Contents

IhIroducIioh 254
OrgahizaIiohal sIrucIures 254
SIraIegic mahagemehI ahd orgahizihg
sIraIegy 266
AC1IVL LLARNING CASL
ProcIer & Gamble 253
IN1LRNA1IONAL 8USINLSS S1RA1LGY
IN AC1ION
AvehIis 257 A
Makihg maIrix work 263
RLAL CASLS
LVMH: orgahizihg luxury producIs LL
ih Ihe ihIerhaIiohal areha 273
Commahd Alkoh: a small so!Iware
busihess 274
Cb|ectives oI the chapter
1he primary purpose o! ah orgahizihg sIraIegy is Io help ah
ehIerprise implemehI iIs sIraIegic plah. 1here are a humber
o! basic orgahizaIioh sIrucIures !rom which Io choose, al-
Ihough mosI MNLs Iailor-make Iheir desigh ahd someIimes
use a combihaIioh o! di!!erehI sIrucIures. AhoIher ma|or
area o! orgahizihg sIraIegy is Ihe orgahizaIiohal processes
o! decisioh makihg, commuhicaIihg, ahd cohIrollihg. 1hese
processes are !uhdamehIal Io Ihe e!!iciehI operaIioh o! Ihe
sIrucIure, ahd mahagemehI will heed Io decide how Ihey
should be carried ouI. 1his chapIer examihes Ihe key
elemehIs o! orgahizihg sIraIegy.
The speciIic ob|ectives oI this chapter are to:
1 Lxamine orgahizaIioh sIrucIures used by ehIerprises IhaI
are |usI begihhihg Iheir ihIerhaIiohal expahsioh.
2 Describe Ihe ihIerhaIiohal divisioh ahd global sIrucIures
IhaI are used as !irms ihcrease Iheir ihIerhaIiohal
presehce.
3 Analyze Ihe key sIrucIural variables IhaI ih!luehce
ihIerhaIiohal orgahizaIioh desighs.
4 Review Ihe role o! Ihe orgahizaIiohal processes ih
ehsurihg IhaI Ihe sIrucIure is boIh e!!ecIive ahd e!!iciehI.
Chapter 9
253
ORCANlZlNC S1RA1LCY
ln !837, William Procler, a candle maker, and his brolher-
in-law James Camble, a soap maker, parlnered lo creale a
company lhal would manulaclure and markel soaps and
candles lrom ils base in Cincinnali, Ohio. When candles de-
clined in popularily wilh lhe invenlion ol lhe lighl bulb and
produclion was evenlually disconlinued in lhe !920s, soap
became lhe basis lrom which lhe company buill a successlul
producl porllolio ol cleaning producls and evenlually al-
lowed Procler & Camble lo branch oul inlo cosmelics, lood,
and pel producls.
During P&C's lirsl cenlury, inlernalional expansion was an
allerlhoughl. ln !9!5, a Canadian planl was eslablished,
lhe lirsl oulside lhe Uniled Slales. lls lirsl overseas subsid-
iary was eslablished wilh lhe purchase ol Thomas Hedley &
Sons Co., Lld. in Lngland in !930. This coincided wilh lhe
birlh ol P&C's brand managemenl markeling syslem.
Dedicaled leams would work on markeling compeling
brands worldwide. ln !948, P&C eslablished an overseas
division lo manage ils growing inlernalional division, which
al lhe lime reached Asia, Lurope, and Lalin America. 8y
!963, as a resull ol Luropean expansion, P&C eslablished
lhe Luropean Technical Cenler in 8elgium lo serve common
markel subsidiaries. The Japanese markel was enlered in
!973 lhrough lhe acquisilion ol lhe Nippon Sunhome
Company, and in !993 lhe Japan Headquarlers and
Technical Cenler opened in Pokko lsland in Kobe Cily.
8y !995, sales oulside lhe Uniled Slales had reached
more lhan 50 per cenl ol lolal sales, and a new lop man-
agemenl leam, headed by John L. Pepper, changed lhe or-
ganizalional slruclure ol lhe lirm lrom US and lnlernalional
lo lour regional seclors. Norlh America, Lalin America, Asia,
and Lurope, lhe Middle Lasl, and Alrica. All regional seclors
reporled lo lhe chiel operaling ollicer.
Today, Procler & Camble has lhe workings ol a global
company in lerms ol ils slruclure. Three inleraclive parls,
whose subsidiaries are slralegically placed around lhe world
lo besl achieve cosl-ellecliveness, markeling and produc-
lion, and design qualily, are lhe basis ol lhis slruclure. lirsl,
lhere are seven Markel Developmenl Organizalions (MDOs)
responsible lor markeling producls in lhe lollowing regions.
Norlh America, ASLAN, lndia, Auslralia, China, Norlheasl
Asia, Cenlral and Laslern Lurope, lhe Middle Lasl, and
Alrica, and Weslern Lurope and Lalin America. Second,
lhese MDOs collaborale wilh any one ol live producl-based
Clobal 8usiness Unils (C8Us) responsible lor P&D, design,
and lhe manulacluring processes. Third, lhere are Clobal
8usiness Services (C8Ss) localed mainly in developing coun-
lries lhal provide accounling, human resource managemenl,
logislics, and syslem operalions in a given region. linally, a
Corporale lunclions (Cl) segmenl oversees operalions bul
delegales decision making lo each slruclural unil.
ln ligure 9.8, lhe MDOs are equivalenl lo markeling-based
Area Prolil Cenlers, lhe C8Us can be placed where lhe
8usiness Prolil Cenlers are. The C8Ss, in lurn, can lake lhe
place ol lunclion Cosl Cenlers. These lhree seclors inleracl
wilh each olher under lhe guidance ol Corporale lunclions.
This global lhree-axis malrix slruclure, however, has nol
resulled in an even dislribulion ol sales across all lhree re-
gions ol lhe lriad, or across P&C's seven-region segmenla-
lion. Norlh America accounls lor 55 per cenl ol lhe lirm's
revenues. Lurope accounls lor a signilicanl 27 per cenl, bul
no olher region accounls lor more lhan 20 per cenl ol sales.
The lirm's mosl imporlanl lirm-specilic advanlage (lSA) is
ils abilily lo markel producls in mulliple regions. ll does lhis
lhrough producl adaplalion, markeling, and packaging lo
lhe needs ol cuslomers in diverse regions and by crealing
successlul brands. lndeed, lhe lirm managed !3 brands wilh
revenues ol over $! billion in 2003. Some ol ils mosl lam-
ous brands include Tide, Ariel, Panlene, and Cresl.
P&C's slralegy does nol necessarily include developing
global brands like Pringle's, ils mosl globally diversilied
brand. lnslead, lhe lirm mighl choose locally lrusled brands
lo channel new producls lo mulliple regions. 8lendax, a
Luropean brand, is now lhe porlal lhrough which P&C mar-
kels Whileslrips lhal are sold in Norlh America under lhe
Cresl brand. Many successlul brands were carelully picked
up lhrough acquisilions and lhen revamped wilh new mar-
keling. 8elween !980 and 2000, P&C acquired Cover Cirl,
Noxzema, Clarion, Oil ol Olay, 8lendax, Old Spice, Max
laclor, and Panlene, among olhers. ln olher words, lhe lirm
linds regional brands lo develop regionally.
Anolher lirm-specilic advanlage is lhal P&C's porllolio ol
producls allows lhe dillusion ol P&D lo dillerenl producl
lines in all regions. lor example, a labric delergenl discovery
may creale improved versions ol Tide and Cheer in Norlh
America, Ariel in Lalin America, and 8old in Japan. ll mighl
also spill over lo non-labric cleaners such as Salvo. This, and
lhe C8Us' abilily lo coordinale produclion across lhe world,
lranslales inlo scale economies lhal are dillicull lo rival in
lhe induslry.
ACTIVE LEAPNINC CA5E
Procter & Camble
25^
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
INTPCDUCTICN
Oiganizations that have decided to expand inteinationally do so in a numbei of ways. Some
simply ship theii goods to a foieign maiket and have a thiid paity handle sales activities. If a
fiim`s inteinational maiket is a laige poition of total opeiations, howevei, the enteipiise may
play a moie active iole in the distiibution and sale of its pioducts, and this iequiies a moie
complex oiganizational stiuctuie. Often, fiims stait off as expoiteis and then, as theii foieign
sales giow, develop moie intiicate stiuctuies that can handle theii foieign opeiations.
1
Majoi MNEs such as IBM, Geneial Motois,
2
Meicedes, and Mitsubishi have sophisti-
cated global stiuctuies that foim the basis of theii oiganizing stiategies. Sometimes these
fiims will also have subsidiaiies oi affiliates that aie integiated into the oveiall stiuctuie.
Foi example, Mitsubishi has 28 coie gioups that aie bound togethei by cioss-owneiship
and othei financial ties, inteilocking diiectoiates, long-teim business ielationships, and so-
cial and histoiical ties. Among these aie Mitsubishi Bank, Mitsubishi Heavy Industiies,
Asahi Glass, Tokyo Maiine and Fiie Insuiance, Nikon Coipoiation, and Kiiin Bieweiy.
3
The Mitsubishi gioup obviously needs a caiefully designed global stiuctuie that allows it
to integiate and cooidinate the activities of these many businesses. Sometimes this undei-
taking involves moie time and effoit than the foimulation of the stiategic plan.
CPCANIZATICNAL 5TPUCTUPE5
Multinational enteipiises cannot implement theii stiategies without an effective stiuc-
tuie.
4
The stiategy sets out the plan of action, but the stiuctuie is ciitical in ensuiing that
the desiied goals aie met efficiently. A numbei of choices aie available to an MNE when de-
ciding on an oiganizational aiiangement, and a numbei of factois can influence this
choice. Foi example, fiims that aie just getting into the inteinational aiena aie likely to
choose a stiuctuie that diffeis fiom that of fiims with established oveiseas opeiations.
Conveisely, companies that use theii stiuctuies as woildwide sales oiganizations will have
a diffeient aiiangement fiom those that locally manufactuie and sell goods in vaiious
inteinational maikets. Inteinational stiuctuies will change in compliance with the stia-
tegic plan, and a stiuctuie that is pioving to be unwieldy oi inefficient will be sciapped in
P&C has gone lurlher lhan mosl companies in crealing
a global slruclure lhal incorporales non-induslrialized coun-
lries. lor example, lhe C8S lor lhe Americas is localed in
Cosla Pica, while lhal in lhe Philippines provides services
lo lhe Asian region. laclories are localed in Asia, Laslern
Lurope, and Lalin America as well as in more developed
counlries. P&D, usually reserved lor developed nalions,
has also seen ils way lo developing counlries like China.
