Chapter

Entry Strategies and Organizational Structures

The specific objectives of this chapter are:
1. 2. 3.

DESCRIBE how an MNC develops and implements entry strategies and ownership structures. EXAMINE the major types of organizational structures used in handling international operations. ANALYZE the advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.

Basic Organizational Structures

Initial division structures

Subsidiary

Common for finance-related businesses or other operations that require an onsite presence from the start Common among manufacturing firms, especially those with technologically advanced products In response to local governments when sales increase Need to reduce transportation costs

Export arrangement

On-site manufacturing operations

Basic Organizational Structures

Home-office departments Chief Executive Office

Production

Marketing

Finance

Human Resources

Overseas subsidiaries

V.P. International Operations

France

Japan

Egypt

Australia

Argentina

Adapted from Figure 93: Use of Subsidiaries during the Early Stage of Internationalization

International Division Structure

International division structures A structural arrangement that handles all international operations out of a division created for this purpose

Assures that international focus receives top management attention Unified approach to international operations Often adopted by firms still in the developmental states of international business operations Separates domestic from international managers (not good) May find it difficult to think and act strategically, or to allocate resources on a global basis
See example next slide

International Division Structure

(Partial Organization Chart) Chief Executive Officer Home-office departments Production Operating divisions Domestic Division: Plant Domestic Division: Tools Domestic Division: Hardware Domestic Division: Furniture Australia Office Operations
Adapted from Figure 94: An International Division Structure

Marketing

Finance

Human Resources

International Division:

Japan

Italy

Marketing

Government Relations

Global Product Division

Global product division

A structural arrangement in which domestic divisions are given worldwide responsibility for product groups

Global product divisions operate as profit centers Helps manage product, technology, customer diversity Ability to cater to local needs Marketing, production and finance can be coordinated on a productby-product global basis Duplication of facilities and staff personnel within divisions Division manager may pursue currently attractive geographic prospects and neglect others with long-term potential Division managers my spend too much time tapping local rather than international markets
See example next slide

Global Product Division

Home-office departments Production Operating divisions Product Division A S. America Product Division B Africa Product Division C Europe Product Division D Australia
Great Britain France Germany Italy Netherlands

Chief Executive Officer Marketing Finance

(Partial Organization Chart) Human Resources Product Division E Far East

Production

Marketing

Finance

Human Resources

Adapted from Figure 95: A Global Product Division Structure

For example, Procter & Gamble (P&G) has three global

product divisions, namely Global Beauty, Global Household Care, and Global Health & Well-being (as well as a Global Operations division). Thus, the Global Beauty division would have its own manufacturing facilities, suppliers, brands, distribution network, and service department.

Color TVs and VCRs these differing life cycles require

close technologic and marketing coordination between the home and foreign market which is best done by product division approach

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Global Area Division

Global area division

A structure under which global operations are organized on a geographic rather than a product basis

International operations are put on the same level as domestic operations Global division managers are responsible for all business operations in their designated geographic area Often used by firms in mature businesses with narrow product lines By manufacturing in a region, the firm is able to reduce cost per unit and price competitively Difficult to reconcile a product emphasis with a geographic orientation New R&D efforts often ignored because divisions are selling in mature market
See example next slide

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Global Area Division

(Partial Organization Chart) Chief Executive Officer Home-office departments Production Operating divisions North America South America Europe Asia Great Britain France Germany Italy Netherlands
Adapted from Figure 96: a Global Area Division Structure

Marketing

Finance

Human Resources

Africa

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Alcatel , French Telecom MNC have set up its asian

headquarters in Shanghai. The geagraphic structure allows division manager to cater the taste of the local market.
E.g US soft drinks have less sugar than in SA so the

manufacturing process will be slightly different in these two locales.

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Global Functional Division

Global functional division

A structure that organizes worldwide operations primarily based on function and secondarily on product

Approach used by companies having functional expertise. Favored only by firms that need tight, centralized coordination and control of integrated production processes and firms involved in transporting products and raw materials between geographic areas Emphasizes functional expertise, centralized control, and relatively lean managerial staff Coordination of manufacturing and marketing often is difficult Managing multiple product lines can be very challenging because of the separation of production and marketing into different departments
See example next slide

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Global Functional Division

(Partial Organization Chart) Chief Executive Officer

Production

Marketing

Finance

Domestic Production Product A Product B Product C Product D

Foreign Production Product A Product B Product C Product D

Domestic Production Product A Product B Product C Product D

Foreign Production Product A Product B Product C Product D

Adapted from Figure 97: a Global Functional Structure

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Mixed Organization Structures

Mixed organization structures

A structure that is a combination of a global product, area, or functional arrangement

Allows the organization to create the specific type of design that best meets its needs As the matrix designs complexity increases, coordinating the personnel and getting everyone to work toward common goals often become difficult Too many groups go their own way

See example next slide

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Mixed Organization Structures

(Partial Organization Chart) Chief Executive Officer Home-office departments Production Operating divisions North America Industrial Goods Marketing Finance Human Resources

Europe

Manager, Industrial Goods North America

Manager, Industrial Goods Europe

Adapted from Figure 98: A Multinational Matrix Structure

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Sonys electronic business including PCs and cable Tv

sets have been unified into one group In addition firm has created mangement gp that will coordinate strategies across host of Sony units including financial services, internet services, entertainment etc.

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Transnational Network Structures

Transnational network structures

A multinational structural arrangement that combines elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries

At the center of the transnational network structure are nodes, which are units charged with coordinating product, functional, and geographic information Different product line units and geographical area units have different structures depending on what is best for their particular operations
See example next slide

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Transnational Network Structures

Adapted from Figure 99: The Network Structure of N.V. Philips

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Philips- has operations in more than 60 countries and

produce a diverse product line ranging from light bulbs to defense systems. In all co. has eight product divisions with varying no. of subsidiaries in each some specializing in marketing others in manufacturing, some are closely observed by head quarters others are autonomous.

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Control Mechanisms

Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures