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Chapter 8 Organizational Design for Multinational Companies

MULTIPLE CHOICE

1. The manner in which organizations structure subunits and use coordination and control mechanisms to
achieve their strategic goals is the
a. Organizational structure.
b. Organizational culture.
c. Degree of formalization.
d. Organizational design.
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

2. The functional structure is considered most efficient when

a. An organization gets too large.
b. When customers need special functions.
c. When the organization is in the mature phase of the life cycle.
d. When organizations have few products.
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

3. All of the following statements are true about the functional structure EXCEPT
a. In the functional structure, departments perform separate business functions such as
marketing or manufacturing.
b. The functional structure is the simplest of organizations.
c. In small organizations, the functional structure is the least efficient of all structures.
d. Because functional subunits are separated from each other, coordination among the units
can be difficult.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

4. One of the major reasons why companies choose a functional structure is because
a. It allows adapting products to country tastes.
b. It enables responding to the needs of different types of customers.
c. It helps balance the strategy with the organization design.
d. It helps achieve efficiency.
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

5. All of the following statements are true about product structures EXCEPT
a. The product structure is the most efficient of all structures.
b. Product organizations must still perform some functional tasks of a business.
 c. The structure builds a department or subunit around a product .
d. Managers choose product structures when they believe that a product or a group of
products is sufficiently unique to require focused efforts on one type of product or service.
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1

6. The least efficient of the following structural options is

a. Product structure.
b. Functional structure.
c. Vertical structure.
d. Graphic structure.
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1

7. Organizations that are designed with mixtures of structures that are the best to implement their
strategies are
a. Product structures.
b. Geographic structures.
c. Hybrid structures.
d. Functional structures.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

8. When exports become a significant percentage of company sales and a company wishes greater control
over its export operations, managers often create a separate
a. Export department.
b. Functional department.
c. Product department.
d. Liaison office.
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1

9. The structure adopted by companies in the early stage of internationalization is usually

a. Replica.
b. Network.
c. Export department.
d. Transnational subsidiary.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1
10. The type of subsidiary that supports a multinational firm strategy based on location advantages is a/an
a. Export department.
b. Minireplica subsidiary.
c. Transnational subsidiary.
d. International division.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

11. The minireplica subsidiary

a. Copies the structure and strategy of companies located in the same country.
b. Mostly copies the structure and strategy of the parent company.
c. Replicates only minor parts of the parent’s production technology.
d. Copies the structure of small foreign firms.
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

12. Transnational subsidiaries

a. Look pretty much like a domestic division of the parent company.
b. Often have different structures and functions in each location.
c. Exist near the border to facilitate exporting.
d. Serve mostly to coordinate international currency exchange.
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

13. The international division differs from the export department in that
a. The international division is usually larger and has greater responsibilities.
b. The international division has more extensive staff with international expertise.
c. Top management expects the staff of the international division to perform functions such
as negotiating licensing and joint venture agreements, translating promotional material, or
providing expertise on different national cultures and social institutions.
d. All of the above are true.
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

14. Which of the following are considered to be the structural building blocks for running a multinational?
a. International division
b. Metanational
c. Mini replica
d. Foreign subsidiaries
ANS: D
AACSB Reflective thinking, Strategy
 PTS: 1

15. Adopting strategies that include both concerns for local adaptation needs and concern for the economic
and product development benefits of globalization is possible with the
a. Worldwide product structure.
b. Worldwide geographic structure.
c. Hybrid structure.
d. None of the above
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

16. The worldwide geographic structure is usually considered best to implement a _____ strategy.
a. Multidomestic or regional
b. Transnational
c. International
d. Indirect exporting
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1

17. The worldwide product structure is usually considered best to implement a/an _____ strategy.
a. Multidomestic or regional
b. Transnational
c. International
d. Indirect exporting
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