Weo:||e. www.pg.com.
5ource. Alan Pugman, 1he |eç|ona| |u|||na||ona|: (Cambridge. Cambridge
Universily Press, 2005).
1
WhaI Iype o! orgahizaIioh sIrucIure does P&G have ih place !or iIs worldwide operaIiohs?
Is Ihis sIrucIure opIimal?
2
Why does Ihe compahy rely oh decehIralized decisioh makihg?
3
Ih cohIrollihg iIs operaIiohs, whaI are Ihree areas IhaI are paramouhI !or Ihe !irm?
4
Why was Ihe ihIerhaIiohal divisioh replaced by Ihe maIrix sIrucIure?
255
ORCANlZA1lONAL S1RUC1URLS
favoi of one that bettei meets the needs of the company.
5
The following discussion exam-
ines some of the most common oiganizational aiiangements used by MNEs.
Early orqanizational structures
When a company fiist begins inteinational opeiations, such activities aie typically exten-
sions of domestic opeiations. The fiim`s piimaiy focus continues to be the local maiket;
inteinational involvement is of secondaiy impoitance. Inteinational tiansactions aie con-
ducted on a case-by-case basis, and theie is no attempt to consolidate these opeiations into
a sepaiate depaitment. Undei this aiiangement, inteinational sales aie viewed as supple-
ments to the income eained fiom home-countiy opeiations.
As inteinational opeiations inciease, howevei, the MNE will take steps to addiess this
giowth stiuctuially. One way is by having the maiketing depaitment handle inteinational
sales. All oveiseas opeiations aie cooidinated thiough this depaitment; if sales waiiant
it, some of the salespeople will handle inteinational tiansactions exclusively. In this way
the company develops maiketing specialists who leain the specific needs and maiketing
techniques to employ in oveiseas selling.
An alteinative aiiangement is to cieate an expoit depaitment. This depaitment may ie-
poit diiectly to the chief executive officei (CEO) (Figuie 9.1, line (a)) oi be a sub-depaitment
within the maiketing aiea (Figuie 9.1, line (|)). If it opeiates independently of the mai-
keting depaitment (option (a)), it is eithei staffed by in-house maiketing people whose
piimaiy focus is on the inteinational maiket oi it is opeiated by an outside expoit man-
agement company that is hiied to piovide the company with an inteinational aim.
Whichevei appioach is taken, MNEs planning to inciease theii inteinational piesence must
ensuie that the expoit depaitment is a full-fledged maiketing depaitment and not just a
sales oiganization.
Anothei possible aiiangement is the use of oveiseas subsidiaiies (see Figuie 9.2). This
is often a iesult of individual ventuies in vaiious geogiaphic locales in which the head
of the ventuie is given a gieat deal of autonomy and iepoits diiectly to the CEO. As long
as the subsidiaiy shows sufficient piofit, it is allowed to opeiate fiee fiom home office
inteifeience.
As MNEs become moie involved in foieign maikets, the expoit depaitment stiuctuie oi
subsidiaiy aiiangement is geneially discaided oi supplemented because it cannot meet the
oiganization`s changing needs. As a iesult, the company will now look into joint ventuies
6
and foieign diiect investment, likely opting foi an inteinational division stiuctuie. To
Fiçure 9.1 An export department structure
256
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
Fiçure 9.2 Use oI subsidiaries durinq the early staqes oI internationalization
InternationaI division
structure
An organizalional arrange-
menl in which all inler-
nalional operalions are
cenlralized in one division
examine one company`s inteinational oiganization stiuctuie, see the box International
Business Strategy in Action: Aventis.
The international division
The internationaI division structure centializes all inteinational opeiations (see Figuie 9.3),
an aiiangement that offeis a numbei of advantages. Fiist, it ieduces the CEO`s buiden of
diiect opeiation of oveiseas subsidiaiies and domestic opeiations.
7
Second, it cieates a
management team that piioiitizes oveiseas opeiations. All infoimation, authoiity, and de-
cision making ielated to foieign effoits is channeled to this division, so theie is one cential
cleaiing point foi inteinational activities. This stiuctuie also helps the MNE to develop
a cadie of inteinationally expeiienced manageis.
But the inteinational division stiuctuie also has some significant diawbacks. One is that
sepaiating opeiations into two categoiies, domestic and inteinational, can cieate iivaliies
between the two. Second, this aiiangement puts piessuie on the home office to think in
global teims and to allocate iesouices on the basis of oveiall maiket oppoitunity. This can
be extiemely difficult foi a management that has been domestically focused and makes
the majoiity of its sales in the home maiket. Despite these diawbacks, the inteinational
division stiuctuie iemains dominant among US MNEs.
Clobal orqanizational structures
As MNEs geneiate moie and moie ievenues fiom theii oveiseas opeiations, theii stiategies be-
come moie global in focus and the stiuctuies used to implement them follow suit. Euiopean
fiims aie a good example. Because theii domestic maikets aie faiily small, these companies
have tiaditionally had global stiuctuies. In all, theie aie six basic types: (1) global pioduct,
(2) global aiea, (3) global function, (4) matiix, (5) tiansnational netwoik, and (6) mixed.
Clobal product structure
A gIobaI product structure is an aiiangement in which domestic divisions aie given woildwide
iesponsibility foi pioduct gioups. Figuie 9.4 piovides an example. In this aiiangement, each
pioduct division sells its output thioughout the woild. As seen in the case of Pioduct Division
C, the Euiopean gioup opeiates in a host of countiies. The same would be tiue foi the othei
foui geogiaphic aieas noted. In each case, the managei of the pioduct division would have in-
teinal functional suppoit foi the entiie pioduct line. All pioduction, maiketing, peisonnel,
and finance activities associated with Pioduct C would be undei the contiol of this individ-
ual. In iecent yeais, Pioctei & Gamble has used this aiiangement to maiket its wide assoit-
ment of pioducts, fiom papei goods to beauty caie, wheieas Foid Motoi Company has
woiked to establish a single automotive opeiation that ielies on a global pioduct stiuctuie.
8
CIobaI product structure
An organizalional arrange-
menl in which domeslic div-
isions are given worldwide
responsibilily lor producl
groups
257
ORCANlZA1lONAL S1RUC1URLS
Aventis
INTEPNATICNAL BU5INE55 5TPATECY IN ACTICN
lrench Phone-Poulenc and Hoechsl ol Cermany recenlly
merged lo become Avenlis. The merger was a resull ol
increasing pressures wilhin lhe induslry lo consolidale in
order lo achieve lurlher economies ol scale in P&D, markel-
ing, and dislribulion. Today Avenlis is lhe eighlh largesl
pharmaceulical company in lhe world, wilh revenues lolal-
ing $20.2 billion (see lhe lable), and lhe lirm is now in lhe
process ol deciding lhe organizalional slruclure lhal will besl
help il coordinale all ol ils worldwide operalions. The com-
pany conlinues lo be based in lrance bul mosl ol ils sales,
87.2 per cenl, are lo loreign markels. Lurope, ils regional
base, accounls lor only 32.! per cenl ol ils sales. The Uniled
Slales and Canada alone accounl lor a higher percenlage ol
ils sales al 38.8 per cenl. The remaining 29.! per cenl ol
sales originale in olher regions.
World's !0 larqest pharmaceutical companies, 2003
Revehues
Compahy CouhIry US$ millioh
! Plizer Uniled Slales 45,950
2 Johnson & Johnson Uniled Slales 4!,862
3 ClaxoSmilhKline Uniled Kingdom 35,059
4 Novarlis Swilzerland 24,864
5 Poche Croup Swilzerland 23,2!2
6 Merck Cermany 22,485
7 8rislol-Myers Squibb Uniled Slales 20,894
8 Avenlis lrance 20,!62
9 Abboll Laboralories Uniled Slales !9,68!
!0 AslraZeneca Uniled Kingdom !8,849
5ource. Adapled lrom lorlune, 1he |or|une C|ooa| ¯00, 2004.
world, now generaling over 20 per cenl ol ils lolal sales in
lhe American markel.
Managing ils US operalions was nol easy. The lakeover ol
Union Carbide worked prelly well because lhe laller's peslicide
producls were complemenlary lo lhose ol Phone-Poulenc's
herbicides and lungicides and ils corporale cullure was similar.
However, lhe Slauller acquisilion proved lo be more dillicull
because lhere were overlapping producl lines and lhe US
managers al Slauller had lillle inlernalional experience.
To improve lhe elliciency ol ils diverse US operalions,
Phone-Poulenc adapled a highly decenlralized organizalional
slruclure, consolidaling ils American business operalions inlo
a US counlry group wilh headquarlers al Princelon, New
Jersey. The lirm also eslablished Lnglish as lhe ollicial lan-
guage ol lhe company, even lhough ils parenl company was
lrench. And as an inlermediale slep on lhe palh loward lrue
globalizalion, lhe lirm's US regional headquarlers served lo
creale a slrong American presence in lhe lace ol vigorous
compelilion lrom rivals wilh bolh ellicienl produclion and
elleclive slalling. Phone-Poulenc's plan lor lhe lulure was lo
creale a "lransnalional" slruclure.
Weo:||e:. www.avehIis.com, www.dupohI.com, www.dow.com,
www.hoechsI.com, www.bas!.com, www.ciba.com, www.hovarIis.com,
and www.ici.com.
5ource:. Phone-Poulenc (!996) Annua| |epor| 199¯. |hône-|ou|enc,
Courbevoie Cedex, lrance, Phone-Poulenc (!997) Annua| |epor| 1996. Phone-
Poulenc (!998) Annua| |epor| 1997. |hône-|ou|enc, Courbevoie Cedex,
lrance, H. 8anks, "The Poad lrom Serldom," |oroe:, Oclober 2!, !996,
p. !56, D. Hunler, "Peshaping Phone-Poulenc," Chem|ca| Wee|, vol. !56,
no. 23 (!995), p. 30, D. Owen and D. Creen, "Phone-Poulenc lo locus on
Pharmaceulicals 8usiness," |n|erne|. |1 |cCar|hy, June 27, !997, p. !,
Slephen 8aker, lnka Pesch, Kale Carlisle and Kalharine A. Schmidl, "The Creal
Lnglish Divide," bu:|ne:: Wee|, Augusl !3, 200!, and Alan M. Pugman,
1he |eç|ona| |u|||na||ona|:. |N|: and ´C|ooa|´ 5|ra|eç|c |anaçemen|
(Cambridge. Cambridge Universily Press, 2005).
