Part Five Global Strategy, Structure, and Implementation Chapter Fifteen The Organization of International Business Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives Profile the evolving understanding of the organization of international business Describe traditional and contemporary structures Study the systems used to coordinate and control operations Profile the role of organization culture Examine special situations in the organization of international business Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Organization in the International Business The organization of international business is challenging due to: the geographic and cultural distances that separate countries the need to operate differently among countries the large number of uncontrollable factors the high uncertainty resulting from rapid change in the international environment problems in gathering reliable data in many places Organization in the MNE is an integrated function of its formal structure, coordination and control systems, and the shared values that make up its culture Prevailing environmental and workplace trends pressure managers to question their customary approaches to organizing their companies Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Vertical Differentiation Vertical differentiation is the matter of how the company balances centralization versus decentralization of decision making Centralization is the degree to which high-level managers, usually above the country level, make strategic decisions and pass them to lower levels for implementation. Decentralization is the degree to which lower-level managers, usually at or below the country level, make and implement strategic decisions. Decision making should occur at the level of the people who are most directly affected and have the most intimate knowledge about the problem. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Horizontal Differentiation Horizontal differentiation describes how the company designs its formal structure to perform three functions: Specify the total set of organizational tasks Divide those tasks into jobs, departments, subsidiaries, and divisions so the work gets done Assign authority and authority relationships to make sure work gets done in ways that support the company’s strategy Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Contemporary structures Contemporary structures, like the network or virtual formats, arrange work roles, responsibilities, and relationships in ways that eliminate the horizontal, vertical, or external boundaries that block the development of knowledge-generating and decision-making relationships Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Coordination and Control Systems No matter what sort of structure the MNE uses, it needs to develop coordination and control mechanisms to prevent duplication of efforts, to ensure that headquarters managers do not withhold the best resources from the international operations, and to include insights from anywhere in the organization Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Coordination Systems Coordination can take place via standardization, plans, and mutual adjustment Standardization relies on specifying standard operating procedures: planning relies on general goals and detailed objectives mutual adjustment relies on frequent interaction among related parties Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Approaches to Coordination Coordination by standardization: Sets universal rules and procedures that apply to units worldwide. Enforces consistency in performance of activities in geographically dispersed units. Coordination by plan requires interdependent units to meet common deadlines and objectives. Coordination by mutual adjustment requires managers to interact personally with counterparts. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Control Methods Companies exercise control through: Market control uses external market mechanisms to establish objective standards. Bureaucratic control emphasizes organizational authority and relies on rules and regulations. Clan control uses shared values and ideals to moderate employee behavior. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Control Mechanisms Reports Visits to Subsidiaries Management Performance Evaluations Cost and Accounting Comparisons Evaluative Measurements Information Systems Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Organization Culture The set of fundamental assumptions about the organization and its goals and practices that members of the company share A system of shared values about what is important and beliefs about how the world works. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Importance of Culture Key features of a company’s organization culture include: Values and principles of management. Work climate and atmosphere. Patterns of “how we do things around here.” Traditions. Ethical standards. An organization’s culture often shapes the strategic moves it considers. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Challenges and Pitfalls Managers from different countries often have values that differ from those endorsed by the company People in an MNE often have slight exposure to the values held by senior managers Evidence suggests that mixing national cultures on teams does not necessarily improve performance Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall