205

CHAPTER 13
Organization Design for International
Business
After studying this chapter, students should be able to:

> Define and discuss the nature of international organizational design.

> Identify and describe the initial impacts of international business activity on
organizational design.
> Identify and describe five advanced forms of international organizational
design and discuss hybrid global designs.
> Identify and describe related issues in global organization design.
> Discuss the role of corporate culture in international business.
> Describe the management of change in international business.

LECTURE OUTLINE

OPENING CASE: Unilever Matches Strategy and Structure

The opening case describes Unilever’s effort to streamline its operations and focus on
its core business areas.

Key Points

• With sales of $57 billion annually, Unilever, a packaged goods company, is

second only to industry giant Proctor and Gamble. Its brand names include Lipton,
Dove, and Vaseline, and its product groups range from frozen foods to personal
care products.

• The company is jointly headquartered in London and Rotterdam, and is

operated by two holding companies. A single management team runs the
company. Over the years, Unilever’s growth strategy often involved acquiring
consumer products businesses, many of which had supporting operations.
However, this strategy resulted in an unwieldy structure consisting of five basic
business groups: food products, personal products, soap/laundry products,
cosmetics/perfume/hair products, and specialty chemicals.
206 > Chapter 13

• The specialty chemicals group had only indirect linkages with the other groups,
and consequently, had higher administrative costs. In addition, the group was not
meeting its performance targets, and perhaps even more disturbing, some of the
chemicals it made could often be bought at a lower price on the open market.

• In 1997, Unilever decided to sell its specialty chemical group in order to

eliminate the inefficiencies in the firm’s structure and finance new acquisitions that
were a better fit with the core business areas.

Case Questions

1. Why did Unilever encounter problems with its specialty chemicals division?

Unilever had five basic business groups: food products, personal products,
soap/laundry products, cosmetics/perfume/hair products, and specialty chemicals.
The four consumer products groups all employed similar packaging, distribution,
and promotion methods. However, the specialty chemicals group was only
indirectly related to the other areas and as such did not share these synergies; they
also faced higher administrative costs. In addition, although the specialty chemicals
group made chemicals for the consumer products groups, these chemicals could
often be bought at a lower price on the open market.

2. What did Unilever hope to accomplish by selling its specialty chemicals group?

Unilever felt that if it sold its specialty chemical group, it would eliminate the
inefficiencies in its current structure. In addition, cash would be generated that
could be used to pay off debt and finance new acquisitions in the core area. The
company believed that by focusing on its core area, it would be in a better position
to compete with Proctor and Gamble.

Additional Case Application

The opening case describes the reorganization process undertaken by Unilever in
1997 to enable it to better compete with industry leader Proctor and Gamble.
Students can be asked to consider reorganization efforts by companies. Issues
that should be raised include what prompts companies to adopt new organization
designs, how new designs will help them compete in the future, and what concerns
the companies may have about their new structures.

CHAPTER SUMMARY

Chapter Thirteen explores the various organization designs that may be adopted by
companies as they pursue their international strategies. In addition, issues related to
global organization design are discussed and the topics of corporate culture and
changes are considered.
 Organization Design for International Business > 207

I. THE NATURE OF INTERNATIONAL ORGANIZATIONAL DESIGN

• Organization design, also known as organization structure, is the overall

pattern of structural components and configurations used to manage the total
organization.
• A firm, through its design, allocates organizational resources, assigns tasks to
its employees, instructs those employees concerning the firm’s rules, procedures,
and expectations about their job performances, and collects and transmits
information necessary for problem solving and decision making.
• There is no single best structure for all organizations, rather organizations
should select a design that fits with their situations. Factors affecting the selection
of organization design include size, strategy, technology, environment, and cultures
of the countries in which it operates. The text provides examples of why Proctor
and Gamble and Black & Decker have selected their organization designs.
• Organization design is an ongoing process that reflects the changes in a firm’s
strategy.