Avenlis has managed lo become one ol lhe major com-
pelilors in ils induslry lhrough mergers and acquisilions. 8ack
in lhe mid-!980s Phone-Poulenc was lhe !2lh largesl chem-
ical lirm in lhe world, wilh 80 per cenl ol sales being gener-
aled in Lurope. ln lhis environmenl il compeled wilh a large
number ol lirms, including US-based gianls DuPonl and Dow
Chemical and leading Luropean chemical companies such as
Hoechsl, 8ASl, Ciba-Ceigy, and lCl.
During lhis period, lhe chemical induslry was being
increasingly slruclured on a "lriad" basis. As a resull,
Phone-Poulenc decided lo consolidale ils successlul
Luropean base and move inlo lhe American markel. ln lhe
lale !980s lhe lirm made !8 acquisilions in lhe Uniled
Slales, including Union Carbide Agrochemical Producls and
Slauller 8asic Chemicals. These acquisilions made lhe com-
pany inlo lhe sevenlh largesl chemical manulaclurer in lhe
258
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
Fiçure 9.3 An international division structure
Fiçure 9.4 A qlobal product structure
This aiiangement employs a pioduct division stiuctuie that ielies on the °piofit centei"
concept. Each pioduct line is expected to geneiate a piedeteimined ietuin on investment
(ROI), and the peifoimance of each line is measuied on this piofit basis. Each pioduct line
is also opeiated like an autonomous business, with the pioduct division managei having
a gieat deal of authoiity ovei how to iun the opeiation. As long as the pioduct line con-
tinues to geneiate the desiied ROI, the division is usually allowed to opeiate unfetteied by
home management contiols. The only majoi exception is budgetaiy constiaints that aie
imposed by cential management.
A global pioduct division stiuctuie has seveial benefits. If the fiim pioduces a laige num-
bei of diveise pioducts, the stiuctuie allows each majoi pioduct line to focus on the specific
259
ORCANlZA1lONAL S1RUC1URLS
needs of its customeis, which would be paiticulaily difficult to achieve if the company weie
tiying to sell all these pioducts out of one centialized maiketing depaitment. The stiuctuie
also helps develop a cadie of expeiienced, well-tiained manageis who undeistand a pai-
ticulai pioduct line. And it helps the company match its maiketing stiategy to specific
customei needs. Foi example, a pioduct may be in the intioduction stage in some aieas of
the woild, and in the giowth, matuiity, oi decline stage in otheis. These diffeiing life cycles
iequiie close technological and maiketing cooidination between the home maiket and the
foieign maiket, which can best be achieved by a pioduct division appioach. The pioduct
stiuctuie also helps the oiganization establish and maintain the necessaiy link between the
pioduct development people and the customei. By continually feeding back infoimation
fiom the field to the home office, pioduct division peisonnel ensuie that new pioduct
offeiings meet consumei needs.
At the same time, theie aie diawbacks to the pioduct division aiiangement. One is the
necessity of duplicating facilities and staff peisonnel within each division. A second is that
pioducts that sell well aie often given piimaiy attention while those that need special hand-
ling oi piomotion aie often sidetiacked, even though this may iesult in the long-iun loss
of piofit. A thiid is that an effective pioduct division iequiies manageis who aie know-
ledgeable about the woildwide demand foi theii pioducts. Most manageis know the local
maiket but do not know a lot about inteinational maikets. So it takes time to develop the
necessaiy manageiial staff to iun this type of stiuctuie. A fouith shoitcoming is the diffi-
culty of cooidinating the activities of diffeient pioduct divisions. Foi example, the elec-
tionics division may decide to subcontiact components to a plant in Geimany, and the
computei division is subcontiacting woik to a fiim in Fiance. If the two divisions had
cooidinated theii activities, it might have been possible to have all the woik done by one
company at a lowei piice. Finally, lack of coopeiation among the vaiious pioduct lines can
iesult in lost sales, given that each division may have infoimation that can be of value to
the othei. Howevei, because of the piofit centei concept, each pioduct line opeiates inde-
pendently, and communication and coopeiation aie downplayed, if not discouiaged.
Clobal area structure
A gIobaI area structure is a polycentiic (host-countiy-oiiented) stiuctuie in which piimaiy
opeiational iesponsibility is delegated to aiea manageis, each of whom is iesponsible foi a
specific geogiaphic iegion. Figuie 9.5 piovides an example. Eveiy iegional division takes
iesponsibility foi all functions in its aiea-pioduction, maiketing, peisonnel, and finance.
Theie appeais to be some stiuctuial similaiity between a global aiea and a global pioduct
aiiangement; howevei, they opeiate in veiy diffeient ways. With a global pioduct aiiange-
ment, each pioduct division is iesponsible foi its output thioughout the woild. With a
global aiea stiuctuie, on the othei hand, the individual pioduct lines aie subsumed within
each of the geogiaphic aieas. So the managei in chaige of Belgian opeiations, foi example,
will be iesponsible foi each of the pioduct lines sold in that iegion.
A global aiea stiuctuie is commonly used by MNEs that aie in matuie businesses and
have naiiow pioduct lines that aie diffeientiated by geogiaphic aiea. Food pioducts aie
a good example:
In the United States, soft diinks have less sugai than in South Ameiica, so the manufactuiing piocess
must be slightly diffeient in these two locales. Similaily, in England people piefei bland soups, but
in Fiance the piefeience is foi mildly spicy. In Tuikey, Italy, Spain, and Poitugal people like daik, bit-
tei coffee; Ameiicans piefei a mildei, sweetei blend. In noithein Euiope, Canada, and the United
States people piefei less spicy food; in the Middle East and Asia they like moie heavily spiced food.
9
The global aiea stiuctuie piovides division manageis with the autonomy to make iapid
decisions that depend on local tastes and iegulations; because of this, the fiim can become
CIobaI area structure
An organizalional arrange-
menl in which primary
operalional responsibilily
is delegaled lo area man-
agers, each ol whom is
responsible lor a specilic
geographic region
260
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
moie °nationally iesponsive." Also, the company gains a wealth of expeiience in how to sat-
isfy these local tastes, often building a stiong competitive advantage in the piocess. The global
aiea stiuctuie woiks well when economies of scale in pioduction iequiie a iegion-sized unit
foi basic pioduction. Foi example, by setting up opeiations in the EU, a US company is able
to achieve pioduction cost advantages that would not otheiwise be possible. Finally, the com-
pany can eliminate costly tianspoitation associated with impoiting goods pioduced oveiseas.
If a pioduct sells well in the United States, the company is likely to tiy to maiket it woild-
wide without making any modifications foi local taste. Undei the aiea stiuctuie the opposite
viewpoint holds: the pioduct must be adapted to the local tastes. But this means that the usual
pioduct emphasis in a company must be subsumed to the company`s geogiaphic oiientation
and the authoiity of the aiea manageis. Anothei shoitcoming with this oiganization stiuctuie
is the expense associated with duplicating facilities. Each division has its own functional
aieas and is iesponsible foi both pioduction and maiketing. Because pioduction efficiency is
often based on the amount of output, small plants aie usually less efficient than laige ones.
Companies using a global aiea division stiuctuie also find it difficult to cooidinate geogiaph-
ically dispeised divisions into the oveiall stiategic plan. Quite often inteinational coopeiation
and syneigy among divisions end up being saciificed. Finally, companies that iely heavily on
R&D to develop new pioducts often find that the global aiea divisions do not ieadily accept
these offeiings. This is because each gioup is tiying to catei to the specific needs of its cuiient
maiket, and new pioducts often iequiie modification to meet those needs. Reseaich shows
that division manageis piefei to sell pioducts that have alieady been accepted by the maiket
and aie ieluctant to take on new, untiied pioducts. Unfoitunately, because most pioducts have
faiily shoit life cycles, this attitude is potentially dangeious to the long-teim success of the
MNE. The home office must continually fight such °anti-new pioduct" diift.
Clobal functional structure
A gIobaI functionaI structure is one built aiound the basic tasks of the oiganization. Foi ex-
ample, in manufactuiing fiims, pioduction, maiketing, and finance aie the thiee piimaiy
functions that must be caiiied out foi the enteipiise to suivive. Figuie 9.6 shows such an
CIobaI functionaI
structure
An organizalional arrange-
menl in which all areas ol
aclivily are buill around lhe
basic lasks ol lhe enlerprise
Fiçure 9.5 A qlobal area structure
26¹
ORCANlZA1lONAL S1RUC1URLS
Fiçure 9.6 A qlobal Iunctional structure
Fiçure 9.7 Ceoqraphic matrix structure
Matrix structure
An organizalional arrange-
menl lhal blends lwo
organizalional responsibil-
ilies such as lunclional and
producl slruclures or
regional and producl
slruclures
aiiangement. The head of the pioduction depaitment is iesponsible foi all domestic and
inteinational manufactuiing. Similaily, the head of maiketing is iesponsible foi the sales of
all pioducts heie and abioad. This stiuctuie is most commonly used by MNEs with a nai-
iow pioduct line that has ieached a stable plateau of global coveiage and a level of demand
that does not face majoi changes in a competitive attack.
The advantages of the global functional stiuctuie aie allowing a small gioup of man-
ageis to maintain contiol ovei a wide-ieaching oiganization, little duplication of facilities,
and tight, centialized contiol. One disadvantage is difficulty in cooidinating the pioduc-
tion and maiketing aieas, since each opeiates independently of the othei. This can be pai-
ticulaily tioublesome if the MNE has multiple pioduct lines. A second disadvantage is that
iesponsibility foi piofits iests piimaiily with the CEO because theie is little diffusion of
opeiating authoiity fai down the line.
Reseaicheis have found that the global functional aiiangement is most common among
iaw mateiials extiactois with heavy capital investment. Eneigy fiims also use it. Howevei,
this is not a stiuctuie that suits many othei kinds of businesses.
Matrix structure
A matrix structure is an oiganizational aiiangement that blends two oiganizational iespon-
sibilities such as functional and pioduct stiuctuies oi iegional and pioduct stiuctuies. The
functional emphasis focuses on the activities to be peifoimed, wheieas the pioduct em-
phasis focuses on the good that is being pioduced. This stiuctuie is chaiacteiized by a dual
command system that emphasizes both inputs (functions) and outputs (pioducts), theieby
facilitating development of a globally oiiented management attitude. Figuie 9.7 illustiates
a pioduct-iegion matiix.
