonomous Foreign Subsidiary ( Distributor)

Distant Operations Are Given Local Decision-Making Control Through Financial Reporting Foreign Subsidiary May Have Local Board of Directors

Very typical originally with European MNCs, but also practiced by P&G for a long time.

Advantages and Disadvantages

Can integrate into local economy and operate as a local firm = fewer restrictions, take advantage of local resources. Respond better to local consumers. Have the ear of top management because of direct report to President/CEO = local prestige.

and Disadvantages
Can end up ignoring the common good (overall objectives) of the wider corporation. Can end up duplicating resources (e.g., manufacturing) and causing inefficiencies.

MNC Corporate Structure

(see figure 8.2, page 419)

International Division Structure 60% of all US firms go through this stage.(Owned)

Four Factors Prompt The Establishment of International Division

Increased International Involvement -- Require a Senior Executive Internal Specialists Are Needed A Desire to Be Proactive (Identify Opportunities).
EG Wal-Mart

MNC Corporate Structure

The Geographic Division The Product Division The Functional Structure Mixed and Matrix Forms

The geographic division allows for the most local responsiveness. Why?

Geographic Division Structure

(Figure 8.3) is the most common structure

CEO

Headquarters Staff

European Division

North American Division

South American Division

Advantages

Disadvantages

Regional economies of scale Treatment of subsidiaries as profit centers. Good when regional customers are similar. Tend to be useful in mature businesses w/narrow product lines. Permits large manufacturing plants in low cost regional countries.

Autos, beverages, food, pharmaceuticals.e.g., Nestle

Not good for firms w/diverse product ranges (bad for coordination between product lines). Coordination at corporate level suffers. Rivalry among regions. Duplication of resources/plants. Difficulty transferring new technology and product ideas across regions/strong regional managers.

Product Division Structure

Figure 8.4 (page 426)
CEO

Headquarters Staff

Product Group A

Product Group B

Product Group C

Advantages

Disadvantages

Good for firms w/diverse product lines (often) w/hi technology content and different end users. Permits fast diffusion of technology across a product line/simultaneous intro of product across the world. Good when local manufacturing is favored (e.g., high tariffs) for certain product lines/concentration of key activities in one locale. Facilitates quick response to global competitive pressures against certain products.

May result in wasteful duplication of plants and sales personnel. Customers may be interacting with many representatives from the company. Limited voice to local managers on needed adaptations.

High technology firms (HP); Heinz

International Function Structure

Figure 8.5
CEO

R&D (Worldwide)

Marketing (Worldwide)

Manufacturing (Worldwide)

Finance (Worldwide)

Fairly rare (only 10% of US MNCs).

Mostly used by natural resource extraction firms (mining, oil). Narrow, standardized product. Technology is relatively stable, but execution of the functions (e.g., extraction, marketing, finance) are keys to success.

Mixed or Matrix Structure

A way of trying to gain the optimum integration of inputs from regional, functional and product areas. A normal hierarchy is overlaid by some form of authority, communication, and influence.

International Mixed Structure

Figure 8.6 (page 429)
CEO

Product A (Worldwide, except US and Europe

Product B (Worldwide, except US and Europe

USA Division

European Division

Matrix Organization

Nike Matrix Organization

(before 2009 Financial Crisis)
Corporate Functions:
HR/Finance/ IT/Etc.

USA

Product Type Footwear

R e Europe g i o n s

Asia/Pacifi c

The Americas

Apparel

Equipment

Nike Matrix Organization(Post 2009 Financial Crisis)

Why did they change? External factor? Internal factor?
Corporate Functions:
North America

HR/Finance/ IT/Etc.

Geographic Locations Western Eastern China

Europe Europe

Japan

Emerging Markets

Categories Running Soccer Basketball Training

Wms Fitness Sports Culture

Other

Challenges of a matrix
The Matrix is a state of mind. HBR It is an efficient use of specialists and equipment and can improve vertical and lateral communication and information flow. BUT..is costly, cumbersome and a lot of work for managers! Wearing two hats, and often leads to tensions. Lots of shared decision making. e.g. Dow Chemical (now adapted).

Network Model

Suppliers, bankers, manufacturers, customers, etc.

Large Flows of Components, Products, Resources and Information among the network

Complex Process of Coordination and Cooperation

Network model is.

Good for unstable environments where innovation and quick response are needed which are increasing! Has been made possible by the technological advances in communication, which makes coordination among numerous players less costly. A network is inherently unstable itself.

Next Week
Test 1 Group Project Time

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