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Organisation Design in International Business

by Christian Zimmerer (Author) Christoph Stockert (Author)

Seminar Paper 2010 30 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

1 Introduction

2 Organisation strategies
2.1 Multidomestic companies
2.2 International companies
2.3 Global companies
2.4 Transnational companies

3 Organisational Architecture
3.1 Organisational Structure
3.2 Control systems and incentives
3.3 Processes
3.4 Organisational Culture

4 Combining Strategy and Architecture in Organisations

5 Organisation in culture
5.1 Kereitsu
5.2 Chaebol
5.3 Family Business networks
5.4 Kibbutz

6 Conclusion

7 References

Table of Figures

Figure 1: Stopford and Well's international structural stages model

Figure 2: Characteristics of multi domestic organisations

Figure 3: Characteristics of international organisations

Figure 4: Characteristics of global organisations

Figure 5: Characteristics of transnational organisations

Figure 6: Organisational Architecture

Figure 7: Functional Structure

Figure 8: Product Divisional Structure

Figure 9: International Divisional Structure

Figure 10: Worldwide Product Divisional Structure

Figure 11: Global Matrix Structure

Figure 12: Combining Strategy and Architecture in Organisations

1 Introduction

In international business companies always have to take care about fast changing markets and customer needs. To be able to cope with these re­quirements the necessity of a perfect fitting organisational framework is given.

Organisational strategy is one step to prepare a company for these needs. It allows the managers to prepare for different cases regarding product and globalisation issues.

Another important point is the choice of the organizational architecture. It supports the strategy of the organisation with different approaches. Structure, incentive and control systems, processes, culture, and people are the main areas of the organisational architecture. The right combina­tion of these factors helps to support the business success.

A lot of cultures developed their own successful organization types. They implement typical cultural elements of a certain region and combine it with their business activities. It helps to improve the business activities and be­come effective global players.

The topics mentioned above will be illustrated in the following chapters. They provide an overview of the main elements of organisation strategy and organisation architecture as well as some culture specific forms.

2 Organisation strategies

Growing from a regional start-up to a world wide spread multi billion Euro company, each business has to deal with the same problem of structuring the company. It is not the know-how of the competences regarding the products, but rather the strategy how to set up and control the company in different environments.

A study from Stopford and Wells (1972) investigated a relationship be­tween the structure and the strategy of a multinational company.[1] They identified two main variables which “predict” the structure of an organisa­tion: percentage of foreign sales and the foreign product diversity.

First step for each company when they internationalize is to set up an in­ternational division. That allows keeping the domestic division and also working international. The isolation between these divisions can encour­age the duplication of efforts and a lack of coordination, which results in a loss of effectiveness and efficiency.[2] As a result of this companies change their structure. If they keep their product range but have an increasing for­eign sale they mostly choose area division. In this setting the world is di­vided into different areas and each area has its own independent com­pany. If companies have high foreign product diversity and internationalise the company they very often choose a product division structure. That means the divisions are created for a product and not for a certain area.

In case of high foreign product diversity and a high percentage of foreign sales a global matrix structure is according to Stopford and Wells the most chosen model because it combines the advantages of area and product division.

illustration not visible in this excerpt

Foreign salesasa percentage oftotal sales

Figure 1: Stopford and Well's international structural stages model3

Their model focuses only on the structure of a company. A modern ap­proach including a company’s industrial environment, the processes, the structure and the strategy is the concept of Bartlett and Ghoshal. It is di­vided in four main concepts, which will be presented in the next chapters along with the historical development.

2.1 Multidomestic companies

Differences in consumer preferences, protectionism, high tariffs and logis­tical barriers between the two world wars were the beginning of the multi­domestic companies. They can be described as a decentralised loose fed­eration of a headquarters with subsidiaries in different countries or areas of the world. These subsidiaries are relatively independent and work like small companies on their own, without any strategic direction from their headquarters just focusing on their area. Strategic and operational deci­sions are just made by subsidiaries with their own national responsibilities. The connection to the headquarters is more or less just a flow of money. That means the headquarters provide the money e.g. to build up a manu-[3] facturing line and the earned money flows back to the headquarters as dividends.[4]

Purpose of this decentralised concept is to give the local mangers the possibility of focussing more on the national or local markets and not to be limited on the company’s main strategy. Today the multidomestic strategy is very often used in the food industry because that allows companies to respond to consumer (and cultural) preferences on a certain market.[5]

illustration not visible in this excerpt

Figure 2: Characteristics of multi domestic organisations[6]

2.2 International companies

In the concept of Bartlett and Ghoshal the international company grew as a consequence of the situation after the Second World War. Completely undamaged, with a lot of new technology and new products American companies were forced by worldwide demands of the customers to offer their goods worldwide. Out of that scenario the International Product Life Cycle Modell was developed by Vernon in 1966, which forms the basis for Bartlett and Ghoshals model of an international company.[7]