Theie aie thiee types of manageis in this geocentiic matiix stiuctuie: iegional man-
ageis, pioduct manageis, and matiix manageis. kegionaI managers aie chaiged with busi-
ness in theii maikets. Theii opeiation budgets include selling any of the pioducts made by
kegionaI managers
ln a geocenlric malrix,
managers charged wilh
selling producls in lheir
geographic locale
262
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
Fiçure 9.8 A multinational matrix structure
5ource. Allan P. Janger, |a|r|x Crçan|za||on: o| Comp|ex bu:|ne:: (New York. The Conlerence 8oard, !979), p. 3!.
Product managers
Managers responsible lor
coordinaling lhe ellorls ol
lheir people in such a way
as lo ensure lhe prolilabilily
ol a parlicular business or
producl line
kesource managers
ln a malrix slruclure, man-
agers charged wilh provid-
ing people lor operalions
the MNE, subject to the decision of each iegional managei. Theii focus is polycentiic.
Product managers aie iesponsible foi cooidinating the effoits of theii people in such a way
as to ensuie the piofitability of a paiticulai business oi pioduct line. Theii attitude is ethno-
centiic. The matiix manageis aie iesponsible to |oì| iegional and pioduct manageis-they
have two bosses.
With its thiee dimensions, the matiix design in Figuie 9.8 is moie complex than that in
Figuie 9.7. It illustiates how the matiix oiganizational aiiangement can be used to cooid-
inate and manage wide-ieaching inteinational opeiations. kesource managers aie chaiged
with pioviding the people foi opeiations, wheieas business managers aie iesponsible foi
cooidinating the effoits of these people to make piofits foi the pioduct line. The iesouice
manageis aie conceined with inputs, business manageis with outputs. The bottom of
Figuie 9.8 shows functional specialists fiom such aieas as maiketing, manufactuiing, and
ieseaich. Individuals fiom each of these aieas aie assigned to each of the company`s nine
businesses. In tuin, these nine piofit centeis opeiate in five diffeient aieas of the woild,
including the US, Euiope, and Asia. Each business is iun by a business boaid (not shown
in the figuie) that iepoits to senioi-level management.
The matiix design in Figuie 9.8 is sometimes iefeiied to as a thiee-dimensional model
because when it is diawn it has width, height, and depth. This multidimensional matiix
8usiness managers
Managers responsible lor
coordinaling lhe ellorls
ol people in a corporale
organizalion, lor example,
in a malrix slruclure
263
ORCANlZA1lONAL S1RUC1URLS
addiesses thiee majoi aieas: function, pioduct, and geogiaphy. So the stiuctuie is ieally a
combination of some of the designs discussed eailiei.
One of the majoi advantages of the multinational matiix is that it allows management
to addiess moie than one piimaiy aiea of consideiation. As Figuie 9.8 shows, the com-
pany is able to focus on functional, pioduct, and geogiaphic consideiations. MNEs that
need to balance a pioduct and a global location stiategy can benefit fiom this type of
stiuctuie.
10
A diawback to the use of the matiix stiuctuie in inteinational opeiations is the com-
plexity of the design and the use of dual command, which can iesult in confusion about
what eveiyone is iesponsible foi doing and to whom one iepoits on vaiious matteis. A sec-
ond diawback is the laige numbei of meetings and discussions that often iesult fiom ef-
foits to cooidinate a vaiiety of diffeient gioups, each with its own agenda. A thiid is that it
often takes time foi manageis to leain to opeiate in a matiix stiuctuie, and if the enteipiise
has iapid tuinovei, theie is always a significant poition of the peisonnel who do not fully
undeistand how to function effectively in this enviionment. The box International
Business Strategy in Action: Making matrix work desciibes how some of these pioblems
can be handled.
INTEPNATICNAL BU5INE55 5TPATECY IN ACTICN
Makinq matrix work
Many mullinalionals use malrix slruclures in lheir inler-
nalional operalions. Some ol lhese slruclures work oul very
well, some do nol. Success can ollen be allribuled lo lhree
imporlanl crileria. clarily, conlinuily, and consislency. ll all
lhree are achieved, lhe malrix lends lo work well, il one or
more are missing, lhe slruclural design is ollen inelleclive.
C|ar||y relers lo how well people undersland whal lhey are
doing and why lhey are doing il. ll lhe company's basic ob-
jeclives are clear, il relalionships in lhe slruclure are spelled
oul in direcl, simple lerms, and il lhe relevance ol jobs is
enuncialed, lhere is a good chance lhal clarily will be
achieved. A good example is NLC, lhe Japanese gianl lhal
decided lo inlegrale compulers and communicalion and lo
make lhis lhe locus ol ils business ellorls. This message was
clearly communicaled lo lhe personnel so lhal everyone in
lhe organizalion underslood whal lhe company wanled lo
do. On lhe olher hand, compelilors like AT&T lried lhe same
slralegy bul lailed lo clarily whal lhey were doing. As a
resull, NLC has been more successlul.
Con||nu||y means lhal lhe company remains commilled lo
lhe same core objeclives and values. This provides a unilying
lheme and helps ensure lhal lhe personnel are commilled.
Ceneral Lleclric's 8razilian subsidiary is a good example ol
how a lack ol conlinuily can hurl. ln lhe !960s lhe subsidiary
buill lelevisions. During lhe !970s il was lold lo swilch lo
large appliances. Then il was lold lo locus on housewares.
8y lhis lime lhe company's dominanl lranchise in 8razil's
eleclrical producls markel had all bul dissipaled. ln conlrasl,
Unilever sel up operalions in 8razil and, despile volalile
changes in lhe economy, conlinued lo locus ils ellorls on
lhe eleclrical producls markel. Today Unilever has a lhriving
markel in lhal counlry.
Con:|:|ency relales lo how well all parls ol lhe organizalion
are moving in accord wilh each olher. This is ollen a rellec-
lion ol how well managers ol lhe various operaling divisions
are pursuing lhe same objeclives. lor example, Philips NV
launched an inlernalional slralegy lor ils videocasselle
recording syslem, lhe V2000. However, ils US subsidiary did
nol supporl lhese ellorls because il lell lhal Malsushila's VHS
lormal and Sony's 8ela syslem were loo well eslablished.
8ecause ol lhis, Philips was unable lo build lhe elliciency and
credibilily il needed lo challenge lhe Japanese dominance ol
lhe VCP business.
Malrix slruclures can be complex organizalional arrange-
menls. However, il lhe MNL is able lo achieve clarily, conlinu-
ily, and consislency, lhe malrix approach can be very elleclive.
Weo:||e:. www.hec.com, www.aII.com, www.ge.com, www.uhilever.com,
www.sohy.com, and www.philips.com.
5ource:. Chrislopher A. 8arllell and Sumanlra Choshal, "Malrix Managemenl.
Nol a Slruclure, a lrame ol Mind," |arvard bu:|ne:: |ev|ew, July/Augusl
!990, pp. !38!45, Courlland L. 8ovee el al., |anaçemen| (New York.
McCraw-Hill, !993), pp. 32!323, and Pichard M. Hodgells and lred Lulhans,
|n|erna||ona| |anaçemen|, 4lh ed. (8urr Pidge, lL. lrwin/McCraw, 2000),
Chapler 7.
26^
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
Fiçure 9.9 A mixed structure
Mixed structure
A mixed structure is a hybiid oiganization design that combines stiuctuial aiiangements in
a way that best meets an enteipiise`s individual needs. Figuie 9.9 piovides an illustiation.
While pedagogically it is impoitant to look at the models illustiated above, in piactice a
puie function, pioduct, oi aiea stiuctuie haidy evei exists. Most fiims have some soit of
mixed stiuctuie. Diffeient businesses with diffeient patteins of global demand, supply, and
competition demand diffeient management stiuctuies. Some stiuctuies might be veiy
close to those mentioned above, but theie is always some adaptation to be able to meet the close to those mentioned above, but theie is alwa close to those mentioned above, but theie is alwa
needs of each specific enteipiise.
Transnational network structure
One of the newest foims of inteinational oiganizational aiiangements to emeige is the
transnationaI network structure, which is designed to help MNEs take advantage of global
economies of scale while also being iesponsive to local customei demands. This stiuctuial
design combines elements of functional, pioduct, and geogiaphic designs, while ielying on
a netwoik aiiangement to link the vaiious woildwide subsidiaiies. At the centei of the
tiansnational netwoik stiuctuie aie nodes, which aie units chaiged with cooidinating
pioduct, functional, and geogiaphic infoimation. Diffeient pioduct gioup units and
geogiaphical aiea units have diffeient stiuctuies depending on what is best foi theii pai-
ticulai opeiation. A good example of how the tiansnational netwoik stiuctuie woiks is
piovided by NV Philips, which has opeiations in moie than 60 countiies and pioduces a
diveise pioduct line ianging fiom light bulbs to defense systems. In all, the company has
six pioduct divisions with a vaiying numbei of subsidiaiies in each-and the focus of the
lattei vaiies consideiably. Some specialize in manufactuiing, otheis in sales; some aie
closely contiolled by headquaiteis, otheis aie highly autonomous.
The basic stiuctuial fiamewoik of the tiansnational netwoik consists of thiee com-
ponents: dispeised subunits, specialized opeiations, and inteidependent ielationships.
Dís¡erseJ su|uníìs aie subsidiaiies that aie located anywheie in the woild wheie they can
benefit the oiganization. Some aie designed to take advantage of low factoi costs, wheieas
otheis aie iesponsible foi pioviding infoimation on new technologies oi consumei tiends.
S¡etía|í:eJ o¡eraìíons aie activities caiiied out by subunits that focus on paiticulai pioduct
lines, ieseaich aieas, and maiketing aieas, and aie designed to tap specialized expeitise
oi othei iesouices in the company`s woildwide subsidiaiies. InìerJe¡enJenì re|aìíons|í¡s
1ransnationaI network
structure
An organizalion design lhal
helps MNLs lake advanlage
ol global economies ol
scale while also being re-
sponsive lo local cuslomer
demands
Mixed structure
A hybrid organizalion
design lhal combines
slruclural arrangemenls in
a way lhal besl meels lhe
needs ol lhe enlerprise
265
ORCANlZA1lONAL S1RUC1URLS
Fiçure 9.10 Transnational network structure
aie used to shaie infoimation and iesouices thioughout the dispeised and specialized
subunits.
