mgx5181 international business strategy week 12 international strategy implementation organisational...
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MGX5181 International Business Strategy
Week 12
International Strategy Implementation
Organisational structure and control
Objectives By the end of this session, students should be
able to:Identify a range of controls available to an
international businessesDemonstrate how organisational design (structure)
impacts on the control process of an international business
Understand how strategy impacts on structure Recognise how centralisation and decentralisation
of decision-making impacts on strategy and structure
Control Options
What are some of the methods used by MNCs to control their international operations:Human resourcesStructureReports and BudgetsVisitsSystems Corporate Culture
Direct Control
Face to Face or personal meetings for the purpose of monitoring operations. Problems are discussed, goals set, and actions taken to improve effectiveness.
Visits by top executives. Staffing practices of MNC’s. Organisation Structure - who reports to whom.
Indirect Control
Reports and other written forms of communication.eg: operating reports such as financial statements
including balance sheets, income statements, cash budgets and financial ratios etc..
Indirect controls are particularly important in international management because of the great cost associated with direct methods.
Factors that make control difficult:
Distance The geographic and cultural distances separating countries
will increase the time, expense, and possibility of error in cross-cultural communications.
Diversity Difficult to set standards or evaluate performance when
market size, type of competition, product, labour cost, currency etc vary between countries.
Factors that make control difficult continued...
Uncontrollablesshareholder’s demands may clash with company
objectives.Government regulations both in host & home countries.
Degree of CertaintyPolitical & economic conditions are subject to rapid
change in some locations. This change impedes the setting of long-term plans.
The Control Sequence
Establish Objectives
Select Control Methods
Set Standards
Locate Responsibility
Establish Communications
Continuous Review of Results
Continuous Correction of all Stages
Reassess Objectives & modify if needed
Review Methods & modify if needed
Reconsider Standards & modify if needed
Evaluate Communications & modify as necessary
Source: Cateora & Hess, 1979
4 Main Elements in Control Process
Setting of standards
The development of monitoring devices or techniques to monitor the performance of the individual or the organisational system.
4 Main Elements in Control Process continued..
The comparison of performance measures obtained from the different monitoring devices to the plans in order to determine if the current state of performance is sufficiently close to the planned state.
Employment of effective action devices to correct significant deviations of performance.
The 4 Major Areas of Control
Foreign Exchange Risks Monitoring Risk Limits Exchange rate forecasting Hedging
Environmental Controls Accounting Standards Tax Requirements Legal Differences Inventory Policies Social Overheads
eg: phone, electricity, education.
The 4 Major Areas of Control continued..
Risk AssessmentPoliticalEconomicLegal
Conflict with Host GovernmentActivitiesEmploymentSocial Controls
eg: Pollution
Factors that influence the type of decision making in subsidiary operationsEncourage centralisation Encourage decentralisationLarge size Small size
Large capital investment Small capital investment
Relatively high importance toMNC
Relatively low importance to MNC
Highly competitive environment Stable environment
Strong volume to unit costrelationship
Weak volume to unit costrelationship
High degree of technology Moderate degree of technology
Strong importance attached tobrand name, patent rights
Little importance attached to brandname, patent rights, etc
Low level of productdiversification
High level of productdiversification
Homogeneous product lines Heterogeneous product lines
Small geographic distancebetween home office andsubsidiary
Large geographic distance betweenhome office and subsidiary
High interdependence betweenunits
Low interdependence between units
Fewer highly competentmanagers in host country
More highly competent managers inhost country
Much experience in internationalbusiness
Little experience in internationalbusiness
The Evolution of Structure
Generally, firms give little thought to structure when first going international.
Typically there is no formal structure until such time that the international operations grow to a level where it becomes critical for a formalised structure to be put in place.
As the organisation’s international operations develop, so to will the need, to modify structure.
The “right” organisational form?
There is not one “right” way to organise. Generally, organisations are not “pure” but mixed. The greater the specialisation of the organisation’s
units, the more difficult it is to co-ordinate their activities.
Organisational structures are never permanent.