If a company has to satisfy a worldwide product demand but does not have the time to grow within their organisational structure they just export their products. Later on they build subsidiaries. They are part of a coordi­nated federation, where technology, products and processes are provided by the headquarters as a knowledge flow between all units. So they can set up an own manufacturing line with the product knowledge of the parent company and later on adapt the product details for the local market.[8] Cor­responding to the product life cycle the headquarters can transfer the pro­duction later on completely to a subsidiary and profit for example from lower wages. Strategic and core decisions are made central. The head­quarters controls also the framework with planning and budgeting all activi­ties. If necessary, operational decisions can be made on a local base, to focus on local customer needs.

illustration not visible in this excerpt

Figure 3: Characteristics of international organisations[9]

2.3 Global companies

The reduction of tariffs, international logistics costs and communication barriers began to have full impact on global business in the late sixties. The increasing international travel and also the improved world wide communication led to the fact that consumer preferences became more homogeneous. These two developments led to a revival of the centralised production. The consequence was that scale effects occurred easier be­cause the worldwide consumer needs were the same and so centralisation was profitable.[10] In this worldwide setting the competitiveness of a com­pany in one country was extremely influenced by the rivals in the same country and those in the whole world. The consumer electronics sector was one industry which was strongly affected by that development espe­cially from Japan. The preferred strategy aimed at the production of the same or similar products which should increase the efficiency and de­crease the costs to a minimum. The company’s organisation structure was more centralized, giving more power to the headquarters. Key decisions, allocation of resources and responsibilities were centralized and under a strong control of the headquarters.[11] Production is also centralized in one hub. As a consequence there is a flow of goods and products between headquarters and subsidiaries to achieve scale effects. The Subsidiaries were only focusing on customer sales and service activities. Comparing global companies with multidomestic and international companies they have almost no freedom of action. The configuration is comparable to the product division of Stopford and Well's model.

illustration not visible in this excerpt

Figure 4: Characteristics of global organisations[12]

2.4 Transnational companies

The last development of an organisational structure regarding Bartlett and Ghoshal's model took place in the late 1970s. Host countries of multina­tional companies were concerned about the impact of the companies on their balance of trade, national employment levels and the international competitiveness of their economies. To manage these tendencies they set up trade barriers to control exports and foreign direct investments. With the increasing use of software, CAD/ CAM technologies and flexible manu­facturing the minimum efficient scale was reduced for companies.[13] This enables companies to focus on the consumer preferences of products tai­lored especially to their needs. To cope with all these requirements a new, much more flexible company type was developed: an integrated network type structure. In this type of company structure the relevance of the headquarters decreases while the main subsidiaries become more impor­tant. All units are equal and each unit is directly linked with each other. In this loose network, clusters for certain strategic reasons or activities can be created out of one and more units. Therefore they can focus on prod­ucts, regions and customers. The allocation of assets, resources and ca­pabilities are neither centralised nor decentralised and knowledge and ex­pertise are spread throughout the whole network.[14] Decision making is shared, that means all relevant members have to agree on important deci­sions. The control and coordination of that network is very complex. Be­tween all units is a strong flow and interchange of goods, knowledge, fi­nance and resources depending of the tasks of a unit.

[...]


[1] cf.Tayeb, M.: “International business - Theories, policies and practices”, 2000, p. 420.

[2] cf. Stonehouse, et. al.: “Global and Transnational business - Strategy and Manage­ment”, 2000, p. 322.

[3] cf. Tayeb, M.: “International business - Theories, policies and practices”, 2000, p. 421.

[4] cf. Tayeb, M.: “International business - Theories, policies and practices”, 2000, p. 426­427.

[5] cf.Hill, Charles W. L.: “International Business - competing in the global marketplace”, seventh edition, 2003,p. 427-428.

[6] cf. Tayeb, M.: “International business - Theories, policies and practices”, 2000, p. 429.

[7] cf. Tayeb, M.: “International business - Theories, policies and practices”, 2000, p. 427­

428.

[8] cf.Hill, Charles W. L.: “International Business - competing in the global marketplace”, seventh edition, 2003,p. 430-431.

[9] cf. Tayeb, M.: “International business - Theories, policies and practices”, 2000, p. 429.

[10] cf.Tayeb, M.: “International business - Theories, policies and practices”, 2000, p.428.

[11] cf.Hill, Charles W. L.: “International Business - competing in the global marketplace”, seventh edition, 2003,p. 426-427.

[12] cf.Tayeb, M.: “International business - Theories, policies and practices”, 2000, p.429.

[13] cf. Tayeb, M.: “International business - Theories, policies and practices”, 2000,p. 428­429.

[14] cf.Hill, Charles W. L.: “International Business - competing in the global marketplace”, seventh edition, 2003,p. 429-430.

Details

Pages
30
Year
2010
ISBN (eBook)
9783656145011
ISBN (Book)
9783656145004
File size
648 KB
Language
English
Catalog Number
v184777
Institution / College
Pforzheim University
Grade
2,0
Tags
Bartlett and Ghoshal Stopford and Well Chaebol Family Business networks Kibbutz

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Title: Organisation Design in International Business