Chapter-5

Global Organization Design

GROUP- 3
• AAKASH GALA (MBA07001)
• ABHILASH DHOKE (MBA07004)
• GAURAV JAIN (MBA07018)
• KUNAL GHOTEKAR (MBA07025)
• PRITAM JAISWAL (MBA07037)
• SAHIL BODHALE (MBA07046)
 1

Motivations for Global Expansion

• Economies of Scale
• Economies of Scope
• Low-Cost Production
1) Economies of Scale 2

 Companies can achieve EoS by increasing their production and

lowering their cost through new technologies and production
methods.
 Many companies move to international markets for achieving EoS,
as domestic markets are not only sufficient to achieve the target.
2) Economies of Scope 3

 In Economies of Scope, low average cost can be achieved by

increasing the number of different goods produced or if
company can offer in variety of regions, countries and
markets.

 By doing so firms gain marketing power and synergy.

3) Low-Cost Production:- 4

 Firms moves overseas to secure raw-materials, labor and other resources at lower-cost.
 Also many countries have lower cost of capital, sources of cheap energy and reduced
government restrictions.
 5

Stages of International Development

I. II. III. IV.
Domestic International Multinational Global
Strategic Domestically Oriented Export-oriented, Multinational Global
Orientation Multi-Domestic

Stage of Initial foreign Competitive Explosion Global

Development involvement positioning
Structure Domestic structure Domestic Worldwide Matrix,
plus export department Structure plus geographic product Transnational
international division structure structure

Market Potential Moderate, mostly Large, multidomestic Very Large, Whole World
domestic Multinational
 6

Global Expansion
Most popular way companies get involved in international operations is through strategic alliances which typically
are licensing, joint venture and consortia.

Joint venture
• A joint venture is a business entity created by two or more parties, generally characterized by shared
ownership, shared returns and risks, and shared governance.
• Generally, to achieve production cost saving through economies of scale, to share technological strengths or
distribute new products through another’s distribution channel.

Consortia
• Group of independent companies which might include supplier, customer and even competitors that join
together to share skills, resources and access to another’s markets.
• Example Keiretsu family of corporations in Japan.
 7
Global Strategy
• Organization venturing into the international domain strive to formulate a coherent strategy that will
provide synergy among operations.
• They face a dilemma between Global standardization Vs Local Opportunities
• Either allow each global affiliate to act autonomously or activities standardized across countries.

Globalization Strategy
 This strategy means that product design,
manufacturing and marketing strategy are Multinational Strategy
standardized throughout the countries.
 This means that competition in different
 Generally, services are less suitable for globalization countries is handled independently.
because different customs require different approach
to provide service.
 It would encourage product design,
assembly and marketing tailored to specific
 Manufacturing organization can reap the economy of needs of each country.
scale efficiencies, sharing suppliers, design, and
eliminating overlapping facilities.
Designing Structure to Fit Global Strategy 8

Globalization Globalization &

HIGH
Strategy: Multidomestic
Strategy:
Global Product
Structure Global Matrix
Forces Structure
for
Global
Integration
Multidomestic
Export Strategy: Strategy:

International Division Global Geographic

Structure
LOW

Forces for
LOW National HIGH
Responsiveness
 International Division 9

Export department International division Product/Geographic Matrix

Structure

Domestic divisions and International divisions

• Domestic divisions are organized along
functional or product lines where as
international divisions are organized
according to geographic interests.
• International divisions has there own
hierarchy to handle business in various
countries.
Global Product Division 10

Structure(Globalization strategy)
 With a global product structure, each division’s manager is responsible for planning, organizing,
and controlling all functions for the production and distribution of its products for any market
around the world.
 The structure works best when the company has opportunities for worldwide production and
sale of standard products for all markets.
 This is one of the most commonly used structures through which managers attempt to achieve
global goals.
 It provides a fairly straightforward way to effectively manage a variety of businesses and
products around the world.
 Also this structure provides top managers at headquarters with a broader perspective on
competition, enabling the entire corporation to respond more rapidly to a changing global
environment.
Global Product Structure Used by Eaton 11