11
The tiansnational netwoik stiuctuie is difficult to diaw in the foim of an oiganiza-
tional chait because it is complex and continually changing. Figuie 9.10 gives a giaphic
scheme foi the stiuctuie in compaiison to the functional and aiea stiuctuies. The functional
stiuctuie is one in which all decision making is made at headquaiteis, which cooidinates all
opeiations. The aiea, oi geogiaphic stiuctuie, is one in which each subunit acts independ-
ently fiom the otheis. That is, decision making is totally decentialized. The tiansnational
netwoik stiuctuie is a combination of both. Individual units inteiact with each othei and
decision making is shaied acioss the oiganization. Headquaiteis is anothei business unit
that cooidinates the enteipiise in cooidination peiipheial business units.
Let us now take a closei look at the tiansnational netwoik stiuctuie. The peiipheial
ciicles iepiesent the dispeised specialized subunits, each of which takes advantage of
the diffeient iesouices available in its enviionment to feed the oiganization. The con-
nectois show the flows of components, know-how, laboi, financial and maiketing
infoimation, etc., among the diffeient subunits. The cential ciicle iepiesents the head-
quaiteis, which helps to cooidinate the inteiaction of the individual subunits using
shaied decision making.
Active learninq check
|ev|ew your an:wer |o Ac||ve |earn|nç Ca:e que:||on 1 and ma|e any chançe: you |||e. 1hen compare your
an:wer w||h |he one oe|ow.
1 WhaI Iype o! orgahizaIioh sIrucIure does P&G have ih place !or iIs worldwide operaIiohs? Is Ihis
sIrucIure opIimal?
P&C lollows a lhree-axis malrix slruclure in which lhe organizalional responsibililies are divided among (a) regional
markeling, (b) producl-based P&D and manulacluring, and (c) regional logislics. These, in lurn, are overseen by
lhe Corporale lunclions deparlmenl. 8ecause ol lhe scale and inlernalional reach ol ils operalions, a malrix slruc-
lure allows high levels ol nalional responsiveness in lhe markeling ol P&C's branded producls, economies ol scale
in P&D and produclion lo be malerialized lhrough lhe Clobal 8usiness Unils, and economies ol scale in logislics
lhrough lhe Clobal 8usiness Services. Olher lypes ol organizalion slruclures would eilher conslrain nalional re-
sponsiveness in markeling or undermine lhe company's capacily lo achieve economies ol scale al a regional level.
266
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
5TPATECIC MANACEMENT AND CPCANIZINC 5TPATECY
Reseaich has shown that effective oiganizations follow the adage °Fiom stiategy to stiuc-
tuie."
12
They begin by foimulating a stiategy and only then design a stiuctuie that will
efficiently implement this plan. In deteimining the best stiuctuie, thiee questions must be
answeied:
1 Can the company opeiate efficiently with domestic divisions oi aie inteinational div-
isions also necessaiy:
2 On what basis should the oiganization be stiuctuied: pioduct, aiea, function, mixed, oi
matiix:
3 How can the necessaiy cooidination and coopeiation be most effectively achieved:
These answeis aie usually deteimined thiough a caieful analysis of five key vaiiables.
Analysis oI key structural variables
Theie aie five key vaiiables that MNEs examine in choosing fiom among alteinative oi-
ganizational stiuctuies. In some cases one of these vaiiables will outweigh the otheis, and
the stiuctuie will be designed to accommodate this one. In most cases, howevei, theie aie
thiee oi foui inteiacting vaiiables the stiuctuie must addiess.
Fiist, the MNE will evaluate the ielative impoitance of inteinational opeiations at the
time and pioject what the situation might be within thiee to five yeais. If the company is
cuiiently doing 5 pei cent of its business oveiseas and has an expoit depaitment handling
these sales, this oiganization stiuctuie may be adequate foi now. Howevei, if the MNE es-
timates that inteinational sales will giow to 25 pei cent of total ievenues in five yeais, the
company will want to considei adopting an inteinational division stiuctuie oi one of the
global aiiangements. Unless the fiim is piepaied to make this tiansition, it may piove
difficult to handle the anticipated iapid giowth.
Second, the company will take into account its past histoiy and expeiience in the intei-
national aiena. If the fiim has done veiy little business abioad, it is likely to choose a simple
stiuctuie that is easy to undeistand and contiol. If the company has been doing business
oveiseas foi many yeais, it will piobably have expeiienced manageis who can woik well in
a moie sophisticated stiuctuie, so it may choose a mixed design oi a matiix.
A thiid aiea of consideiation is the company`s business and pioduct stiategy. If the
company offeis a small numbei of pioducts and theie is little need to adapt them to
local tastes, a global functional stiuctuie may be the best choice. On the othei hand, if
the pioducts must be tailoied foi local maikets, a global pioduct aiiangement will usu-
ally be moie effective. If the company is going to be doing business in a numbei of diveise
geogiaphic aieas, a global aiea stiuctuie will typically be used. Foi example, to impiove
sales giowth in Euiope and Asia, Coca-Cola ieinfoiced its global aiea oiganizational
aiiangement by putting new manageis into positions oveiseeing opeiations in these
iegions.
13
A fouith influencing vaiiable is management`s philosophy of opeiating. If the company
wants to expand iapidly and is piepaied to take iisks, the fiim will choose a stiuctuie that
is quite diffeient fiom that used by an MNE that wants to expand slowly and is conseiva-
tive in its iisk taking. Similaily, if the home office wants to keep a tight iein on opeiations,
it will not use the same stiuctuie as a fiim that gives local subsidiaiies autonomy and en-
couiages them to make decisions about how to keep the unit competitive at the local level.
Fiench and Geiman subsidiaiies, foi example, tend to be moie centialized than US units.
Theie aie also diffeiences in the way opeiations aie contiolled. Foi example, Japanese
267
S1RA1LClC MANACLMLN1 AND ORCANlZlNC S1RA1LCY
MNEs like to use face-to-face infoimal contiols, wheieas US multinationals piefei budgets,
financial data, and othei foimalized tools.
A final key vaiiable is the enteipiise`s ability to adjust to oiganizational changes. As
MNE woild sales inciease, theie aie continual modifications in the stiuctuie. Foi example,
when the company is small, the domestic divisions dominate. As the inteinational side of
opeiations giows, the manageis of the domestic divisions have to cede some of theii au-
thoiity and influence. If they aie unable oi unwilling to do this, the stiuctuie is affected.
Similaily, if inteinational executives begin gaining gieatei authoiity and theie is a need to
ievamp oveiseas opeiations, theii willingness to adjust to oiganizational changes will affect
the stiuctuie. In some cases MNEs have found that oveiseas manageis, just like theii do-
mestic counteipaits, build small empiies and often aie unwilling to give up this powei.
The ultimate choice of oiganization stiuctuie iests with top management. Howevei,
this gioup seldom tiies to foice such a decision on those who will be diiectly affected.
Instead, theie is a give-and-take in which the needs of the enteipiise and the peisonnel aie
consideied.
In iecent yeais the inciease in meigeis and acquisitions has had an impoitant impact on
MNE decision making. Deutsche Telekom`s T-Mobile Inteinational piovides a good ex-
ample. This company has an owneiship position in a laige numbei of mobile phone com-
panies in a host of diffeient countiies, including Voice Stieam (US), One2One (UK), BEN
(Netheilands), max.mobil (Austiia), and Radio Mobil (Czech Republic). Cooidinating
the opeiations of these holdings iequiies a caiefully designed stiuctuie coupled with the
appiopiiate amount of decentialized authoiity.
14
The iesult is a stiuctuie that is both effi-
cient and humanistic. In caiiying this out, companies will addiess the oiganizational
piocesses that take place within the stiuctuie.
Active learninq check
|ev|ew your an:wer |o Ac||ve |earn|nç Ca:e que:||on 2 and ma|e any chançe: you |||e. 1hen compare your
an:wer w||h |he one oe|ow.
2 Why was Ihe ihIerhaIiohal divisioh replaced by Ihe maIrix sIrucIure?
The inlernalional division is a lairly primilive lype ol organizalional slruclure ol an MNL. ll is used al an early
slage ol inlernalional expansion (by P&C in lhe !940s and !950). As P&C's sales in lhe inlernalional markel
increased beyond 20 per cenl or so, il lurned lo a more complex global organizalion slruclure, lhe lhree-axis
global malrix, wilh which il could be nalionally responsive and achieve economies ol scale.
Coordination
The foimal stiuctuie piovides the skeletal fiamewoik within which the peisonnel opeiate.
The stiuctuie is designed to answei the question: What is to be done: The oiganizational
piocesses-decision making, communicating, and contiolling-help make the stiuctuie
woik efficiently. These piocesses help answei the question: Who should do what, and how
will they do it: These piocesses help put the oiganization stiuctuie into action.
0ecision makinç
ßecision making is the piocess of choosing fiom among alteinatives. In inteinational opei-
ations one of the piimaiy aieas of consideiation is wheie the ultimate decision-making
authoiity will iest on impoitant matteis. If the home office holds this contiol, decision
ßecision making
The process ol choosing
lrom among allernalives
268
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
TabIe 9.1 Factors that encouraqe centralization or decentralization oI decision
makinq in multinational operations
Lhcourage cehIralizaIioh Lhcourage decehIralizaIioh
o! decisioh makihg o! decisioh makihg
making is centialized; if the subsidiaiy can make many of these impoitant decisions with-
out having to consult the home office, decision making is decentialized. Table 9.1 piovides
some examples of factois that encouiage both these types of decision making.
15
Reseaich shows that decision making in MNE subsidiaiies tends to vaiy fiom countiy
to countiy oi cultuie to cultuie. Foi example, among Biitish oiganizations theie is a gieat
deal of decentialized decision making. Many uppei-level manageis do not undeistand the
technical natuie of business opeiations, such as financial budgeting oi cost contiol, so they
delegate the authoiity foi these matteis to middle-level manageis while they focus on
stiategic matteis.
Fiench and Geiman subsidiaiies tend to be faiily centialized in theii decision-making
appioaches. Fiench senioi executives like to maintain contiol of opeiations and tend to
delegate less authoiity than do theii English counteipaits. Geiman manageis aie hiei-
aichical in theii appioach and most impoitant decisions aie made at the top.
