Organization Structure in International Business PRESENTED BY: JATIN VAID
Organization Structure Organization is defined by the formal structure, coordination and control systems, and the organization culture. It’s the formal arrangement of roles, responsibilities and relationships within an organization. It’s a powerful tool with which to implement strategy.
Vertical Differentiation: Centralization V/S Decentralization. Vertical Integration: The issue of determining where in the hierarchy, the authority to make decisions stand. Centralization is the degree to which high level managers, usually above the country level, make strategic decisions and pass them over to lower levels for implementation. Decisions made at foreign subsidiary level are considered decentralized, and those made at HQ are considered to be centralized.
Centralization V/S DecentralizationCentralization Decentralization Decisions made by senior level Decisions made by managers at HQ. employees, who are closest to the Facilitates coordination of value situation. chain Employees who directly deal with Ensures decisions are consistent with customers, markets, etc strategic objectives. Senior executives have authority to Motivates employees to exercise direct major change. initiative. Preempts duplication of activities Enables more flexible response to Reduces the risk of making wrong rapid environmental changes. decisions at low level Permits to fix better Ensures consistent dealings with all accountability. stakeholders. Puts the org at risk for bad Discourages initiative among lower – decision making. level employees. Cross – unit coordination is at stake for favouritism.
Horizontal Differentiation: The Design of the Formal Structure Horizontal Differentiation: The way a co. designs its formal structure to perform the following functions;1. Specify the set of organizational tasks.2. Divide these tasks into jobs, departments, subsidiaries and divisions to get the work done.3. Assign authority relationships to get the work done in a way that supports co. strategy.
Types of Organizational Structures1. Functional Structure2. International Division Structure3. Product Division Structure4. Geographic (Area) Division Structure5. Matrix Division Structure
1. Functional Structure Specialized jobs are grouped according to traditional business functions. CEO Ideal for Co. having a narrow product line, Production Marketing sharing similar technology. India USA India USA Helps maximize economies of scale Highly efficient.
2. International division structure. Grouping each international business activity into its own division. Creates a critical mass of international expertise. Creates quick response to environmental changes enabling them to deal with different CEO markets. Prevents duplication of activities. Industrial Division Automotive Division Aerospace Electronics International Division Often struggles to get resources Division from domestic divisions. Diesel Electronics Brake This structure is suited for Company (France) Company (France) Company (Mexico) multidomestic strategies that demand little integration and standardization between domestic and foreign operations. Frustrates its ability to exploit economies of scale.
Product Division Structure These are popular among international companies with diverse products. Similar products are grouped under one product head e.g. Perfumes and Cosmetics, each CEO focusing on a single product segment for its global market. Suited for a global strategy Power Systems Group Industry And Defense Group There may be duplicate functions and activities Electric Elevatoe Construction among divisions. Company (Belgium) Meter Company (Argentina) Company (Belgium) Products Company (Italy) No formal means by which one product divison can learn from another international expertise.
Geographic (Area) Division Structure These are used when foreign operations are large and not dominated by a single country or region. Useful when managers can gain economies of scale on a CEO regional rather than on global basis. Europe and Latin America North America and Pacific Division Division Drawback is the potential of duplication of work among U.K. Venezuela Italy U.S. Japan Canada areas as the company locates similar value activities in several places rather than consolidating them in the most efficient place.
Matrix Division Structure This tries simultaneously to deal with competing pressures for global integration and local responsiveness. Institutes overlaps among functional and divisional forms. CEO Gives functional, product, and geographic groups a common focus. It makes each group share responsibility for foreign operations Textile Agricultural Europe- Latin and enables each group exchange Groups Products Africa Group America Group information and resources more Group willingly. Drawbacks- Stop championing their group’s unique needs, and thereby eliminate the multiple knowledge- Mexico generating and decision making U.K. relationship that it is supposed to engage.