II. INITIAL IMPACTS OF INTERNATIONAL ACTIVITY ON ORGANIZATIONAL DESIGN

Organization design changes as a firm expands internationally. At their start, many

firms do not consider international markets in their strategies, and may in fact make
their initial entrance to foreign markets through indirect exporting (see Chapter 11). As
indirect export sales grow, however, firms begin to consider pursuing opportunities in
new markets. The text provides an example of how O.I. International went through this
process.

The Corollary Approach

• An initial response to international markets may be through the corollary

approach whereby a firm delegates responsibility for processing international
orders to individuals within an existing department, such as finance or marketing.

The Export Department

• As export sales grow, firms may form a separate export department which takes
responsibility for overseeing international operations, marketing products,
processing orders, working with foreign distributors, and arranging financing when
necessary. Eventually, the department may hold a similar status to other functional
areas. Discuss Figure 13.1 here.

The International Division

• As international sales continue to grow, the export department may not be in a

position to handle all of a firm’s international activities. In fact, familiarity with
foreign markets typically becomes more important as foreign sales rise, requiring
new methods of organizing.
208 > Chapter 13

• Many firms establish an international division to cope with the firm’s international
business activities. The division enables a company to allocate resources and
create specialized programs and activities targeted for foreign markets, while at the
same time, keeping that activity segregated from ongoing domestic activities. The
text illustrates this concept with a discussion of the international division of Banco
Economico S.A. Show Figure 13. 2 here.

Discuss Wiring the World:

E-Commerce and the World of Publishing
Germany's Bertelsmann AG is the largest book publisher and
second-largest music distributor in the world. The company is
now expanding into cyberspace -- even attempting a merger with America OnLine.
The box discusses several aspects of Bertelsmann's presence on the Internet.

III. GLOBAL ORGANIZATIONAL DESIGN

• A firm’s international division is typically abandoned in favor of a global

organization design as a firm moves from being domestically oriented with
international sales to being a multinational corporation. A global design must
enable a firm to integrate three types of knowledge: area, product, and functional.
• A firm will usually select one of five common global organization designs
(product, area, functional, customer, or matrix) depending on its situation in the
market, its firm-specific advantages, and its managerial philosophy. Each of the
design types typically emphasizes one type of knowledge (area, product and /or
functional), and thus reflects a company’s weighting of the importance of each.

Global Product Design

• The most common organization design is the global product design, which
assigns responsibility for specific products or product groups to separate operating
divisions within a firm. The design is most appropriate for firms that have diverse
product lines or product lines that are sold in diverse markets.
• Firms typically take on an M-form design (multidivisional) if products are
related, and an H-form design (holding company) if products are unrelated. The
text notes that Unilever has an M form design, while Shougang Corporation has an
H form. Discuss Figure 13.3 here.
• There are several advantages to the global product design. First, managers are
able to gain expertise in all aspects of a product or products since a division
focuses on a single product or product group. Second, efficiencies in production
are facilitated since products can be manufactured wherever manufacturing costs
are lowest. Third, production can be coordinated at various facilities reflecting
global demand and cost fluctuations. Fourth, managers, because of their extensive
product knowledge, are in a position to incorporate new technologies into their
product(s) and respond quickly and flexibly to technological changes that affect
their market. Fifth, the design facilitates global marketing. Finally, it facilitates
geocentric corporate philosophies.
• There are several disadvantages associated with the global product design.
First, it may encourage expensive duplication in functional areas and even in
physical facilities. Second, each product group must develop its own knowledge
 Organization Design for International Business > 209

about the local environment. Third, coordination and corporate learning across
product groups is more difficult.

Global Area Design

• The second most common form of global design, the global area design,
centers the firm’s activities around specific areas or regions of the world. The
design is particularly appropriate for firms with polycentric or multidomestic
corporate philosophies.

Discuss Venturing Abroad: Flying Solo in China

When most businesses started operating in China, they did so
by using a local partner (this was often required by law).
However, changes in rules have prompted many firms to buy
out their Chinese partners or venture into China with wholly owned subsidiaries.
The Chinese subsidiaries allow firms to focus on the needs of local consumers and
the evolving Chinese marketplace.