In Scandinavian countiies like Noiway, Sweden, and Denmaik, opeiations aie highly de-
centialized both in Scandinavian-based fiims and abioad. The Scandinavians place a gieat
deal of emphasis on the quality of woik life, and they aie moie inteiested in the well-being
of the woikei than in maximizing piofit.
The Japanese use a combination of decentialization and centialization. They make
heavy use of a decision-making piocess called ringi, oi decision making by consensus:
Undei this system any changes in pioceduies and ioutines, tactics, and even stiategies of a fiim aie
oiiginated by those diiectly conceined with these changes. The final decision is made at the top
level aftei an elaboiate examination of the pioposal thiough successively highei levels in the man-
agement hieiaichy and iesults in acceptance oi iejection of a decision only thiough consensus at
eveiy echelon of the management stiuctuie.
16
At the same time, top management maintains a gieat deal of authoiity ovei what will be
discussed at lowei levels. Thus, senioi-level management exeicises both decentialization
and centialization.
US MNEs, peihaps suipiisingly, tend to use faiily centialized decision making in man-
aging theii oveiseas opeiations. This is paiticulaily tiue in aieas such as maiketing policies,
kingi
Decision making by consen-
sus, lhis process is widely
used in Japan
Large enlerprise Small enlerprise
Large capilal inveslmenl Small capilal inveslmenl
Pelalive imporlance ol lhe unil lo lhe MNL Pelalive unimporlance ol lhe unil lo lhe MNL
Highly compelilive environmenl Slable environmenl
Slrong volume-lo-unil-cosl relalionship Weak volume-lo-unil-cosl relalionship
High degree ol lechnology Moderale lo low degree ol lechnology
Low level ol producl diversilicalion High level ol producl diversilicalion
Homogeneous producl lines Helerogeneous producl lines
High inlerdependence belween lhe unils Low inlerdependence belween lhe unils
lew highly compelenl managers in lhe Many highly compelenl managers in lhe
hosl counlry hosl counlry
High experience in inlernalional business Low experience in inlernalional business
Small geographic dislance belween home Large geographic dislance belween home ollice
ollice and subsidiary and subsidiary
269
S1RA1LClC MANACLMLN1 AND ORCANlZlNC S1RA1LCY
financial matteis, and decisions on pioduction capacity. Foid Motoi, foi example, iecently
ieduced the numbei of manageis iepoiting to the CEO in oidei to bettei contiol op-
eiations.
17
On the othei hand, Wal-Mait has been veiy successful in Canada by using a
decentialized appioach to accommodate the local maiket.
18
Moieovei, this is the cuiient
tiend woildwide as MNEs woik to inciease economies of scale and attain highei opei-
ational efficiency. One way in which many aie doing this is thiough outsouicing, thus
simplifying theii stiuctuies and delegating the authoiity foi some opeiations to theii
supplieis.
19
Active learninq check
|ev|ew your an:wer |o Ac||ve |earn|nç Ca:e que:||on J and ma|e any chançe: you |||e. 1hen compare your
an:wer w||h |he one oe|ow.
3 Why does Ihe compahy rely oh decehIralized decisioh makihg?
The primary reason lhe lirm relies so heavily on decenlralized decision making is lhal lhe demands ol lhe local
areas are so greal, il cannol make all imporlanl decisions lrom headquarlers. This applies lo lhe MDOs, which
musl markel lo dillerenl cullures wilh dillerenl languages and business environmenls. 8ul il also applies lo
lhe C8Ss calering direclly lo a given region, which musl lunclion in relevanl languages and undersland region-
ally specilic logislics environmenls. Decision making is also delegaled lo lhe C8Us, which specialize lo provide
lhe mosl elliciency and innovalion in each producl calegory and lo dissipale P&D knowledge across producl
lamilies.
Communication
The process ol lranslerring
meanings lrom sender lo
receiver
Communication
Communication is the piocess of tiansfeiiing meanings fiom sendei to ieceivei. Howevei,
the way of doing this often vaiies fiom one MNE to anothei. Foi example, US MNEs use
diiect communications with theii subsidiaiies and oveiseas units.
20
Diiectives aie spelled
out cleaily and piecisely. Meanwhile, Japanese MNEs piefei moie indiiect communications
in which things aie implied and it is up to the listenei to deteimine what to do. The diiect
appioach woiks well foi Ameiicans, whose cultuie encouiages openness and specific com-
munications. The indiiect appioach woiks well foi the Japanese, whose cultuie encouiages
indiiect and implied communications.
21
Ouchi, aftei conducting a seiies of inteiviews with
Ameiicans woiking foi a Japanese bank in the US, found that this pioblem can be paiticu-
laily disconceiting because each side is unable to undeistand the othei`s appioach, as
illustiated by the following:
Àmerítan managers
We have a non-stop iunning battle with the piesident. We simply cannot get him to specify a pei-
foimance taiget foi us. We have all the necessaiy iepoits and numbeis, but we can`t get specific
taigets fiom him. He won`t tell us how laige a dollai inciease in loan volume oi what pei cent
deciease in opeiating costs he expects us to achieve ovei the next month, quaitei, oi even yeai.
How can we know whethei we`ie peifoiming well without specific taigets to shoot foi:
Ja¡anese |an| ¡resíJenì
If only I could get these Ameiicans to undeistand oui philosophy of banking. To undeistand what the
business means to us-how we feel we should deal with oui customeis and oui employees. What oui
ielationship should be to the local communities we seive. How we should deal with oui competitois,
and what oui iole should be in the woild at laige. If they could get that undei theii skin, then they
could figuie out foi themselves what an appiopiiate objective would be foi any situation, no mattei
how unusual oi new, and I would nevei have to tell them, nevei have to give them a taiget.
22
270
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
These types of cultuially based diffeiences can gieatly affect an MNE`s ability to get
things done.
Anothei communication-based pioblem is nonveibal messages. In inteinational busi-
ness these take two majoi foims: kinesics and pioxemics. kinesics deals with the conveying
of infoimation thiough the use of body movement and facial expiession. Foi example,
when veibally communicating with someone in the United States, it is good manneis to
look the othei paity in the eye. Howevei, in many othei cultuies, such as Aiabic and Middle
East, this is not done, especially if one is talking to a membei of the opposite sex. Such
behavioi would be consideied iude and disiespectful.
23
Proxemics deals with how people use physical space to convey messages. Foi example, in
the United States, businesspeople typically stand two to thiee feet away fiom those with
whom they aie communicating. Howevei, in the Middle East and in many South Ameiican
countiies it is common to stand iight next to the peison. This often makes Ameiicans feel
veiy uncomfoitable because this space is geneially ieseived only foi family membeis and
close fiiends. Business is not conducted at this distance. One gioup of authois summaiized
the pioblem this way:
Ameiicans often tend to be moving away in inteipeisonal communication with theii Middle Eastein
oi Latin counteipaits, while the lattei aie tiying to physically close the gap. The Ameiican cannot
undeistand why the othei is standing so close; the lattei cannot undeistand why the Ameiican is
being so ieseived and standing so fai away; the iesult is a bieakdown in communication.
24
Anothei example of pioxemics is office layout and piotocol. In the United States, a laige
office connotes impoitance, as does a secietaiy who scieens visitois and keeps away those
whom the managei does not wish to see. In Japan, most manageis do not have laige offices;
if they do, they spend little time in them since they aie geneially out talking to the em-
ployees and walking aiound the woikplace. If the managei weie to stay in the office all day,
it would be viewed as a sign of distiust oi angei at the woik gioup. In Euiope, many man-
ageis do not have walled-in offices. The bosses aie out in the same laige ioom as theii
people; theie is no one to scieen the biokeis fiom the boss.
Eveiy countiy has some unique communication patteins oi behaviois.
25
These behaviois
can be paiticulaily tioublesome to outsideis who aie woiking locally and aie unfamiliai
with local appioaches to communication. Figuie 9.11 piovides an inteiesting example in the
foim of epigiams that have been diawn fiom oiganization stiuctuies thioughout the woild.
Controllinç
ControIIing is the piocess of deteimining that eveiything goes accoiding to plan and that
peifoimance is iewaided. It consists of thiee steps: (1) establishing standaids, (2) compai-
ing peifoimance against standaids, and (3) coiiecting deviations. Contiolling is closely
linked to communication since it is viitually impossible to evaluate peifoimance and make
changes without communicating infoimation. Many of the same oiganizational pioblems
discussed above also apply heie.
One of the majoi diffeiences between US and Japanese fiims is the use of explicit veisus
implicit contiol. A majoi diffeience between US and Euiopean fiims is that US MNEs tend
to iely moie heavily on iepoits and othei peifoimance-ielated data, wheieas Euiopeans
make heavy use of behavioial contiol. US multinationals compaie iesults of a foieign unit
with those of othei foieign units, as well as with domestic units, in evaluating peifoimance.
Euiopean MNEs tend to be moie flexible and to judge peifoimance on an individual basis
iathei than simply making a compaiative judgment. Othei diffeiences include:
1 Contiol in US MNEs ielies on piecise planning and budgeting that is suitable foi com-
paiison puiposes. Contiol in Euiopean MNEs takes into consideiation a high level of
Proxemics
A lorm ol non-verbal com-
municalion lhal deals wilh
how people use physical
space lo convey messages
kinesics
A lorm ol non-verbal
communicalion lhal deals
wilh conveying inlormalion
lhrough lhe use ol body
movemenl and lacial
expression
ControIIing
The process ol delermining
lhal everylhing goes ac-
cording lo plan
27¹
S1RA1LClC MANACLMLN1 AND ORCANlZlNC S1RA1LCY
Fiçure 9.11 Crqanizational epiqrams
An epigram is a lerse, willy slalemenl. The organizalional epigrams are designed lo poke lun al lhe way communicalion llows in inlernalional organizalions. Lach
was crealed by an individual wilh experience in lhe respeclive counlry. The explanalion accompanying lhe respeclive epigram explains lhe logic behind lhe drawing.
These epigrams illuslrale lhal communicalion llows lhroughoul lhe world are less ellicienl lhan lhe enlerprise would like. They also illuslrale lhal each counlry has
ils own unique approach lo conveying inlormalion.
5ource. Adapled lrom Simcha Ponen, Compara||ve and |u|||na||ona| |anaçemen|. Copyrighl © !986 John Wiley & Sons, lnc. This malerial is used by permission
ol John Wiley & Sons, lnc.
company-wide undeistanding and agieement ovei what constitutes appiopiiate be-
havioi and how such behavioi suppoits the goals of the subsidiaiy and the paient
company.