18. The most balanced structural solution to the national responsiveness versus global efficiency dilemma
is
a. The transnational network structure.
b. The worldwide product structure.
c. Worldwide geographic structure.
d. The matrix structure.
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

19. All of the following statements are true about the worldwide matrix structure EXCEPT
a. To balance the benefits produced by geographic and product structures and to coordinate a
mixture of product and geographic subunits, some multinationals create a worldwide
matrix structure.
b. Unlike most hybrid organizations, the worldwide matrix structure is a symmetrical
organization.
c. It has unequal lines of authority for product groups and for geographic divisions.
 d. The matrix structure works well only when there are near equal demands from the
environment for local adaptation and for product standardization with its associated
economies of scale.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

20. Which of the following structures best support strategies that emphasize global products and
rationalization?
a. The functional structure
b. The matrix structure
c. The geographic structure
d. The product structure
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

21. A __________ helps link the organization horizontally.

a. Control system
b. Coordination system
c. Cultural system
d. Centralized operations
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

22. The type of vertical control mechanism most often associated with a profit center is
a. Bureaucratic.
b. Output.
c. Cultural.
d. Decision making.
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

23. The type of control system favored by the transnational is

a. Bureaucratic.
b. Output.
c. Cultural.
d. Decision making.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1
24. _________ mean/means that management locates subsidiaries anywhere in the world where they can
benefit the company.
a. Dispersed subunits
b. Specialized operations
c. Interdependent relationships
d. None of the above
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1

25. __________ help link the organization vertically, up and down the organizational hierarchy.
a. Coordination systems
b. Dispersed subunits
c. Control systems
d. Subunits
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

26. Output control systems

a. Focus on managing behaviors, not outcomes, within the organization.
b. Represent the level in the organizational hierarchy where managers have the authority to
make decisions.
c. Assess the performance of a unit based on results, not on the processes used to achieve
those results.
d. Use the organizational culture to control the output and attitudes of employees.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

27. Which of the following types of control system uses budgets, statistical reports, standard operating
procedures, and centralized decision making to manage organizational processes?
a. Profit center
b. Bureaucratic control system
c. Decision-making control
d. Cultural control system
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

28. A permanent unit of the organization designed to focus the efforts of different subunits on particular
problems is a
a. Task force.
b. Full-time integrator.
c. Liaison.
d. Team.
 ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

29. Temporary groups created to solve a particular organizational problem such as entering a new market
are
a. Teams.
b. Liaisons.
c. Taskforces.
d. Full time integrators.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

30. Which of the following is NOT true regarding the use of control options by most multinationals?
a. Most multinationals use several types of coordination mechanisms.
b. Multinationals with export departments have very high need for coordination.
c. Matrix and transnational structures have very high needs for coordination.
d. For transnational networks, teams are increasingly virtual with members seldom meeting
face-to-face.
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

31. All of the following are TRUE about product structures EXCEPT
a. Product structure organizations must still perform functional tasks of a business.
b. In product structures, functional areas are concentrated in separate subunits.
c. Product structures are required when products or service are sufficiently unique to require
different functional support.
d. All of the above are true.
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

32. Subunits of a multinational company located in other countries than the parent company's headquarters
is known as
a. Functional divisions.
b. Foreign functional divisions.
c. Foreign subsidiaries.
d. International minireplica.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

33. The basic issue (s) that need to be considered for organizational design are
a. Division of work.
 b. Coordination.
c. Control.
d. All of the above
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

34. A large, entrepreneurial multinational that is able to tap into hidden pockets of innovation, technology,
and market know-how scattered around the world, especially in emerging markets is known as
a. A transnational.
b. A minireplica subsidiary.
c. A metanational.
d. A foreign subsidiary.
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

35. Which of the following control systems uses the organizational culture to control behaviors and
attitudes of employees?
a. Cultural control systems
b. Decision-making control systems
c. Bureaucratic control systems
d. Output control systems
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1

