IB CHAPTER 2 for post gradute student.ppt

internaional corporation

1. CHAPTER TWO
INTERNATIONAL CORPORATIONS

2. Organizational Models
•Termssuchas
1.InternationalCorporation,
2.MultinationalCorporation
3.TransnationalCorporationAnd
4.GlobalCorporationareoftenusedassynonymous
•However,severalmultinationalshaveevolvedintocertain
advancedstageoftransnationalorganizationandoperations
thatitbecomesnecessarytodrawsomedistinctionbetween
theseterms
•However,theinterpretationsofthesetermsgivenby
differentauthorsarenotthesame.
•Sometimesthedifferencesarisefromthedifferencesinthe
context.

3. •With reference to the configuration of resourcesand
responsibilities, parent subsidiary relationship, and the
mentality towards the overseas operationsthe salient
characteristics of these corporations pointed out by Bartlett
and Ghoshal are highlighted below
•Some of these descriptions are at variance with those given
by some other authors
•The following account, however is very useful in
understanding the distinctive features of these different
types of organizations.

4. Multinational Corporation
•Thiswasthetypeofthecorporationpopularwhenmany
Europeancompaniesinternationalizedduringthepre-war
(1920sand1930s)whenthetradebarrierswereveryhigh.
•AccordingtoBartlettandGhoshal,themultinational
organizationisdefinedbythefollowingcharacteristics:
–Adecentralizedfederationofassetsandresponsibilities,
–Amanagementprocessdefinedbysimplefinancial
controlsystemsoverlaidoninformalpersonal
coordination,and
–Adominantstrategicmentalitythatviewedthe
company’sworldwideoperationsasaportfolioof
nationalbusinesses.
•Inamultinationalorganization,thedecisions,obviously,are
decentralized.

5. International Organization Model
•This organization structure, was predominant in the case of
the American Companies which internationalized in the
early post war years.
•The structural configuration of which is described as
–Coordinatedfederation,
–Manyassets,resources,andresponsibilities,
–Decisionsaredecentralizedbutcontrolledfromthe
headquarters
–Theoverseasoperationsareregardedessentiallyas
appendagestoacentraldomesticcorporation

6. –Theheadquarterstransferknowledgeandexpertiseto
overseasenvironmentsthatwerelessadvancedin
technologyormarketdevelopment.
–Whilelocalsubsidiariesareoftenfreetoadaptthenew
productsorstrategies,theirdependenceontheparent
companyfornewproducts,processes,orideasdictateda
greatdealmorecoordinationandcontrolbythe
headquartersthanintheclassicalmultinational
organization.

7. Global Organizational Model
•The Japanese companies which internationalized since the
mid 1960s through the 1970s and 1980s adopted global
configuration model.
–The global configurationis based on centralization of
assets, resources and responsibilities;
–Overseas operations are used to reach foreign marketsin
order to build global scale.
–The role of local subsidiaries is to assemble and sell
productsand to implement plans and policiesdeveloped
at headquarters.
–Compared with subsidiaries in multinational or
international organizations, they have much less freedom
to create new products or strategies or even to modify
existing ones.

8. –Management treats overseas operations as delivery pipe
linesto a unified global market, is described as a
centralized hub.
–The rapid decline in tariffs, coupled with dramatic
improvements in transportation and communication of
this period made a truly export-based strategy feasible.
–The authorityand decision makingare centralizedand
subsidiaries are used basically as implementing agencies,
is described as a centralized hub

9. Transnational Corporation Model
•The transnational organization and model seeks to eliminate
some of the drawbacks of the other models.
•It endeavours to achieve global competitivenessthrough
inter alia, multinational flexibilityand world wide learning.
–The specialized resourcesand capabilitiesare dispersed
among the various operating units globally.
–These units are interdependentand integratedand have
large flows of components, products, resources, people
and informationamong them.
–There is a complex process of coordination and
cooperationin an environment of decision-making

10. Characteristics of Different Organizational Models
Organizational
Characteristics
MultinationalGlobal InternationalTransnational
Configuration of
assets and
capabilities
Decentralized
and nationally
self-sufficient
Centralized
and globally
scaled
Sources of core
competencies
centralized,
others
decentralized
Dispersed,
interdependent
and specialized
Roles of overseas
operations
Sensing and
exploiting
local
opportunities
Implementin
g parent
company
strategies
Adapting and
leveraging
parent
company
strategies
Differentiated
contributions by
national units to
integrated
worldwide
operations
Development and
diffusion of
knowledge
Knowledge
developed
and retained
within each
unit
Knowledge
developed
and retained
at the centre
Knowledge
developed at
the centre and
transferred to
overseas units
Knowledge
developed jointly
and shared
worldwide

11. Forms of International Organization
•Firms that go international should have a kind of
organization that suits its functions, orientation, and over all
goals it wants to achieve.
•An organization is a consciously established entity with a
structure that shows the interrelationship among the units.