HQ
Overseas Operations
Home Country
Company size
Age of industry
Technology
Strategy
Personnel
Organisational
culture
Domestic operation
Products
Diversity
Finances
Ownership
Centralisation
Structure
Factors affecting Multinational Structure
Foreign Factors
National policies
Legal constraints
Distance
Size population
Raw materials
Markets
Health
Climate
Personal values
Language
Religion
Labour skills
Level of industrialisation
Communication
Organisational Structure and its impact on decision making
Stage 1: Exporting and LicensingWhen a firm’s first exposure to
international business comes from
export orders:Business focus remains domestic orientedDomestic structure is organised by function
Manufacturing,Finance,Marketing, etc..
Foreign orders a novelty or means of disposing excess productionAn Export Manager may be appointed Export Manager has little authority in organisation as to resource
allocation
Stage 1: Exporting and Licensing Growth usually haphazard May be supervised by executives with little interest
in these operations Status usually too low to take advantage of
opportunities As problems get out of hand a specialist dept usually
formed, often within Marketing Division If licensing used, staff ideally come from R & D and
employed by Marketing or Export. In practice licensing often remains part of R & D
Two options for emerging international organisations
Marketing Export Production Research and development
Export [Licensing]
Marketing Export Production Research and development
[Licensing] [Licensing]
[Licensing]
Or
(a)
(b)
Stage 1: Exporting and Licensing
Problems Negotiating payments on conditions
unenforceable in another country Appointment of agents or licensees on invalid
conditions Poor distribution, promotion and pricing Failure to monitor market for opportunities
Threats New competition as market grows Increasing government regulation
Typical Organisation of International Co. primarily engaged in exporting
Chief Executive Officer
Production Marketing Finance Personnel R & D
Export Manager
Chief Executive Officer
Production Marketing Finance Personnel R & D
Export Manager
Product Division : Dyestuffs
Product Division : Chemicals
Product Division: Pesticides
Product Division: Plastics
(a) Company with narrow product line
(b) Company with broad product line
Organisational Structure and its impact on decision making
Stage 2: Foreign Operations Faced with increased competition from
other producers and higher comparative costs resulting from such things as freight and tariff costs, the exporting firm feels pressed to defend its foreign market position by establishing a production facility inside the foreign market.
Initial operations usually decentralised Centralised management as importance and knowledge
grows Centralising control results in move to an International
Division Structure.
Typical organisation of company at Early Foreign Production Stage
Chief Executive Officer
Production Marketing Finance Personnel R & D
UK Germany Brazil Nigeria Japan
Corporate Staff
Foreign Subsidiaries
etc.
Organisational Structure and its impact on decision making
Stage 3: International Division StructureAs the volume of international business grows and becomes
relatively more important the firm typically establishes an international division.
All international activities are grouped into one separate division and assigned to a senior executive at corporate headquarters.
Executive at same level as other divisional & functional heads. Segregates operations into domestic and international.
The International Division Tends to be highly centralized.
Places international operations at the same organisational level as domestic oriented Functional or Product divisions.
Still less autonomous than domestic divisions.
Few executives have international expertise.
The International Division
Benefits Special needs of foreign operations are met.
Provides unified position to company's activities in different countries.
Coordinated financial function, investment decisions made on a global basis.
The International DivisionProblems Separation & isolation of domestic managers from
their international counterparts Problem of whether domestic managers think
strategically on a global basis. Conflict between domestic & international divisions
when international division gets what it considers inadequate technical support and second-rate staff for overseas assignments.
Research & development remains domestically oriented.
International Division Structure
Chief Executive Officer
Production Marketing Finance Personnel R & D
Corporate Staff
Line Management
Domestic Division : Dyestuffs
Domestic Division: Chemicals
Domestic Division: Pesticides
Domestic Division: Plastics
International Division
etc.
Divisions within the International Division
(b) By product
Product Frozen Foods
Product Soup Product Canned Foods
Product Dairy Products
International Division Head
(a) By area
Europe Asia South
America
Africa
International Division
Product Fruit Drinks
Organisational Structure
Stage 4: Global StructuresInternational division is not the
appropriate structure when:The international market is as important as the domestic
market.Senior officials have both foreign and domestic experience.International sales represent 25% to 35% of total sales.Technology used in domestic divisions has far outstripped
that of the international division.