• The global area design is typically used by firms whose products do not transfer
well across regions. The text notes that Bertelsmann AG and Cadbury-Schweppes
PLC both use the global area design for this reason. Discuss Figure 13.4 here.
• The global area design is also appropriate for firms whose strategy is marketing-
driven rather than based on manufacturing efficiencies, technological innovation, or
the reputation of its brand name products. The structure also allows a firm to
develop expertise about the local market and adapt its product mix and products
accordingly.
• There are several disadvantages to the global area design. First, the firm may
sacrifice cost efficiencies that could be achieved through global production since
the structure emphasizes the needs of the area market. Second, technology
diffusion is slowed since innovations may not be adopted across the organization.
Third, resources are duplicated since each area division has its own functional
specialists, and in some cases, production facilities. Finally, coordination across
areas is expensive and global product planning is discouraged under this design.

Global Functional Design

• Under the global functional design a firm creates departments or divisions that
have worldwide responsibility for the common organizational functions. Firms that
adopt this design typically have relatively narrow or similar product lines. The
design is sometimes called a U-form design (unity). Show Figure 13.5 here.
• There are several advantages to the global functional design. First, firms can
develop and transfer expertise within each functional area. Second, it is possible to
maintain highly centralized control over functional operations. Third, the design
focuses attention on the key functions of the firm.
• The global functional design also has several disadvantages. It is only practical
when the firm has relatively few products or customers. It does not promote
coordination between divisions. It may result in duplication of resources among
managers.
210 > Chapter 13

Global Customer Design

• The global customer design is used when a firm serves different customers or
customer groups, each with specific needs calling for special expertise or attention.
The text notes that both Eastman Kodak and Bridgestone Corporation use this
design. Show Figure 13.6 here.
• The main advantages of the global customer design are that it allows a firm to
use different marketing techniques when it targets diverse customer groups and it
allows the firm to track how well it is doing within individual segments.
• The design does result in a duplication of resources, however, and coordination
between divisions is difficult.

Global Matrix Design

• The most complex international organization design, a global matrix design, is

the result of superimposing one form of organization design on top of an existing,
different form. Discuss Figure 13.7 here.
• The global matrix design allows firms to draw on the functional and product
expertise of its employees because it brings together the functional, area, and
product expertise of the firm into teams that can develop new products or respond
to a changing market place. In addition, the design promotes organizational
flexibility and promotes coordination and communication across divisions. The text
notes that Texas Instruments uses this type of design.
• There are several disadvantages to the global matrix design. First, it is
inappropriate for firms that have few products and operate in relatively stable
markets. Second, employees have more than one boss. Third, the design creates
a paradox regarding authority. Finally, it tends to promote compromises or
decisions based on the relative political clout of the managers involved.

Hybrid Global Designs

• Most firms create some sort of hybrid design that fits their particular situations.
The design adopted by a firm may actually combine some of the elements of the
other structures. The text notes that, in fact, Nestle does just that. In addition,
Nissan Motor Corporation uses a hybrid design for its American operations. Show
Figure 13.8 here.

IV. RELATED ISSUES IN GLOBAL ORGANIZATIONAL DESIGN

Not only must firms select an appropriate organization design, but they must also
contend with issues related to centralization versus decentralization, the role of
subsidiary board of directors, and coordination issues among the firm’s various
operations.
 Organization Design for International Business > 211

Centralization versus Decentralization

• One critical decision an MNC must make when designing its organization is the
level of autonomy, power, and control it wants to give its subsidiaries. Because
centralization and decentralization have both advantages and disadvantages, most
MNCs use a blend of the two forms of organization.

Discuss Bringing the World into Focus: Coca-Cola, Still

"The One?"
In the 1990's Coca-Cola expanded aggressively into Russia,
and increased its operations in Japan, China, India, Venezuela,
Austria, Italy and Poland. Coca-Cola attempted to run the entire organization from
the firm's headquarters in Atlanta, Georgia. In 1999 and 2000 however, major
problems began to surface. Coca-Cola installed a new CEO and scaled back on its
international operations. Coke adopted another motto, "think locally and act
locally," and is decentralizing its decision-making.