2 US multinationals do not encouiage theii manageis to iemain in oveiseas positions foi
a long peiiod of time. As a iesult, they use laige cential staffs and centialized infoima-
tion gatheiing to caiiy out evaluations. Euiopean multinationals, on the othei hand,
encouiage theii manageis to iemain in oveiseas positions and iely heavily on these
manageis to piovide input on how well the unit is doing.
3 Manageis of US MNEs often iepoit to a counteipait back in headquaiteis who, in tuin,
conveys infoimation up the line. Euiopean multinationals have a moie diiect iepoiting
channel so that the head of a foieign subsidiaiy iepoits to someone who is closei to the
top of the stiuctuie.
26
Anothei majoi diffeience is the way in which peisonnel aie evaluated. In the United
States and Euiope, it is common to single out high peifoimeis and iewaid them. In Japan,
howevei, ciedit is given to the entiie gioup iathei than just to one oi two individuals.
Singling people out foi special attention is not iegaided as complimentaiy. Rathei, such
attention would make individuals feel they weie not iegaided as team playeis, which would
be insulting. Anothei impoitant diffeience is the time peiiod foi peisonnel evaluations.
Most US and Euiopean fiims evaluate theii people on an annual basis. Howevei, in Japan
the fiist majoi evaluation often does not occui until the employee has been with the
fiim foi almost a decade.
27
These contiolling diffeiences gieatly affect the way the stiuc-
tuie is managed. As a iesult, iunning an oveiseas opeiation the same way as at home is
often difficult.
272
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
Active learninq check
|ev|ew your an:wer |o Ac||ve |earn|nç Ca:e que:||on 4 and ma|e any chançe: you |||e. 1hen compare your
an:wer w||h |he one oe|ow.
4 Ih cohIrollihg iIs operaIiohs, whaI are Ihree areas IhaI are paramouhI !or Ihe !irm?
There are a number ol areas P&C needs lo conlrol. One ol lhese is prolil. The company musl ensure lhal ils div-
isions are prolilable in each markel in which il operales. A second area is cosl conlrol. Presenlly, P&C's malrix
slruclure is designed lo be nalionally responsive and decrease cosls lhrough economies ol scale. A lhird area is
innovalion. One ol lhe lirm's principal compelilive advanlages is ils abilily lo improve ils brands againsl lhe com-
pelilion, as a resull, il musl weigh ils advances in P&D againsl lhal ol lhe compelilion. A lourlh area ol conlrol
is lhe brand awareness ol consumers lor P&C's brands.
ihIerhaIiohal divisioh
sIrucIure
global producI
sIrucIure
global area sIrucIure
global !uhcIiohal
sIrucIure
mixed sIrucIure
decisioh makihg
ringi
commuhicaIioh
kihesics
proxemics
cohIrollihg
KEY PCINT5
1 When a company fiist enteis the inteinational aiena, it is common to find that these ef-
foits aie meie extensions of domestic opeiations. The MNE will typically handle foi-
eign sales diiectly thiough its own maiketing depaitment, an expoit depaitment, oi an
oveiseas subsidiaiy that is the iesult of a joint ventuie. As inteinational opeiations
become moie impoitant, howevei, the fiim is likely to centialize these opeiations by
adopting an inteinational division stiuctuie. This oiganizational aiiangement iemains
quite populai with many MNEs.
2 As multinationals geneiate incieased ievenues fiom theii oveiseas opeiations, they aie
likely to adopt a global oiganizational stiuctuie. Theie aie six basic types: global piod-
uct, global aiea, global functional, mixed, matiix, and tiansnational netwoik. Each type
has specific advantages and disadvantages.
3 Theie aie five key vaiiables that MNEs examine in choosing fiom among alteinative
oiganizational stiuctuies: (a) the ielative impoitance of inteinational opeiations,
(b) past histoiy and expeiience in the inteinational aiena, (c) the company`s business
and pioduct stiategy, (d) management philosophy, and (e) the fiim`s ability to adjust to
oiganizational changes.
4 The foimal stiuctuie piovides the skeletal fiamewoik within which the peisonnel op-
eiate. The oiganization piocess of decision making, communicating, and contiolling
make the stiuctuie woik efficiently. In the decision-making piocess, one of the key aieas
of consideiation is the amount of centialization oi decentialization that will be used
by the home office. In communicating, cultuially based diffeiences will be of majoi
impoitance, including nonveibal messages. In contiolling, aieas of concein include
explicit and implicit contiol and the ways in which peisonnel will be evaluated.
Key terms
maIrix sIrucIure
regiohal mahagers
producI mahagers
resource mahagers
busihess mahagers
IrahshaIiohal heIwork
sIrucIure
273
RLAL CASL
PEVI EW AND DI 5CU55I CN CUE5TI CN5
1 How does ah exporI deparImehI sIrucIure !uhcIioh? Who hahdles Ihe overseas sales?
2 I! a compahy's ihiIial ihIerhaIiohal expahsioh is cohducIed Ihrough Ihe use o! subsidiaries, how closely
does iI cohIrol Ihese subsidiaries? Why?
3 Why do MNLs use ah ihIerhaIiohal divisioh sIrucIure? Are Ihere ahy drawbacks Io Ihis orgahizaIiohal
arrahgemehI?
4 How does a global producI sIrucIure work? Why would ah MNL opI !or Ihis arrahgemehI? WhaI are Iwo
drawbacks Io usihg Ihis sIrucIure?
5 Wheh would ah MNL use a global area sIrucIure? Wheh would Ihe !irm re|ecI Ihis sIrucIural arrahge-
mehI ih !avor o! a di!!erehI sIrucIure?
6 How does a global !uhcIiohal sIrucIure work? Wheh would iI be a popular approach? Wheh would iI be
o! very liIIle value ih orgahizihg ihIerhaIiohal operaIiohs?
7 Wheh would a compahy opI !or a mixed sIrucIure? Why? De!ehd your ahswer.
8 How does a maIrix sIrucIure work? Wheh would ah MNL opI !or Ihis orgahizaIiohal arrahgemehI?
9 1here are !ive key variables MNLs examihe ih choosihg !rom amohg alIerhaIive orgahizaIiohal sIrucIures.
WhaI are Ihese !ive? IdehIi!y ahd brie!ly describe each.
10 Why are some overseas operaIiohs highly decehIralized while oIhers are very cehIralized? WhaI !acIors
ih!luehce Ihis arrahgemehI?
11 Why are US ihIerhaIiohal operaIiohs more cehIralized Ihah Ihose ih Swedeh? Why is Ihe US model
becomihg more popular amohg MNLs?
12 Ih whaI way is impliciI versus expliciI commuhicaIioh imporIahI ih uhdersIahdihg how home o!!ice
mahagemehIs coordihaIe ihIerhaIiohal acIiviIies?
13 WhaI Iype o! cohIrol Iechhiques do US MNLs pre!er? How does Ihis pre!erehce di!!er !rom IhaI o! Ihe
1apahese? Compare ahd cohIrasI Ihe Iwo.
PEAL CA5E
LVMH: orqanizinq luxury products in the international arena
LVMH is the Fiench-based, woild-leading luxuiy goods
gioup that was founded in 1987 with the meigei of Louis
Vuitton and Moët Hennessy. Chiistian Dioi, Dom
Péiignon, Givenchy, and Moët & Chandon aie just a few
of LVMH`s woild famous luxuiy biand names. In 2003,
ievenues foi the gioup totaled $12 billion-putting it
among the top five maiketeis of luxuiy items (including
wines). LVMH has 1,592 stoies acioss the woild and cui-
iently employs about 56,000 people, most of whom woik
outside of Fiance. The company geneiates the bulk of its
sales in foieign maikets; only 17 pei cent of all ievenues
aie eained in Fiance. The United States is the company`s
single laigest maiket compiising 26 pei cent of ievenues.
It is impoitant to note that although Fiance eains a
small fiaction of LVMH`s ievenues, Euiope as a whole
(including Fiance) accounts foi 38 pei cent. Asia ac-
counts foi 29 pei cent, and the iemaining 7 pei cent is
geneiated mainly in Asia Pacific, Latin Ameiica, and
Canada. In teims of ievenues, the gioup`s economic
scope, with a balance of sales in each pait of the tiiad,
makes it a tiue global company.
LVMH`s oiganizational aiiangement is much moie than
that of a typical conglomeiate. The whole oiganization
focuses on shaied costs and syneigies, both backwaid and
foiwaid in its value chain. The five main lines of business
aie ieally stiategic business units (SBUs) that aie set up to
maiket well-known, high-quality pioducts while iespond-
ing to local tastes and iegulations. They aie: (1) LVMH
Fashion and Leathei Goods; (2) Wines and Spiiits; (3)
Peifumes and Cosmetics; (4) Watches and Jeweliy; and
27^
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
(5) Selective Retailing. By caiefully oveiseeing majoi opei-
ations fiom the top while allowing the individual SBUs
to make the decisions that diiectly affect theii own local
maikets, LVMH employs a combination of °tight and
loose" contiol to maximize its inteinational piesence. In
the piocess, it has become the most global ietail company.
The piofit maigin on luxuiy goods is veiy high, so con-
tiol ovei pioduction, distiibution, and adveitising aie
cential to piofitability. LVMH ensuies that pioduction
standaids in its manufactuiing opeiations aie the highest.
It centializes manufactuiing by using a common laboia-
toiy foi cosmetics ieseaich and integiates the opeiations
foi all the bianch offices in each gioup to ensuie max-
imum efficiency.
Maiketing is a veiy impoitant pait of LVMH`s stiategy.
The company spends 11 peicent of all its ievenues on
woildwide adveitising and puichases media pioducts in
bulk to ieceive the best value foi its money. The °Made in
Fiance" label is stiessed to appeal to its home countiy`s
ieputation foi high-quality luxuiy pioducts. The com-
pany souices only in Fiance, Italy, and Switzeiland.
The vision of a totally integiated gioup was and con-
tinues to be an impoitant pait of the global stiategy that
has positioned LVMH as an industiy leadei. The com-
pany walks a fine line between the exclusivity iequiied of
luxuiy goods and the size and scope of its opeiations. It
might opeiate aiound the woild, but its pioducts aie not
accessible to all.
Weo:||e:. www.lvmh.com, www.vuiIIoh.com, www.moeI.com,
www.dior.com, and www.givehchy.com.