ResultGlobal Product Division; Global Area Division, Global
Functional Division, Matrix Structure or Variation.
GLOBAL PRODUCT STRUCTURE
Under a global product structure, the product divisions are responsible for all manufacture and marketing worldwide.
It is the most common structure used by MNCs. It is used by most consumer-product firms with
a diversity of products.
Global Product Division Structure
Chief Executive Officer
Production Marketing Finance Personnel R & D
Corporate Staff
Line Management
Product Division A
Product Division B
Product Division C
Product Division D
Product Division E
etc.
Europe Africa Latin Far East
America
Indonesia
South Korea
Singapore
Production Marketing Finance
etc.
GLOBAL PRODUCT STRUCTURE
BenefitsImproved cost efficiency through centralisation of
manufacturing facilities.Ability to balance the functional inputs needed for a product. Ability to react quickly to product-specific problems in the
marketplace.Suited to the development of a global strategic focus in
response to global competition.Allows departments to operate as autonomous profit centres
(SBUs)Adds flexibility to a firm’s structureDevelops broadly trained managers
GLOBAL PRODUCT STRUCTURE
ProblemsUpheaval as change to this structure usually accompanied by
consolidation of operations and plant closings.Fragments international expertise within the firm because a
central pool of international experience no longer existsProduct managers may focus their attention only on the larger
markets, or only on the domestic, and fail to take the long-term view.
Co-ordination of activities among various product groups operating in the same markets is crucial.
Leads to decreased communication between functional specialists
Contributes to a lack of clarity of functional area responsibilities and a duplication of services
STRATEGIC BUSINESS UNITS
Commonly defined as business entity with a clearly defined market, specific competitors, the ability to carry out its business mission, and a size appropriate for control by a single manager.
Most SBUs are based on product structure lines and if a product must be modified to suit different markets, a worldwide product SBU may be divided into a few product/market SBUs serving various countries or groups of countries.
SBUs do not determine how a company as a whole will organise its internal operations.
Companies with numerous SBUs frequently group them together into another unit called sector or operating unit. Other firms use other names.
GLOBAL AREA STRUCTURE
Under a global area structure geographic divisions are responsible for all manufacture and marketing in their respective areas.
Used by:Companies that have relatively narrow product lines with
similar end uses and end users. • However, expertise is needed in adapting the product and its marketing to
local market conditions.
Popular with companies that manufacture products with a low, or at least stable technological content that require strong marketing ability.
Producers of consumer products such as prepared foods, pharmaceuticals and household products employ this type of organisation.
Chief Executive Officer
Production Marketing Finance Personnel R & D
Corporate Staff
Line Management
North
AmericaEurope Latin
America
Middle
EastAsia
etc.
United Kingdom
France
Germany
Italy
Global Geographic (Area) Division Structure
GLOBAL AREA STRUCTURE Benefits
Organisations can cope with markets that vary widely in respect to product acceptance and operating conditions as authority to make decisions pushed down to regional headquarters.
Allows business units to adapt to local circumstancesTakes advantage of local legal, political and cultural differencesProvides territories as a training ground for general managers
GLOBAL AREA STRUCTURE
ProblemsHard to coordinate production across regions.Requires a large number of general managersLeads to a possible duplication of staff servicesPresents problems for top management control over local operationsDifficult to co-ordinate global product planning.Essential information and experience may not be transferred from one
regional area to another.• To help alleviate these problems management often place specialised product
managers on the headquarters staff.
GLOBAL FUNCTIONAL STRUCTURE
Under a global functional structure, functional areas such as production, marketing, finance and HRM are responsible for the worldwide operations of their own functional area.