36. Which of the following is NOT one of the questions asked when designing an organization?
a. How should work be divided among the organization’s subunits?
b. How should the work be coordinated among the various subunits?
c. How should the work of the various subunits be controlled?
d. How many subunits should the multinational have?
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

37. Which of the following control systems focuses on managing behaviors of employees rather than
outcomes?
a. Bureaucratic control systems
b. Budgets and standard operating procedures
c. Cultural control systems
d. None of the above
ANS: A
AACSB Reflective thinking, Strategy

PTS: 1
 38. Which of the following represents the strongest coordination mechanism?
a. Task forces
b. Teams
c. Liaison roles
d. Direct contact
ANS: B
AACSB Reflective thinking, Strategy

PTS: 1

39. Knowledge that usually resides within employees and is dependent on the organization’s culture and
context is
a. Explicit knowledge.
b. Knowledge management.
c. Tacit knowledge.
d. None of the above
ANS: C
AACSB Reflective thinking, Strategy

PTS: 1

40. Which of the following statements regarding explicit knowledge is FALSE?

a. Explicit knowledge can be easily codified.
b. Explicit knowledge can be found in records and other information repositories.
c. Explicit knowledge can be easily transferred from employee to employee.
d. Explicit knowledge usually resides within employees and is dependent on the
organization’s context and culture.
ANS: D
AACSB Reflective thinking, Strategy

PTS: 1

ESSAY

1. Discuss some of the advantages of a functional structure over the product or geographic structure.
When is it necessary to adopt a geographic or product structure?

ANS:
Answers will vary but should reflect students’ understanding of the three key concepts: Organizations
structured around products or geographic locations do not concentrate functions in dedicated subunits.
Instead, functional tasks are duplicated for each product or geographic-area department, which usually
requires more managers and more people. The duplication of functions typically means some loss of
economies of scale, and these organizations are usually less efficient than the purely functional
organization. A geographic structure allows a company to serve customer needs that vary by region.
Managers choose product structures when they believe that a product or a group of products is unique
enough to require specialized functional efforts.

PTS: 1
2. What are some advantages of a worldwide product structure over a worldwide geographic structure?
What type of company would most likely choose each type?

ANS:
Answers will vary but should reflect students’ understanding of the two key concepts: In the
worldwide geographic structure, regions or large-market countries become the geographic divisions of
the multinational company. The primary reason to choose a worldwide geographic structure is to
implement a multidomestic or regional strategy, which requires a company to differentiate its products
or services by country or region and therefore to have an organizational design with maximum
geographic flexibility. Product divisions form the basic units of worldwide product structures. Each
product division assumes responsibility for producing and selling its products or services throughout
the world.It is usually considered the ideal structure to implement an international strategy, in which
the company attempts to gain economies of scale by selling worldwide products with most of the
upstream activities based at home.

PTS: 1

3. What are hybrid structures? What are the costs and benefits of having a hybrid structure?

ANS:
Answers will vary, but should demonstrate students’ understanding that most large multinationals have
hybrid structures, which allow companies to address their concerns both for local adaptation and for
the economic and product development benefits of globalization. The nature of the product determines
whether the emphasis is given to the product or geographic side of the company (how global the
products are) and the nature of the markets (how complex and different the major markets are).

PTS: 1

4. Describe the use of export management as a design structure to go international. When does it become
necessary to use an international division? What are some of the problems associated with
international divisions?

ANS:
Answers will vary but should reflect students’ understanding of the growth stages of exporting in
many multinationals: When exports contribute a significant percentage of sales and the company
wishes to increase its control over export operations, managers often create a separate export
department. As companies evolve beyond the initial participation strategies of exporting and licensing,
they need a more sophisticated structure: an international division. Besides managing exporting and an
international sales force, this division oversees foreign subsidiaries that perform a variety of functions.
However, the international division is better for moderate-sized companies; it is not considered an
effective multinational structure for multiproduct companies operating in many countries.