• Despite Coca-Cola's experiences, centralization appears to be gaining

popularity over decentralization among MNCs. This trend may be a result of a
belief that it is more important to address the specific needs of different customer
groups across many markets than to address local factors in different markets. The
text illustrates this concept with an example of Europcar International SA’s move
toward greater centralization.

Role of Subsidiary Boards of Directors

• In most countries, each corporation, including a wholly owned subsidiary of a

foreign MNC, is required to have a board of directors. A key decision facing MNCs
is whether to view the creation of the subsidiary board of directors as a pro forma
exercise or whether to empower the board with substantial decision making
authority.
• The advantage of empowering the board is that it promotes decentralization,
giving foreign subsidiaries the ability to respond to changes in the environment
quickly. A second advantage of decentralization is that the active board can act as
an accountability and reporting link to the parent. In addition, if prominent local
citizens are appointed to the board, they may facilitate business in that country.
The text notes that Apple was able to increase its credibility in the Japanese market
through the appointment of several prominent local executives to the board of
directors.
• Empowering a subsidiary’s board of directors is not without disadvantages
however. For example, the subsidiary may become too independent if its board has
too much autonomy and fails to maintain accountability to the parent. Royal Dutch
Shell, as noted in the closing case, experienced this problem.
• A subsidiary board is considered to be most useful when the subsidiary has a
great deal of autonomy, has its own self-contained management structure, and has
a business identity separate from the parent’s.

Coordination in the Global Organization

• A final step in creating an effective organizational design is addressing the issue

of coordination. Coordination is defined to be the process of linking and
212 > Chapter 13

integrating functions and activities of different groups, units, or divisions. The

amount of coordination necessary is a function of the degree of interdependence
among the firm’s divisions and functions.
• There are three levels of interdependence. The highest coordination needs are
found in organizations that have reciprocal interdependence (each division or
activity is dependent on all other divisions or activities because work flows back and
forth between divisions in a reciprocal manner).
• Moderate coordination needs are characterized by sequential interdependence
(each division or activity is dependent on only some of the others because work
flows between divisions in a one-way or sequential fashion).
• Finally, organizations that have a lower need for coordination have pooled
interdependence (each division or activity functions with relatively little dependence
on the others because it does its own work and its results are pooled with the
others’ at the corporate level).
• MNCs can use a variety of strategies to achieve their desired level of
coordination including the organizational hierarchy and temporary or ad hoc
coordination techniques such as using employees in liaison roles, task forces, or
informal management networks. The text provides examples of each type of
strategy.
• An informal management network is a group of managers from different parts
of the world who are connected to one another in some way. These networks are
effective because they can avoid the delays that might arise from bureaucracy, and
allow firms to get things done more quickly and effectively.

V. CORPORATE CULTURE IN INTERNATIONAL BUSINESS

• Corporate culture is the set of shared values that defines for its members what
the organization stands for, how it functions, and what it considers important. This
informal organization plays a critical role in coordination; however, creating culture
is difficult.
• Having a corporate culture is more important in an MNC than in a domestic firm
because it links the entire organization. Each subsidiary will have its own corporate
culture that reflects the local environment, while the overall corporate culture
infiltrates the entire organization. The text notes that Sony’s corporate culture, the
Sony Way, permeates the entire firm.

Teaching Note:
To draw the link between corporate culture and national
culture, students can be asked to analyze the corporate
cultures of several well-known firms from several different
countries and identify how aspects of each corporate culture reflect the national
culture of the country in question.