Used by:Organisations where both the products and customers
are relatively few and similar in nature e.g. aircraft manufacture; oil refining
Global Functional Structure
Chief Executive Officer
Production Personnel Finance MarketingR & D
Production Domestic Production Foreign
Product A
Product B
Product C
Product D
Product A
Product B
Product C
Product D
Marketing Domestic Marketing Foreign
Region A
Region B
Region C
Region D
Region A
Region B
Region C
Region D
Global Functional Process Structure
Chief Executive Officer
Exploration Production Transportation MarketingRefining
South China Sea
Bay of Bengal
Persian Gulf
Saudi Arabia
Taiwan
India
Kuwait
Saudi Arabia
North America
Europe and Middle East
Far East and Australia
South China Sea
Bay of Bengal
Persian Gulf
Saudi Arabia
GLOBAL FUNCTIONAL STRUCTURE
ProblemsCo-ordination between manufacturing and marketing in an area is
typically a key problem.Multiple product lines are difficult to manage because of the
separation of production and marketing into departments with parallel lines of authority to the top, and only the CEO can be held responsible for the profits.
• To overcome this, staff functions are created to interact between the functional areas, otherwise the company’s marketing and regional expertise may not be exploited to the fullest extent possible.
Functional structures are not common and can breakdown easily if poor co-operation between functions.
MATRIX ORGANISATIONS
Superimposes an organisation based on another dimension.
Both the area and product managers will be at the same level, and their responsibilities will be at the same level and overlap.Ciba-Geigy, the Swiss chemical and
pharmaceutical MNC, has an organisational structure based on a matrix of 3 dimensions:
• product• function• geographic region
Chief Executive Officer
Production Marketing Finance Personnel R & D
Corporate Staff
Line Management
Europe Tractors Asia
Other area and product divisions
General manager of tractors, Europe
General manager of tractors, Asia
Matrix Structure
MATRIX ORGANISATIONS
Problems: 2-3 managers must agree on a decision.
This can lead to less-than-optimum compromises, delayed responses and power politics.
When agreement cannot be reached, the problem goes higher and takes management away from its duties.
Solution: Matrix overlay.
Matrix Overlay Structure
Attempts to address the problems of the matrix structure by requiring accountability of all functions without the stresses.
If organised by product, may have regionalist specialist in a staff function required to have input to product decisions. May be organised in an international division.
A regional organisation may have product managers on its staff who provide input to regional decisions.
Hybrid FormsA mixture of organisational forms is used at the top
level and may or may not be present at the lower levels.Are the result of a regionally organised company
having introduced a new and different product line that management believes can be best handled by a worldwide product division.
An acquired company with distinct products may be incorporated as a product division even though the rest of the company is regionalised, until management becomes familiar with the operation.
Hybrid Organisational Form
Domestic Division A
CEO
Domestic Division B
International Division Corporate Staff
Pacific Division Products A & B
Worldwide Product Division C
Original Equipment Products A & B
Serves Products A & B in locations other than the Pacific
HORIZONTAL ORGANISATIONS
Sometimes called corporate networking.
Teams can be drawn from different departments to solve a problem or deliver a product, i.e. this occurs in industries such as aerospace, or vehicles.
HORIZONTAL ORGANISATIONS
In a networked firm, employees worldwide create, build and market the company’s products through a carefully cultivated system of inter-relationships.E.g. Marketers in UK speak directly to production in Brazil
without going through head office in Germany. Greater decision making is at middle management level. The idea is to instigate cooperation and coordination instead of strict control and supervision.
Firms that have adopted the horizontal organisation have a strong corporate wide business philosophy that binds employees. IBM and Dow Chemicals are two examples.
Transnational Focus not on structure but on management processes & culture. It recognises that a global organisation has 4 types of managerial
roles:Global business managers
focus on global activity and strategy
Country managers Act as sensors of local opportunities and threats build national resources and contribute to global competitive development
Functional managers Specialists
Corporate Managers Overall leaders and talent developers
Transnational Key is develop matrix of the mind “Think global act local”. Seven key features:
Business units are part of a network reciprocal dependent
Non-dominant dimension All important (e.g area, function, global)
Clear defined operating systems Transparent and multidimensional
Good interpersonal relationshipsInter-unit decision forums
Active participation b/w global and functional managers in SBU boards
Strong corporate valuesCulture of sharing and willingness to collaborate