PTS: 1

5. What is a minireplica subsidiary? How is a minireplica subsidiary different from a transnational

subsidiary?

ANS:
 Answers will vary but should demonstrate students’ understanding of the two key concepts: For
companies pursuing a multidomestic strategy, the foreign subsidiary often becomes a scaled-down
version of the parent company, called a minireplica subsidiary. It uses the same technology and
produces the same products as the parent company, but it runs on a smaller scale. At the opposite end
of the spectrum is the transnational subsidiary. This type of subsidiary supports a multinational firm
strategy based on location advantages. The transnational subsidiary has no company-wide form or
function. Each subsidiary contributes what it does best for corporate goals.

PTS: 1

6. Compare and contrast bureaucratic control with output control.

ANS:
Answers will vary but should demonstrate students’ understanding of key concepts: Output control
systems assess the performance of a unit based on results, not on the processes used to achieve the
results. In multinational companies, top management and local management usually negotiate output
goals for foreign subsidiaries, and the goals must support the overall corporate strategy. Bureaucratic
control systems focus on managing behaviors, not outcome, within the organization. Typical
bureaucratic control mechanisms include budgets, statistical reports, standard operating procedures,
and centralization of decision making.

PTS: 1

7. What is cultural control? Why is it the favored control mechanism for transnational-network
structures?

ANS:
Answers will vary but should reflect students’ understanding of key concepts: Cultural control systems
use the organizational culture to control employees’ behavior and attitudes. Strong organizational
cultures develop shared norms, values, beliefs, and traditions among workers. Such cultures encourage
high levels of commitment and support for the organization. Workers and managers understand
management goals and direct their efforts in support of them. Cultural control is the favored control
mechanism for transnational network structures. Although transnational organizations use bureaucratic
and outputcontrol mechanisms, the uncertainties and complexities of the international environment
make these relatively formal mechanisms less effective than culture.

PTS: 1

8. Describe some functions of coordination mechanisms. Pick two coordination systems and describe
how they work.

ANS:
Answers will vary. Students’ answers should offer some detail on any two of the six basic horizontal
coordination systems: textual communication (memos or reports in electronic or paper form), direct
contact, liaison roles, task forces, full-time integrators, and teams. Coordination systems provide
information flows among subsidiaries so that they can coordinate their activities.

PTS: 1

9. What are control systems? Pick two control systems and describe how they work.

ANS:
 Answers will vary but should demonstrate students’ critical thinking skills and understanding that top
managers must design organizational systems to control and coordinate the activities of the subunits
that perform specialized tasks and responsibilities. Control systems help link the organization
vertically, up and down the organizational hierarchy. Control systems serve this purpose in two basic
ways: First, they measure or monitor the performances of subunits’ regarding their assigned roles in
the firm’s strategies. Second, they provide feedback to subunit managers regarding their units’
effectiveness.

PTS: 1

10. What is the transnational-network structure? Discuss some costs and benefits of having a transnational
network structure. Under what situation would a transnational-network be appropriate?

ANS:
Answers will vary but should reflect students’ understanding of the concept. The transnational network
structure is the newest solution to the complex demands of being locally responsive while taking
advantage of global economies of scale and seeking location advantages. The network links different
types of transnational subsidiaries throughout the world. Nodes, the units at the center of the network,
coordinate product, functional, and geographic information. Product group units and geographic area
units have different structures, and often no two subunits are alike. The basic structural framework of
the transnational network consists of three components: dispersed subunits, specialized operations, and
interdependent relationships.

PTS: 1

11. What is knowledge management? Distinguish between the types of knowledge.

ANS:
Answers will vary but should demonstrate students’ understanding that knowledge management
consists of the systems, mechanisms, and other design elements of an organization to ensure that the
right form of knowledge is available to the right individual at the right time. The focus is often on new
and/or filtered knowledge that leads to innovation.

PTS: 1
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