Creating Corporate Culture in International Business

• A firm’s mission statement is the starting point in creating a corporate culture

(see Chapter 10). In addition, symbols, heroes, legends, and shared experiences
contribute to the development of corporate culture. The text provides examples of
this process by exploring how Sony and Nestle developed their corporate cultures.
 Organization Design for International Business > 213

• There is no single best corporate culture, rather each firm must develop its own
culture. The text compares and contrasts the corporate cultures of TI, Honda, and
Daimler-Benz.
214 > Chapter 13

Managing the Corporate Culture in International Business

• In managing corporate culture, it is important to promote consistency and

communication. This can be achieved through frequent contact between
management and other employees and through the transfer of managers to
different units within the organization.
• The text notes that Bond Holdings, Inc. has faced a number of difficulties in
recent years because its corporate culture was not effectively managed. In
contrast, Pizza Hut’s strong corporate culture has allowed it to successfully
capitalize on opportunities in Moscow. Similarly, Merrill Lynch makes it a priority to
transfer its corporate culture to its branch offices.

VI. MANAGING CHANGE IN INTERNATIONAL BUSINESS

Organization change is any significant modification or alteration in the firm’s strategy,

organization design, technology, and/or employees. Managing change is a complex,
yet important function, and must be done effectively.

Reasons for Change in International Business

• A number of external factors including the external environment, technology,

and cultural values and mores, can necessitate change.
• Firms must respond to changes in the external environment such as the
opening of new markets or shrinking of existing markets. The text notes that the
completion of the EU promoted thousands of firms to change their strategies for
that market. Several specific examples of strategic change are given in the text.
• New technology can redefine work roles and relationships among employees.
The text notes, for example, that personal computers have redefined the way work
is done in most organizations around the world.
• Finally, as cultural values and mores change, so must a firm. For example, the
text notes that a decreased consumption of tobacco products among Americans
has forced major tobacco producers to alter their strategies.

Types of Change in International Business

Firms may change their corporate strategies, their organization design, or their
employees depending on the situation at hand. The text provides an example of each
type of change.
 Organization Design for International Business > 215

CA

OS
SE

CL
IN
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Proctor & Gamble Remakes (and Remakes) Itself

The closing case explores P&G's repeated struggle to regain leadership in the markets
for many of its products. An inappropriate structure for global competition was
identified as one of P&G's problems. However, attempts to change the structure
created chaos and confusion in the organization.

Key Points

• P&G products maintained a dominant position in most major markets up until

the early 1990s. Eroding performance led the firm to embark on aggressive plans
to expand and enhance performance.

• Weakening performance was perceived as a result of lack of innovation in

P&G's product line, as well as an archaic and rigid organizational structure.

• In early 1999 Dirk Jager was appointed CEO with the responsibility to turn the
company around. Among other initiatives, he tried to overhaul the firm's global
organizational design. This plan was called "Organization 2005."

• Jager's proposed changes were difficult to implement given P&G's culture of

stability and order.

• Jager was replaced by A.G. Lafley, who is moving more slowly on changes to
the organization's design. Lafley is advocating a move toward a matrix-like
structure, instead of wholesale structural redesign.

Case Questions

1. Describe Proctor & Gamble's organization designs prior to Dirk Jager's

changes, his vision for Organization 2005, and A.G. Lafley's revised approach.

Prior to Mr. Jager, P&G had utilized a global area design, with operations organized
around individual countries or clusters of countries. Jager's Operation 2005 would
have restructured the firm into seven global product (or product line) divisions,
moving from an area to a global product structure. Lafley, Jager's replacement,
proposed an "overlay" of a product design on the existing structure -- which would
lead to something akin to a global matrix structure.
216 > Chapter 13

2. Discuss the role of corporate culture in Dirk Jager's plans and his subsequent
ouster as CEO.

P&G had a tradition of stability and dominance in its markets. Even its product
strategy was not one of finding new products and discontinuing old ones. Instead,
incremental improvements were made to existing products. Change was gradual,
controlled, and organized. Jager's attempt to quickly make far reaching changes to
the organization made existing managers, who were unaccustomed to change and
instability, uncomfortable. As managers voiced their opposition to Jager's approach
-- or worse -- left P&G, it became clear that Jager's plan would not be
implementable.

3. From the standpoint of organization change, what might Dirk Jager have done
differently in order to be more successful?

Implementing change is never easy. It is clear that Jager tried to effect too many
changes too quickly. Had more time been spent explaining and preparing
employees for upcoming change, Jager may have been more successful in
reducing resistance to his plan. Further, had the changes been a management
team effort, instead of a program associated specifically with the CEO, the other
managers involved might have been able to successfully "sell" Organization 2005 to
their groups engendering wider spread support for the effort.
W

VI

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A
H
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P
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1. What is organization design?

Organization design, also known as organization structure, is the overall pattern of

structural components and configurations used to manage the total organization.

2. What are some of the initial impacts of international activity on organization design?

International activity initially impacts organization design in a very minor way, as most firms
use the corollary approach to assigning responsibility for international orders. Under the
corollary approach, responsibility is delegated to existing departments such as finance or
marketing. As international activity grows, a firm might establish an export department to
oversee international sales. However, as international sales grow, many firms find that an
export department is no longer sufficient and they establish an international division.

3. What is the global product design? What are its strengths and weaknesses?

The global product design assigns worldwide responsibility for specific products or product
groups to separate operating divisions within a firm. There are several advantages to the
global product design. First, managers gain expertise in all aspects of a product(s) since a
division focuses on a single product or product group. Second, manufacturing can take
place wherever the manufacturing costs are lowest, so production efficiencies are
facilitated. Third, managers are able to coordinate production at their various facilities.
Fourth, managers can make use of their extensive product knowledge to incorporate new
 Organization Design for International Business > 217

technology into the product and respond quickly and flexibly to technological change that
affects their markets. The structure also facilitates global marketing, which enables the firm
to develop the necessary expertise to compete globally. Finally, the structure forces
managers to think globally. The main disadvantages associated with the structure include
its tendency to encourage expensive duplication, the fact that each product group must
develop its own knowledge about the local environment, and finally, the fact that it makes
coordination and corporate learning across product groups more complex.

4. What is the global area design? What are its strengths and weaknesses?

The global area design involves centering a firm’s activities around specific areas or
regions of the world. A primary strength of the design is that it allows firms to develop
expertise about the local market necessary to adapt products to meet local needs.
However, the design may sacrifice cost efficiencies that could be gained through global
production, technology diffusion is slowed since there may not be cross-divisions transfer
of technology, resources are duplicated in each area, and finally, coordination is expensive
and product planning is put on the back burner.

5. What is the global functional design? What are its strengths and weaknesses?

The global functional design involves the creation of departments or divisions that have
worldwide responsibility for the common organizational functions. This structure allows a
firm to develop and transfer expertise within each functional area, maintain centralized
control over functional operations, and focus attention on key functions. However, the
structure is only practical when the firm has relatively few products or customers.
Moreover, duplication of resources among managers may occur and the firm may find it
has difficulty coordinating divisions.

6. What is the global customer design? What are its strengths and weaknesses?

The global customer design is appropriate when a firm serves different customers or
customer groups, each of which has specific needs that require special expertise or
attention. The design allows a firm to focus on the needs of each customer segment and
track the success of its products within segments. However, since each segment needs its
own area and functional specialists, duplication of resources may occur, and firms may
have difficulty coordinating divisions.

7. What is the global matrix design? What are its strengths and weaknesses?

The global matrix design is a result of superimposing one form of organization design on
top of an existing, but different form. The structure allows a firm to capitalize on both the
functional and the product expertise of its employees. In addition, the matrix design allows
a firm to respond quickly to changes in the market place, promotes organizational flexibility,
and promotes coordination and communication among managers from different divisions.
However, the structure implies that employees have two bosses, creates a paradox
regarding authority, and promotes compromises or decisions based upon political clout
rather than merit.
218 > Chapter 13

8. What are the three issues related to organizational design that MNCs face?

The three issues related to organizational design the MNCs face are issues related to
whether a firm should centralize or decentralize, the role of the subsidiary board of
directors, and how the firm’s various operations should be coordinated.