Corporation
Advantages and Disadvantages of the 12

product structure

Advantages
• Economies of scale
• It is very effective in managing variety of Disadvantages
business and products. • Compete instead of cooperating.
• A broad perspective on competition • Product Managers might ignore some of
• Respond more rapidly to a changing global the countries.
environment
• Can save the cost by standardizing activi-
ties and products.
Global Geographic Division Structure 13

(Multidomestic Strategy)
 This Structure is well suited for the companies that want to emphasize adaptation to regional or local
market needs through a multidomestic strategy.
 Under global geographic structure the world is divided into geographic regions, with each geographic
division reporting to the CEO.
 Also, each division has full control of functional activities within its geographic area.
 Example - Nestle and Colgate Palmolive Company
Global Geographic Structure of Colgate 14

Palmolive Company
 Advantages and Disadvantages Geographic 15

Structure

Advantages Disadvantages
• It is good for the companies which has mature • It is difficult to do Planning on the Global
product lines and stable technologies scale(R&D).
• Low-cost manufacturing within countries • New domestic technologies and products can be
• A strategy to customize the products to meet difficult to transfer to international markets.
specific needs. • Tracking and maintaining control of costs can be
a another problem.
 16
Global Matrix Structure(Both
Globalization and Multidomestic Strategy)
 This matrix works best when pressure for decision making balances the interests of both product
standardization and geographic localization.
 when coordination to share resources is important.
 17

Building Global Capabilities

• Trouble transferring successful ideas, products and services from their home country to the international
domain.

• Tremendous challenge in how to capitalize on the incredible opportunities that global expansion presents.
 18

The Global Organizational Design Challenge

Transfer
Complexity
of Knowledge
and Differentiation
and Innovation
Need for Coordination
 19
Increased Complexity & Differentiation

 Encounter a greater level of internal and external complexity than anything experienced on the
domestic front.
 Different barriers like economic development, language, political systems and government
regulations, cultural norms and values and infrastructure etc.
 Meet local needs and preferences.
Need for Coordination 20

 Coordination – the quality of collaboration across organizational units

 More differentiated, with multiple products, divisions, departments and positions scattered across
numerous countries
 Operating units can be divided by: goals, work attitudes, geographic distance, time differences,
cultural values, language
 21

Transfer of Knowledge and Innovation

 Learn from their international experiences by sharing knowledge and innovations across the
enterprise
 Diversity gives more opportunity
 Trickle-up innovation or reverse innovation

Main problems creating systems for sharing knowledge and innovation:

 Language, culture
 Managers don’t appreciate value of organizational integration, or views knowledge as power to
gain influential position in firm
 Knowledge is in the minds of employees
 22

Global Coordination
Mechanism
Managers meet the global challenge of coordination and transferring knowledge and
innovation across highly differentiated in variety of ways

Types

Headquarters Extended Coordination

Global Teams Roles
Planning
 Global Teams
23

• Also called Transnational Teams

• Cross border workgroups made of multi-skilled,
multinational members whose activities span multiple
countries
• Intercultural Teams: Members from various countries meet
face to face
• Virtual Global Teams: Meet Online
• Language differences create misunderstanding and mistrust
 24

Headquarters
Planning
• Headquarters take an active role
in planning, scheduling, and
controlling global organizations.

• Control through centralized

systems.
 25
Expanded Coordination Roles

• Managers are responsible for coordinating

across countries

• More responsibilities for functional

managers.

