519 Organization Structure Essay

The organizational structure must evolve to accommodate internationalization, should be contingency based and must fit with strategy. There are main types of organizational systems as follow (Larger companies often use several of these structures in different regions or parts of their organization):

Domestic structure plus export department: small firms start their international evolvement by exporting. They may simply use the services of an export management company for this.

To facilitate access to and development of specific foreign markets, the firm can take a further step toward worldwide operations by reorganizing into a domestic structure plus foreign subsidiary in one or more countries. To be effective, subsidiary managers should have a great deal of autonomy and be able to adapt and respond quickly to serve local markets. This structure works well for companies with one or a few subsidiaries located relatively close to headquarters.

International division : The creation of an international division facilitates the beginning of a global strategy. It permits managers to allocate and coordinate resources for foreign activities under one roof, and thus enhances the firm’s ability to respond, both reactively and proactively, to market opportunities. E.g. IBM World Trade and Pepsi Cola International. Some conflicts may arise among the divisions of the firm because more resources and management attention tend to get channeled toward the international division than toward the domestic divisions and because of the different orientations of various division managers.

To respond to increased product diversification and to maximize benefits from both domestic and foreign operations, a firm may choose to replace its international division with an integrated global structure. This structure can be organized along functional, product, geographic, or matrix lines.

The global functional structure is designed on the basis of the company’s functions— production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale. This form of organization is primarily used by small firms with highly centralized systems. It is particularly appropriate for product lines using similar technology and for businesses with a narrow spectrum of customers. This structure results in plants that are highly integrated across products and that serve single or similar markets.

Global product structure: For firms with diversified product lines (or services) that have different technological bases and that are aimed at dissimilar or dispersed markets. Usually, each division is a strategic business unit (SBU)—a self-contained business with its own functional departments and accounting systems. The advantages are market concentration, innovation, and responsiveness to new opportunities in a particular environment. It also facilitates diversification and rapid growth, sometimes at the expense of scale economies and functional specialization. E.g. Heinz company used this structure for success by building international operations. With the global product (divisional) grouping, however, ongoing difficulties in the coordination of widely dispersed operations may result.

Organizing for global product standardization necessitates close coordination among the various countries involved. It also requires centralized global product responsibility (one manager at headquarters responsible for a specific product around the world), an especially difficult task for multiproduct companies.

One answer to this problem, particularly for large MNCs, is to reorganize into a global geographic structure. In the global geographic (area) structure—the most common form of organizing foreign operations—divisions are created to cover geographic regions. Each regional manager is responsible for the operations and performance of the countries within a

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