INTERNATIONAL BUSINESS

INSTRUCTOR: HOANG THI QUE HUONG SESSION 8

 CHAPTER 13:
THE ORGANIZATION OF
INTERNATIONAL BUSINESS
LEARNING OBJECTIVES

 Explain what is meant by organization architecture

 Describe the different organizational choices that can be made in an
international business
 Explain how organization can be matched to strategy to improve the
performance of an international business
 Discuss what is required for an international business to change its
organization so that it better matches its strategy
ORGANIZATIONAL ARCHITECTURE?
Organizational Architecture

Organizational Architecture
THE DIMENSIONS OF ORGANIZATIONAL
STRUCTURE
 Organizational structure has three dimensions
1. Vertical differentiation - location of decision-making
responsibilities within a structure
 Centralized decision-making
 Decentralized decision-making
2. Horizontal differentiation - formal division of the
organization into sub-units
3. Integrating mechanisms - the mechanisms for coordinating
sub-units
 1. Vertical Differentiation
• Determines where decision- making power is concentrated
• Centralized decision
• Can facilitate coordination
• Ensure that decisions are consistent with organization objective
• Give top managers the means to bring changes
• Avoid the duplication of activities

• Decentralized decision
• Relieves the burden of centralized decision
• To motivate individuals
• Permits greater flexibility
• Can result in better decisions
• Can increase control
2. Horizontal Differentiation
• Refers to how the firm divides into subunits
• Based on function, type of business, geographical area
 The organization is split into functions reflecting the firm’s value creation
activities

 The functions are typically coordinated and controlled by top

management

 Decision-making is centralized

 Product line diversification requires further horizontal

differentiation.
THE STRUCTURE OF DOMESTIC FIRMS

A Typical Functional Structure

A TYPICAL PRODUCT DIVISIONAL STRUCTURE

A Typical Product Divisional Structure

WHEN FIRMS EXPAND INTERNATIONALLY, THEY OFTEN GROUP ALL
OF THEIR INTERNATIONAL ACTIVITIES INTO AN INTERNATIONAL
DIVISION

One Company’s International Divisional Structure

• Many firms that continue to expand will abandon

their international division structure and move to

❖ Worldwide product divisional structure

❖ Worldwide area structure

WORLDWIDE PRODUCT DIVISIONAL
STRUCTURE
• Tends to be adopted by diversified firms that have
domestic product division

• Helps realize location and experience

curve economies

• Facilitates the transfer of core competencies

• Does not allow for local responsiveness

WORLDWIDE PRODUCT DIVISIONAL
STRUCTURE
WORLDWIDE AREA STRUCTURE

• Tends to be adopted by undiversified firms whose

domestic structures are based on funtions

• Divides the world into autonomous geographic areas

• Decentralizes operational authority
• Facilitates local responsiveness
• Can result in a fragmentation of the organization
• In consistent with a localization strategy
WORLDWIDE AREA STRUCTURE
THE GLOBAL MATRIX STRUCTURE

• The global matrix structure is an attempt to

minimize the limitation of the worldwide area
structure and the worldwide product divisional
structure
• Allows for differentation along two dimensions
product division and geographic area
• Has dual decision-making: product division and
geographic area have equal responsibility for
operating decisions
HOW DOES ORGANIZATIONAL STRUCTURE
CHANGE OVER TIME?

The International Structural Stages Model

SUPPORTING LEARNING MATERIAL
Managing people Email from Elon Musk about how
communication in enterprises should be

Link: http://inc-asean.com/grow/email-elon-musk-tesla-employees-describes-great-
communication-looks-like/

Link: https://www.youtube.com/watch?v=f60dheI4ARg
Elon Musk’s approach

Don't let hierarchical structures make things less efficient.

"Communication should travel via the

shortest path necessary to get the job done,
not through the 'chain of command'. Any
manager who attempts to enforce chain of
command communication will soon find
themselves working elsewhere," Musk said
in his internal letter.
HOW CAN SUBUNITS BE INTEGRATED?

 Regardless of the type of structure, firms need a

mechanism to integrate subunits
 Many firms use informal integrating mechanisms
 a knowledge network
 Formal integrating mechanisms include
1. Personal controls
2. Bureaucratic controls
3. Output controls
4. Cultural controls
 PERSONAL CONTROLS
Personal contact with subordinates.
Most widely used in small firms.
OUTPUT CONTROLS
Setting goals for subunits to achive
and expressing those goals in terms
of objective performance metrics.
Compare actual perfo rmance
against targets and intervene
selectively to take corrective action.
01
BUREAUCRATIC CONTROLS
02 A system of rules and produces that
directs the actions of subunits.
Budget and capital spending rules.
03
CULTURAL CONTROLS
04 Exist when employees “buy into” the
norms and value systems of the firm.
Strong culture implies less need for
other forms of control.
WHAT IS THE LINK BETWEEN
STRATEGY AND ARCHITECTURE?
WHAT IS THE LINK BETWEEN CONTROL,
INCENTIVES, AND STRATEGY?
MESSAGES TAKE HOME

Read chapter 19 (Global Human

Resource Management (HRM))
Prepare for Midterm