9. What is corporate culture? Why is it important in international business?

Corporate culture is the set of shared values that defines what the organization stands for,
how it functions, and what it considers important. An MNC will be made up of a number of
subcultures as each subsidiary develops its own subsidiary culture that reflects the national
culture. These subcultures are then synthesized into one overall corporate culture that
sets the “rules” on the way the company operates.

10. What is organization change? Why do managers of international firms need to understand
organization change?

Organization change is any significant modification or alteration in the firm’s strategy,

organization design, technology, and/or employees. Managers of international firms need
to understand organization change because how change is managed will affect the firm’s
productivity and profitability.

Questions for Discussion

1. Why does a firm’s organization design depend on its situation? Why is the design
evolutionary?

Organization design refers to the overall pattern of structural components and

configurations used by a firm to manage its total organization. A firm’s organization design
depends on its situation because it depends in part on the firm’s size, its strategy, its
technology, its environment, and the culture of the countries within which it operates. The
design is evolutionary because as the factors noted above change, so must the design of
the firm. In fact, changes may occur almost continually.

2. If a new organization starts out with a global perspective, will it necessarily experience any
of the initial impacts of international activity on organization design? Why or why not?

A company that starts out with a truly global perspective will probably not experience any of
the initial impacts of international activity on organization design because these impacts
are typically experienced by firms as they begin their international involvement, usually with
indirect exports, later with limited direct exports, and still later with strong export sales. An
organization with a global perspective is the next step in this evolutionary process, one in
which a global organization design is employed to take advantage of synergies among
international operations.
 Organization Design for International Business > 219

3. Do managers of international firms need to approach organization design differently from

their counterparts in domestic firms? Why or why not?

Most students will probably suggest that managers of international firms must approach
organization design differently from their counterparts in domestic firms mainly because of
the complexity involved in operating an MNC as compared to a domestic firm. In particular,
students will probably point to coordination and communication issues that make the
process more difficult, as well as the differences in the operating environments that occur
as a result of differing legal, economic, political, and cultural factors.

4. How do the global product, area, functional, and customer approaches to organization
design differ? How are they similar?

The global product structure is appropriate for firms that have diverse product lines or
product lines sold in diverse countries because it assigns responsibility for specific products
or product groups to separate divisions within the organization. In contrast, the global area
design is appropriate for firms whose products are not readily transferable across regions
because it centers the firm’s activities around specific areas or regions of the world. The
global functional design is appropriate for firms that have relatively few products or
customers because it requires a firm to create departments or divisions that have
worldwide responsibility for the common organizational functions. Finally, the global
customer design is useful for firms that serve different customers or customer groups, each
with special needs that call for special expertise because it involves establishing separate
departments that are dedicated exclusively to servicing a particular account. Thus, the
focus of each structure is quite different, and as such each structure has different
implications for communications and control.

5. Why is a global matrix design almost always transitional in nature?

A global matrix design involves superimposing one form of organization structure on top of
an existing, different form. A firm using the design attempts to capitalize on both the
functional and the product expertise of its employees by forming product groups made up
of members from existing functional departments. The design is almost always transitional
in nature because after a product development task is completed, the product group may
be disbanded. Employees are then reassigned to another task.

6. Why do international firms need to develop a unique organization design rather than simply
model themselves after other firms?

Organizations need to develop unique organization designs rather than simply model
themselves after other firms because every firm will face a unique set of variables (size,
strategy, technology, environment, and culture) that will dictate the most appropriate
organization design. So unique is each firm’s situation, that none of the world’s 500 largest
MNCs use the same organization design. Moreover, since organization design continually
changes, it would be very difficult for a firm to simply try to model itself after another.
220 > Chapter 13

7. Why is coordination important in international business?

Coordination is the process of linking and integrating functions and activities of different
groups, units, or divisions. There are various types of coordinating mechanisms including
the organizational hierarchy, ad hoc techniques, task forces, and informal management
networks. Typically, coordination is more complex in international business because
subsidiaries and individuals are separated not only by physical distance, but also by
culture.