• Functional managers coordinate across

countries

• Country managers coordinate functions

 Benefits of
Cost SavingCoordination
Greater revenues

Better decision making Increased Innovation

Cultural differences in coordination and 26

control
 National Value Systems
• Organization’s home country influence managerial and organizational norms of International
companies
• Nine dimensions which explain cultural differences
• Power Distance
• Uncertainity Avoidance
• Performance Orientation
• Assertiveness
• Future Orientation
• Humane Orientation
• Institutional Collectivism
• In-group collectivism
• Gender egalitarianism
 27
Four National Approaches

• These dominant cultural differences don’t always reflect in organizational culture but can be clearly
identified when compared for countries in Europe, USA, and Asia
• Centralised Coordination in Japanese Companies
• Tradition in Chinese Companies
• European Firms’ Decentralized Approach
• The United States: Coordination and Control through Formalization
Centralised Coordination in Japanese 28

Companies
• Totally centralized organizational structure
• Top management directly engages and control all overseas operation
• Overseas executive just focus on the implementation of strategy
Advantages:
 Leverage knowledge and resources located at corporate centres
 Attain global efficiencies
 Coordinate across units to achieve synergy and avoid turf battles
Disadvantages:
 Bigger and slower
 Increased complexity and reduced decisions quality due to cross-cultural
operations
 29
Tradition in Chinese Companies
• Traditional family-like organizational culture, strong centralization, and hierarchy
of authority
• Top management consists of close associates and family members
• Employees are loyal not only to employers but also to rules and policies
• Guarding information and sharing only to trusted networks
• Guanxi(time to develop trust both inside and outside the firm)
• Quanzi(Informal networks that determine power dynamics)
• Acer has closely held the complimenting Chinese organizational values like focus
on long term, emphasis on collectivism, harmony and good family relationship
• Discarded growth hindering traits like mistrust, authoritarianism, and
centralization
• Encouraged decentralization, delegation, and empowerment
European Firms’ Decentralized Approach 30

• High level of Independence and decision making autonomy

• Coordination is achieved through strong mission, shared values, and informal relationships
• Great emphasis on selection, training and development of managers
Advantages
 Enables a company to excel in meeting local and diverse market needs
Disadvantages
 Costs incurred while training personnel in order to make sure executives share same values and goals
 Compels and slow decision-making processes
 Disagreements and conflicts among units challenging to resolve
SAP AG and Germans employees, they disliked so much authority from headquarters quote “You don’t
tell us what to do- we tell you what to build”
 The United States: Coordination and 31

Control through Formalization

• The Responsibilities are delegated to international units but overall control is retained at headquarters
• Done by using sophisticated management control systems and development of specialists headquarters
staff
• Formal systems, policies, standards of performance, and continuous flow of information from divisions
to headquarters is source of communication, coordination and control
Advantages
 Decision making based on policies, procedures and data so operational efficiency is achieved
 Conflicts are also reduced among divisions and between headquarter and divisions
Disadvantages
 Costs may be high to set up formal SOP
 Larger headquarter staff which must also be more qualified adding to overhead costs
 The rules and regulations may not always fit for coming problems and situations limiting managers
flexibility and response to new opportunities
 32
Transnational model Of Organization

• As organizations grow traditional organization management approaches aren’t able to handle rapid
environmental changes leave alone the increasing complexity
• So many organizations today employ the Transnational model Of Organization
• Used by large companies with subsidiaries in different parts of the world
• Aimed at exploiting both local and global advantages available and maintaining a competitive
edge by efficient sharing of information, knowledge, and resources
• Seeks to achieve global learning, global efficiency, and local responsiveness simultaneously
• Addresses issues that arise due to subsidiary growth, wide networks, and demand for autonomy
• Management philosophy based on interdependency
Characteristics of Transnational Model of 33

Organisation
•Assets and resources are dispersed worldwide into highly specialized operations that are linked together
through interdependent relationships
E.g.: PricewaterhouseCoopers
•Structures are flexible and everchanging
Are function of geographical locations, functions, or products.
Coordination and control mechanisms will change to meet new needs or competitive threats
•Subsidiary managers initiate strategy and innovations that become strategies for cooperation's as a whole
Identify each subsidiary as a unit of knowledge and capability which when exposed to environmental stimuli
generate strategies and idea which can be implemented in the whole company following the bottoms-up
approach
•Unification and Coordination are achieved primarily through corporate culture, shared vision and values, and
management styles, rather than through formal structure and systems