Exam 3 - International Business Chapter 10

hybrid structure

As global businesses grow in reach and depth, sometimes they adopt a combination of organizational structures that best fit their needs. This combination of organizational structures is called a hybrid structure.

• International Division

As the volume of exports grows, it may become feasible for the firm to manufacture and sell the products in the countries where the exports are being shipped. Expertise in foreign markets becomes important as well. The export department becomes the international division. An international division is advantageous because it permits global business to concentrate all international efforts and expertise in one location. If the organizational division is at the same level as domestic operations, it signals to international customers their importance to the company. It fosters a global mindset in the people working within the division. However, an international division also can have disadvantages. One major disadvantage is the potential conflict between domestic and international operations. Other disadvantages come from separating domestic and international operations, resulting in a lack of communication and coordination.

• Stateless Corporation

Firms that transcend international boundaries are called stateless corporations.

matrix structure

For most firms, hybrid structures provide with enough flexibility to achieve the goals of the organization. However, in special cases, companies need the simultaneous benefits of both the functional and the divisional structures: the technological expertise within functions and the horizontal coordination across functions. The matrix structure, is an organizational structure in which people are grouped simultaneously by function and by division. The functional managers and the division managers have equal authority within the organization, and employees report to both managers. The matrix structure is advantageous because it allows the company to meet multiple demands from the environment, it allows employees the opportunity to acquire both functional and division-related skills. It also facilitates innovation and creativity and provides a work setting in which employees with different functional expertise can cooperate to solve problems. A basic problem of the matrix structure is determining the responsibility and authority relationships between the functional and divisional managers. Matrix structures also limit opportunities for promotion because most employees move laterally, from division to division, and not vertically to upper management. Matrix structures are used only by companies that depend upon rapid product development for their survival, or by firms that manufacture products designed to meet specific customer needs.

• Creating an Export Department.

The first step a domestic firm takes when entering the global arena is usually to export some of its products. Sometimes the employees handling the exports may primarily work within another function, such as Marketing or Operations. As the demand for the exported products grows, the number of people needed to handle the job increases as well, which leads to the formation of an export department.

division

a business subunit consists of a collection of functions or departments that share responsibility for producing a particular product or service.

organization

can be defined as a tool that people use to coordinate their actions to obtain something they seek of value.

Organizational structure

can be defined as the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals. The organizational structure serves the following purposes: • It allows the members of the organization to perform a wide variety of activities based upon a division of labor that leads to the departmentalization, standardization, and specialization of functions and tasks. • It permits to the organization members the coordination of their activities by integration mechanisms such as hierarchical supervision, formal rules and procedures, and training and socialization. • It determines the boundaries of the organization and regulates its interfaces with the environment and its interactions with other organizations.

Four Organizational Structures for Global Business

functional structure divisional structure hybrid structure matrix structure

• In the second stage

global companies establish foreign subsidiaries to handle the exports from their home countries.

• In the first stage

global companies produce goods in one country and export them to other countries.

• In the third stage

global firms set up operations in other countries

functional structure

is an organizational structure that groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kinds of skills. Global businesses that use a functional structure typically have a narrow product line or a highly integrated product mix. The functional structure has several advantages: it promotes economies of scale, in-depth skill development, encourages collaboration, efficiency and quality within the function. Disadvantages include inability to respond to environmental changes that require coordination between the functional areas, it promotes restricted view of the organization's goals among employees, and can lead to local optimization at the expense of global optimization. Finally, accountability is diffused because profit and loss accounts are calculated for the entire firm rather than for each function.

• In the fourth stage

stateless corporations locate their core corporate functions and top executives in different countries in order to achieve competitive advantage via access to talent, capital, low costs, or proximity to their most important customers. When stateless corporations organize this way, they are no longer limited to the strengths not constrained by the weaknesses of a single country.

Export Departments and International Divisions

. One finds a variety of organizational structures. The early stages of a company's process toward becoming globalized are represented by export departments and international divisions.

divisional structure

A divisional structure refers to one type of organizational structure in which functions are grouped together to serve the needs of products, markets, or geographical regions. The divisional structure is organized according to the various outputs of the global business. Although normally each division is managed as a separate business, coordination across the divisions is overseen by a group of managers at corporate headquarters who are responsible for allocating resources among divisions and deciding upon the long-term strategy of the firm. One of the primary issues in a divisional structure is the degree of autonomy granted to the divisions when making decisions. Advantages of the divisional structure include the fact that functions are able to focus their activities on a specific kind of product, market or geographical region. This allows the division to create high-quality products. Divisions also develop a common identity and approach to problem solving, which increases cohesiveness and results in improved performance. Because each division has the full complement of functional resources, it can respond to the requirements of individual products, markets or regions and quickly adapt as the needs change. Each division can be held accountable for its performance. The primary disadvantage of the divisional structure is that it requires high operating and managing costs, which is a consequence of each division having its own set of functions, in addition to the corporate headquarters. Communication problems may arise as various managers in different divisions attempt to coordinate their activities. Additionally, divisions may start to compete for organizational resources and may start pursuing divisional goals at the expense of the goals of the company as a whole. o A product structure is a particular kind of divisional structure that groups products into separate divisions according to their similarities or differences. o A market structure is a particular kind of divisional structure that groups products into separate divisions according to the needs of different customers. o A geographical region structure is a particular kind of divisional structure that groups products into separate divisions according to the needs of the different geographical regions the company serves. Geographical region structure is also called area structure.