12. Organizational Structures
•There are different organizational structuresfor doing
international business.
•The structure is determined by factorssuch as the
–extent of commitmentof the organization to the
international business and the natureof its international
orientation,
–the size of international businessand expansion plans,
–the numberand consistency of product lines,
–characteristics of the foreign markets,
–etc

13. •The nature of the organizational structureis also influenced
by the relative sizes of the domestic and foreign marketsor
their relative importance.
•The organizational structure would undergo changesduring
the different stages of the evolutionof a domestic firm in to
a transnational one.
•This evolution is characterized by two related processes.
They are:
–Geographic dispersion of corporate resources and
–Corresponding changes in organizational development
•We may identify five stagesin the evolution of a firm from
purely domestic to transnationalin organization.
•The following table summarizes these organization
structures and their characteristics.

14. Evolution of International Business and Organization
Structure
Types Structure Characteristics
Domestic Export within marketing
department
Product/Market diversification
minimum, no specialized effort
Export Export dept. as a
separate entity
Early foreign product stages and
specialized effort
InternationalInternational division (low)Export bias eliminated and
foreign market entry by any
strategy, mature stages of a few
products.
MultinationalProduct/Area-based
medium structure world
wide
Growth through diversification
TransnationalMatrix type high structureGlobal rationalization

15. The common organizational types are described below:
1.Built-in Export Department
2.Separate Export Department
3.Export Sales Subsidiary
4.International Division
5.Global Organizational Structures
1.Global Product Structure
2.Global Geographic Structure
3.Global Functional Structure
4.Global Customer Structure
5.Global Matrix structure

16. Built-inExport Department
•The built-in export department is the simplest form of
export organizationand, therefore, the easiest to establish.
•Under this arrangement, as the name indicates, the export
organization is built in to the regular domestic system.
•The function of the special department is usually confined
to the actual selling or directing; and all such different
functions connected with export transactions as advertising,
credit, traffic, shipping and accounting are handled by the
appropriate domestic departments.

17. •The built-in export department is suitable under certain
conditions, such as when the export business is small, the
company is new to international marketing, the
management philosophy is not oriented towards growth in
overseas business, the company resources are limited, etc
•The built-in export department may also be regarded as
the initial arrangementto do export business.
•In course of time, as the business expands, it may be
developed in to a separate export department.
•The built in export department suffers from some
disadvantages.
•Under this arrangement, many of the activities connected
with international business are carried out by domestic
departments.
•Sometimes, therefore, there may be a tendency to regard
export activities as subsidiary to domestic business.

18. •Further, the personnel of the domestic departments
may not have sufficient knowledge or experience to
deal with matters connected with overseas market.
•Another danger is that the export manager may not
get the required amount of cooperation from the
personnel of other departments who are not under
his control

19. Figure –Export Department Structure
President
ProductionR & DMarketingFinancePersonnel
Export

20. Separate Export Department
•Although a relatively large volume of export business may
be handled by a built-in form of organization, this
arrangement, when the overseas business substantially
increases, becomes unsatisfactory.
•A separate export department may, therefore, be established
to take effective care of all the activities connected with the
export business.
•Further a company which wants to expand its international
business substantially would find a separate export
department more useful than the built-in arrangement.
•Unlike the built in department, the separate export
department is essentially self-sufficient;and it is well
equippedto handle all the activities connected with the
export business.

21. •It is not, therefore, at the mercy of domestic departments.
•The organizational structureof the export department may
vary between companies.
•The internal organizational structureof a separate export
department may be based upon functions, territory, product
or a combination of these.
•Needless to say, any such orientation of the internal
organizational structure of the department will depend
primarily upon how the marketing task varies.
•A separate marketing department avoids some of the
problems of the built-in department, such as the clash
between the international and domestic sides of the firm
rendering the time to be spentby domestic marketing
personnel on overseas business matters.

22. •As a separate department is a full-fledgeddepartment, it can
do the job more efficiently.
•It can have personnel trainedto perform the international
marketing functions.
•A separate department will also impart an export orientation
to the company.
•Another advantage is that a separate export department may,
unlike the built-in department, be located at the most
suitable place,which may not be the headquarters of the
company.
•The previous Figureshows the export is a division of the
marketing department which undertakes both domestic
marketing and exports.
•The Figure below depicts an organizational structure with a
separate, full-fledged, export department.

