The Impact of Globalisation on the Organisation of Activities

Key PointsInternational Division StructuresArea Division StructuresGlobal Product Division StructuresTransnational StructuresAffiliates

International Division Structure

VP Product C VP International

CEO

Domestic Market

Domestic Market

International Market

VP Product A VP Product B

Domestic Market

Area Division Structure

General Manager

(Latin America)

VP International

Country Manager

(Germany)

General Manager

(Far East)

General Manager

(Europe)

Country Manager

(France)

Country Manager

(Italy, etc.)

Multidomestic Affiliates

In multidomestic affiliates, local CEOs report to area presidents, manage a wide array of the parent company’s product lines, but have considerable leeway in making production, marketing, and servicing decisions.

Host countries have long used the term miniature replica to describe the traditional multidomestic affiliate.

Multidomestic Affiliates

Multidomestic affiliates are typically evaluated by profit center criteria keyed to results rather than adherence to head office policies.

Usually, local nationals are appointed as country

managers and management turnover is relatively slow.

Each affiliate often takes on a character and personality of its own, and formulates its own internal strategy.

Problems with Multidomestic Affiliates

Communications between home country product divisions and distant overseas affiliates are often more complex and risk breaking down.

Corporate policies and standards may not be effectively communicated to or adopted by the affiliates.  

Problems with Multidomestic Affiliates

Affiliate autonomy is not conducive to global MNC learning.

As affiliates develop self-sufficiency, the power

of home country managers may be challenged.  

Global Product Division Structure

VP Product C

Worldwide

CEO

VP Product A

Worldwide

VP Product B

Worldwide

---R&D

---Production

---Marketing

---Accounting

---Service

---R&D

---Production

---Marketing

---Accounting

---Service

---R&D

---Production

---Marketing

---Accounting

---Service

Global Affiliates

Affiliates Do not operate with a great deal of autonomy. Become an integrated part of a global

organization and often play no independent strategic role at all.

Are evaluated as cost centers. The profit center concept just does not fit the strategy.

Largely treated as a source of supply or as sales offices.

Contrasting Structures

  Global Multidomestic Product Structure Area Structure

Product-Line Specialized DuplicatedMarket Emphasis International NationalTransfers Product/Technology Technology/SkillsAffiliate Evaluation Cost Center Profit CenterAffiliate Role Implement Strategy Develop & Implement

strategyAffiliate Autonomy Low HighAffiliate Management Expatriates, Local,

Short-Term Long-Term 

 

Transnational Structures

Represents an attempt to concurrently capture all of the advantages of area and global product division structures.

In transnational structures Configuration and coordination of activities are

mixed; affiliates play leadership roles for some activities and supporting roles for others.

Decisions are based on maximizing the use of company skills and competencies, irrespective of activity location or affiliate nationality.

Transnational Structures

In transnational structures Company acts essentially as a network of

activities with multiple headquarters spread across different countries.

Affiliate roles shift over time and learning and sharing are emphasized.

Emphasis on extensive horizontal linkages, effective communication and extreme flexibility.

Affiliate Competence and Affiliate Initiative

 

 

Low affiliate capability

High affiliate capability

High localization pressures

Form Alliances or make

Acquisitions

Take strategic Initiative

High globalization

pressures

Follow Parent Instructions

Influence Parent Strategies

*This diagram is adapted from a diagram in Bartlett and Ghoshal's "Tap Your Affiliates for Global Reach".

Seamless Organisations

A driving goal of an increasing number of companies is the development of a seamless organization.

Barriers prevent learning, produce inefficiencies, and blunt responsiveness.

Seamlessness comes only through destroying barriers inside and outside the organization.

Teams are the primary unit of analysis in the seamless organization.  

Seamless Organisations

Seamless organizations are also pre-occupied with erasing boundaries inside the company.

  The growth of Internet exchanges now enables

companies of all sizes to access global suppliers and buyers without necessarily having a global presence.

Chapter 10The Evolving Multinational

Key PointsDimensions of EvolutionMNC Evolution – An Integrated Process

Dimensions of Evolution

Geographic Expansion Geographic Proximity Cultural Similarity Similarity in Economic Development

Line of Business Diversification Liability of Foreignness

Functional Migration

Geographic Expansion Geographic Proximity

MNC enters neighboring country/countries, Sequential move to farther places

Cultural Similarity Move into country with low “psychic distance”

vis-à-vis home country Enables effective communication, better

understanding of local customs and markets

Geographic Expansion Similarity in Economic Development

Entry into countries with high levels of disposable income

Similar buying habits as home market consumers

Line of Business Diversification Entry facilitated by competing in single line of

business, other businesses progressively added

Time

Competitive advantage versus local firms

LOB 1

LOB 2

LOB 3

LOB 4

Liability of foreignness

Exhibit 10-1Typical Pattern ofLine of BusinessDiversification

Functional Migration Refers to development of activities performed

by lines of business within a country

Marketing and Distribution

Assembly

Local Design and Procurement

Business Planning

StrategicLeadership

Time

Exhibit 10-2Typical Pattern ofFunctional Migration

MNC Evolution – An Integrated Process The dimensions of evolution are interconnected Ways of integration across dimensions

Accelerated Evolution MNC evolves along all the dimensions at

the same time Punctuated Evolution

Evolution is discontinuous and skips steps Efficient evolution that maximizes salutary

effects of scale and scope economies

MNC Evolution – An Integrated Process Reverse Evolution

Restructuring of operations

Consolidation of lines of business and shutting down subsidiaries