8. Can a strong corporate culture be bad? If not, why? If so, give an example.

Corporate culture is the set of shared values that defines for its members what the
organization stands for, how it functions, and what it considers important. Some students
are likely to take the perspective that a strong corporate culture is bad because it could
actually limit a firm’s ability to capitalize on opportunities if they fall outside the realm of
“what’s right for us.” Students taking this perspective may use IBM as an example of a firm
that found itself in such a situation. Other students will probably argue that a strong
corporate culture can only be a good thing because it helps to create an organization in
which everyone is working toward achieving the same goals, rather than working at cross-
purposes. Students taking this perspective may use Sony as an example of a company
with a “good” strong corporate culture.

9. How are national culture and corporate culture likely to be related?

Corporate culture will probably reflect national culture in that when individuals are hired to
work for a firm they bring with them their own values and beliefs (that reflect their national
cultures). These values and beliefs are then incorporated to some degree into the firm’s
corporate culture. Therefore, when one examines the corporate culture of an MNC, one
will probably find that each subsidiary has its own corporate culture that is based in part on
the national culture within which it operates, and the overall corporate culture of the MNC.

10. Under what circumstances might a firm need to change its design from one of the global
designs to a different one?

A firm may need to change its design from one of the global designs to a different one as
external factors such as the external environment, technology, or cultural values and mores
change. For example, as new markets open a firm may find it necessary to restructure its
operations to take advantage of new opportunities. Similarly, restructuring may take place
in response to new technologies that facilitate communication and control. Changes in
cultural values can also prompt restructuring as new divisions are added to replace
decreased consumption of other products.
 Organization Design for International Business > 221

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Essence of the exercise
This exercise is designed to provide students with the opportunity to consider how companies
utilize the Internet as a form of internal communication. Students, working both individually and
in groups, are asked to identify the differences between intranet and Internet web sites and
how firms can expand the role of the intranet within their corporations.

Answers to the Questions for Discussion.

1. What are the similarities and differences that need to be kept in mind when developing
intranet and Internet web sites?

Most students will probably focus on the fact that while the two types of sites are very
similar, an intranet site is specific to a single company, and is often primarily used for
internal communications purposes. Both types of sites, however, often involve web pages
for each of a company’s divisions.

2. What role might an intranet play in an international company beyond communications and
coordination, as addressed in this exercise?

Responses to this question will probably vary by group depending on the group’s
experience with the Internet. Students that have a high comfort level with the Internet may
suggest that an intranet’s scope could be widened beyond internal use. For example, they
might envision it as being part of an international customer relations program. Students
with a low comfort level with the Web, however, may have difficulty identifying other uses.
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Essence of the exercise

This exercise is designed to let students see the impact on organization design of changes in a
firm’s (Unipro) business mix. Students, working in groups, are asked to identify an appropriate
structure for Unipro after it has diversified into new areas.

Answers to the follow-up questions.

1. How is your group’s organization design similar to and different from those of other
groups?

Most students will probably create a multidivisional design that separates each of Unipro’s
businesses from the others. Within each division however, there may be differences. For
example, most students will probably keep the functional design in the jet aircraft division;
some may suggest a global area design for the software division, and a global product
design for the foods division.
222 > Chapter 13

2. What do you see as the biggest advantages and disadvantages of your group’s
organization design?

Responses to this question will differ depending on the particular organization design each
group selects. Most of the discussion will probably revolve around
centralization/decentralization issues, factors related to communication and control, and
cost issues.

3. What additional information would have made it easier for you to develop a new
organization design for Unipro?

Responses to this question will vary by group. Some of the more common information
requested probably relates to Unipro’s beliefs about autonomy, centralization and
decentralization, the different products Fundamental Foods and General Chemical are
involved in, and corporate culture.

Other Applications
Unipro, with its involvement in several unrelated businesses, is an example of a
conglomerate firm. Instructors can ask each group of students to find an example of a real
international conglomerate firm and research how the firm structures its operations.
Students can compare and contrast their suggested structures for Unipro with that of the
real firm and analyze why differences and similarities exist.