23. Figure –Export Department Structure
President
Production
R & DMarketingExportsFinancePersonnel

24. Export Sales Subsidiary
•Firms with large export business may establish export
subsidiarycompanies and divorce international marketing
activities from domestic operationsbecause of certain
advantages associated with it.
•Although an export sales subsidiary is a separate company,
it is wholly owned and controlled by the parent company
and is quasi-independent.
•The subsidiary company purchases products from the parent
company and markets them abroad.
•The subsidiary may even deal in some non-competing
products of other companies
•It enjoys the following advantages:

25. –It is more independentthan a department, and, therefore,
more flexibleand adaptable to changing situations.
–It can more easily develop export marketing facilities and
expertise and organize international marketing tasks more
effectively.
–Establishing a separate company and dividing the total
business is a lower burden of tax.
–In terms of internal organization and the specific
activities performed, the sales subsidiary differs very
little from a separate export department.

26. International Division
•An export department or export subsidiary may be suitable
for handling large exports but they may not be sufficient for
managing the non-exporting international market entry
modes.
•So companies having foreign subsidiaries whose role is not
confined to sales alone tend to establish an international
division to manage the international business
•Figure below depicts one possible organization structure
with international division.
•An international division will facilitate concentrated
attention on the international business.
•However, creating an international division may generate
internal problems.

27. •Coordinating activities may prove difficult because
domestic activities are organized on a product line basis,
while international side is organized on an area basis, i.e.,
non-domestic.
•The global organizational structureslike the global product
structure and global geographical structure which seek to
integrate domestic and international operations emerged as a
solution to this problem.

28. Figure-International Division Structure
President
Domestic
Vice President
International
Division Vice President
Central Staffs
Foreign Subsidiary 1
President
Foreign Subsidiary 2
President
Foreign Subsidiary 3
President
Planning and
Finance Staff

29. Global Organizational Structures
•The growth of business into global dimensions and
the competition on a global basis resulted in the
development of different global structures.
•The basic types of global structures are described
below:
–Global product structure
–Global geographic structure
–Global functional structure
–Global customer structure
–Global matrix structure

30. Global Product Structure
•The product division structure is popular with large conglomerates
with multiple, unrelated, business.
•Under this structure different subsidiaries pertaining to different
products within the same foreign country report to the head of
different product groups at the head quarters
•It enhances coordination between different areas for any one product
linebut it reduces coordination of all product lines within each zone
•The Figure below illustrates a product based global organizational
structure

31. Figure-Global Product Structure
President
President
Product
Group 1
President
Product
Group 2
President
Product
Group 3
Central Staffs
Domestic
President
Foreign
Subsidiary 1
President
Foreign
Subsidiary 2
President
Foreign
Subsidiary 3
President

32. Global Geographic Structure
•The market is divided geographically.
•In contrast to the product division structure, the
geographic division structure is appropriate for
MNCs with narrow product lines.
•Naturally, this pattern tends to improve coordination
of all product lines within each zone but reduce
coordination between areas for any one product line.

33. Figure –Global Geographic Structure
President
Area President Area President Area President
Central Staffs

34. Global Functional Structure
•Under the functional structure, the head of functional areas,
such as production, marketing, financeand personnel, are
responsible for the world wide operations of their own
functional areas.
•In certain industries like energy and mining, a variation of
the functional structure known as the process structure,
which uses processes as the basis for the structure, is
common.
•Figure below depicts a functional structure.

35. Figure –Global Functional Structure
President
Vice President
Production
(World Wide)
Vice President
Marketing
(World Wide)
Central Staffs
Subsidiary
President
Subsidiary
President
Subsidiary
President

36. Global Customer Structure
•If the global customer groups are so diverse
requiring distinctive approaches, the organizational
structure may be based on the diversity of the
customer groups.
•The structure would not be appropriate if the
product lines are very diverse making customer
groups different for each product group.

37. Global Matrix Structure
•All the global organizational patterns depicted above have
certain advantages and disadvantages.
•The mixed, hybrid or matrix structure seeks to combine the
advantages and overcome the disadvantages of other
alternative structures.
•Figure below shows a simplified matrix structure involving
each subsidiary in a dual system.

38. Global Matrix Structure
President
Vice President
Production
(World Wide)
Vice President
Marketing
(World Wide)
Central Staffs
Country X Country Y
Production Marketing

39. Assignment
•Identify and explain the advantages and
disadvantages of the types of international
organization structures.
•Give at least three practical organizations that
adopted the form of organizational structures to
support their operations