5ource:. Adapled lrom www.lvmh.com, LVMH, Annua| |epor|, 2003,
"The Sweel Smell ol Success," bu:|ne:: Wee|, July !6, 200!, Carol Mallack,
"ldenlily Crisis al LVMH?" bu:|ne:: Wee|, December !!, 2000.
PEAL CA5E
Command Alkon: a small soItware business
Based in Biimingham, Alabama, in the United States,
Command Alkon is the woild leadei in the design and
supply of computei softwaie foi the constiuction busi-
ness. With $44 million in ievenues in 2003, Command
Alkon is only a small MNE but it has tiemendous cap-
abilities in technology standaidization and is numbei one
in its softwaie in teims of maiket shaie, ievenues, and
distiibution. Employing 350 people, it has inteinational
offices in Malaysia, the Netheilands, and Gieat Biitain
that maiket its pioducts in each iegion thiough inde-
pendent sales iepiesentatives. Roughly 20 pei cent of the
company`s business is now deiived outside Noith
Ameiica.
Command Alkon is the iesult of a meigei in Decembei
2000 of Command Data and Alkon, two constiuction
mateiial softwaie and seivice fiims. The meigei was
designed to pool theii R&D iesouices to compete moie
effectively in the fast-changing computei softwaie busi-
ness. Individual pioducts weie alieady compatible and
the meigei eliminated duplication of effoit. The com-
pany specialized in the constiuction business, which
was laigely ignoied by booming softwaie fiims, so it
was able to become the laigest playei in a niche maiket.
At piesent, it competes only with two smallei, local
competitois and the systems developed in-house by
customeis.
1 WhaI Iype o! orgahizaIiohal sIrucIure does LVMH
have?
2 WhaI is Ihe role o! Ihe S8Us ih Ihe orgahizaIiohal
sIrucIure o! LVMH? WhaI problems mighI arise i!
each S8U were ruh ihdepehdehIly?
3 Compare Ihe orgahizaIiohal sIrucIure o! LVMH wiIh
IhaI o! ProcIer & Gamble. Are Ihere ahy similariIies?
How are Ihese orgahizaIiohs di!!erehI?
4 WhaI are some o! LVMH's FSAs IhaI are lisIed ih
Ihis case?
5 How would ouIsourcihg Io less developed couhIries
a!!ecI LVMH?
275
LNDNO1LS
Command Alkon has a puiely ethnocentiic stiategy and
oiganizational stiuctuie. All decisions aie centialized and
hieiaichical miciomanagement is the name of the game.
The dominant cultuie is that of the US home office.
Theie is no customization, no maiketing depaitment, no
investment in local offices. Like most small businesses,
Command Alkon is diiven by its basic pioduct oi seivice,
and it ieplicates its fiim-specific advantage oveiseas.
One of the pioblems foi small businesses is that the top
management team is itself small. Often it compiises just
the foundei of the fiim, his/hei immediate family, and a
few fiiends, so theie is little manageiial expeiience and
a limited oppoitunity to develop inteinational business
skills, which leads to ethnocentiic behavioi. Indeed, most
small business leadeis do not have the inteinal iesouices
to build an oveiseei business by foieign diiect invest-
ment; instead, they aie diawn to the expoit mode of foi-
eign entiy. Thus, they need an inteinational division
stiuctuie.
Theie aie thousands of small and medium-sized busi-
nesses (SMEs) like Command Alkon. Theii business
stiategy is not as complicated as that of MNEs; usually
SMEs aie in only one line of business. The inteinational
expeiience of SMEs is usually thiough licensing and/oi ex-
poiting. Raiely do they engage in foieign diiect investment
oi develop global oiganizational stiuctuie because the cost
of doing business in foieign maikets is often too high.
Weo:||e:. www.commahdalkoh.com and www.sysIechsysIems.com.
5ource:. www.commahdalkoh.com, Cilberl Nicholson, "Command Alkon
lound lls Niche and Dug ln," b|rm|nçham bu:|ne:: Iourna|, November 2,
200!, Sleven Lang, "The Merils ol Specializalion," vA|bu:|ne::,
lebruary !8, 2004.
Endnotes
1 See, foi example, Yigang Pan and Xiaolian Li, °Joint Ventuie
Foimation of Veiy Laige Multinational Fiims," Journa| o[
Inìernaìíona| Busíness SìuJíes, vol. 32, no. 1 (Fiist Quaitei
2000), pp. 179-189; and Tim G. Andiews and Naitnalin
Chompusii, °Lessons in 'Cioss-Veigence`: Restiuctuiing the
Thai Subsidiaiy Coipoiation," Journa| o[ Inìernaìíona|
Busíness SìuJíes, vol. 30, no. 3 (Fiist Quaitei 2000), pp. 77-93.
2 Biad Mitchenei, °GM Takes a Gamble on Eastein Euiope,"
Va|| Sìreeì Journa|, June 23, 1997, p. A 10.
3 William J. Holstein et al., °Mighty Mitsubishi Is on the Move,"
Busíness Vee|, Septembei 24, 1990, p. 99.
4 Robeit L. Simison, °New Data Illustiate Reshaping of
Auto Paits Business," Va|| Sìreeì Journa|, Septembei 2, 1997,
p. B 4.
5 A good example is offeied by Petei Siddall, Keith Willey and
Joige Tavaies, °Building a Tiansnational Oiganization foi
BP Oil," Long Range P|anníng, Febiuaiy 1992, pp. 37-45. Long Range P|anníng Long Range P|anníng
6 Foi some excellent examples, see Chailes H. Feiguson,
°Computeis and the Coming of the US Keiietsu," Har·arJ
Busíness Re·íew, July/August 1990, pp. 55-70; and Benjamin Busíness Re·íew
Gomes-Casseies, °Joint Ventuies in the Face of Global
Competition," S|oan Managemenì Re·íew, vol. 30, no. 3 S|oan Managemenì Re·íew
(Spiing 1989), pp. 17-26.
7 Richaid M. Hodgetts and Fied Luthans, Inìernaìíona|
Managemenì, 4th ed. (Buii Ridge, IL: McGiaw/Iiwin, 2000), Managemenì Managemenì
p. 303.
8 Joann S. Lublin, °Place vs. Pioduct: It`s Tough to Choose a
Management Model," Va|| Sìreeì Journa|, June 27, 2001,
pp. A 1, 4.
9 Hodgetts and Luthans (2000) n. 7 above, p. 306.
10 Yves L. Doz, Chiistophei A. Baitlett and C. K. Piahalad,
°Global Competitive Piessuies and Host Countiy Demands,"
Ca|í[ornía Managemenì Re·íew, Spiing 1981, p. 66. Ca|í[ornía Managemenì Re·íew Ca|í[ornía Managemenì Re·íew
11 See Sumantia Ghoshal and Chiistophei A. Baitlett, Managíng
atross BorJers. T|e Transnaìíona| So|uìíon (London: Random
House, 1998).
12 Alfied D. Chandlei, Ji., Sìraìegy anJ Sìrutìure (Gaiden City,
NY: Anchoi Books, Doubleday, 1966).
13 Betsy McKay, °Coke Reoiganization Puts Thiee as Contendeis
foi No. 2 Position," Va|| Sìreeì Journa|, July 31, 2001, p. B 2.
14 William Boston, °Can Telekom Tuin a David into a Goliath:"
Va|| Sìreeì Journa|, June 1, 2001, pp. A 11, 13.
15 Also see Rebecca Blumenstein, °GM Is Building Plants In
Developing Nations To Woo New Maikets," Va|| Sìreeì
Journa|, August 4, 1997, pp. A 1, 5.
16 Raghu Nath, Com¡araìí·e Managemenì. À Regíona| Víew
(Cambiidge, MA: Ballingei Publishing, 1988), p. 125.
17 Tim Buit and Nikki Tait, °Foid Refines Chain of Command
in US," Fínantía| Tímes, August 16, 2001, p. 13.
18 Beinaid Simon, °Canada Waims to Wal-Mait," New Yor|
Tímes, Septembei 1, 2001, pp. B 1, 3.
19 See, foi example, °Japan Inc. on the Tieadmill," Etonomísì, Etonomísì Etonomísì
June 9, 2001, pp. 63-64.
20 Biuce T. Lamont, V. Sambamuithy, Kimbeily M. Ellis and
Paul G. Simmonds, °The Influence of Oiganizational Stiuctuie
on the Infoimation Received by Coipoiate Stiategists of
Multinational Enteipiises," Managemenì Inìernaìíona| Re·íew, Managemenì Inìernaìíona| Re·íew Managemenì Inìernaìíona| Re·íew
vol. 40, no. 3 (Thiid Quaitei 2000), pp. 231-232.
21 Foi some excellent insights into how Japanese companies
function, see Noboiu Yoshimuia and Philip Andeison, InsíJe
1 Why does a small busihess like Commahd Alkoh
usually have liIIle or ho !oreigh direcI ihvesImehI?
How does iI go ihIerhaIiohal?
2 WhaI is Ihe Iypical Iype o! orgahizaIiohal sIrucIure
!or a small busihess like Commahd Alkoh?
3 Why are so!Iware busihesses usually eIhhocehIric ih
Iheir orgahizaIiohal sIrucIure?
276
CHAP1LR 9 · ORCANlZlNC S1RA1LCY
ì|e Kaís|a (Boston, MA: Haivaid Business School Piess,
1997).
22 Foi an excellent contiast of Ameiican and Japanese commu-
nication pioblems, see William G. Ouchi, T|eory Z (Reading,
MA: Addison-Wesley Publishing, 1981), pp. 33-35.
23 Jane Whitney Gibson, Richaid M. Hodgetts and Chailes W.
Blackwell, °Cultuial Vaiiations in Nonveibal Communication,"
in ProteeJíngs o[ ì|e 55ì| Ànnua| Con·enìíon o[ ì|e Àssotíaìíon
[or Busíness Communítaìíon, 1990, p. 213.
24 Hodgetts and Luthans (2000) n. 7 above, p. 212.
25 David E. Sangei, °Tokyo`s Tips Foi New Yoik," New Yor| Tímes
Maga:íne, Febiuaiy 6, 1994, pp. 28-29.
26 William G. Egelhoff, °Patteins of Contiol in US, UK,
and Euiopean Multinational Coipoiations," Journa| o[
Inìernaìíona| Busíness SìuJíes, vol. 15, no. 2 (Fall 1984),
pp. 81-82.
27 Ouchi (1981) n. 22 above, p. 22.
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