PRESENTED BY:JATIN VAID

Organization Structure in International Business

Organization Structure

Organization is defined by the formal structure, coordination and control systems, and the organization culture.

It’s the formal arrangement of roles, responsibilities and relationships within an organization.

It’s a powerful tool with which to implement strategy.

Vertical Differentiation: Centralization V/S Decentralization.

Vertical Integration: The issue of determining where in the hierarchy, the authority to make decisions stand.

Centralization is the degree to which high level managers, usually above the country level, make strategic decisions and pass them over to lower levels for implementation.

Decisions made at foreign subsidiary level are considered decentralized, and those made at HQ are considered to be centralized.

Centralization Decentralization

Decisions made by senior level managers at HQ.

Facilitates coordination of value chain

Ensures decisions are consistent with strategic objectives.

Senior executives have authority to direct major change.

Preempts duplication of activities Reduces the risk of making wrong

decisions at low level Ensures consistent dealings with all

stakeholders. Discourages initiative among lower –

level employees.

Decisions made by employees, who are closest to the situation.

Employees who directly deal with customers, markets, etc

Motivates employees to exercise initiative.

Enables more flexible response to rapid environmental changes.

Permits to fix better accountability.

Puts the org at risk for bad decision making.

Cross – unit coordination is at stake for favouritism.

Centralization V/S Decentralization

Horizontal Differentiation: The Design of the Formal Structure

Horizontal Differentiation: The way a co. designs its formal structure to perform the following functions;

1. Specify the set of organizational tasks.2. Divide these tasks into jobs, departments,

subsidiaries and divisions to get the work done.

3. Assign authority relationships to get the work done in a way that supports co. strategy.

Types of Organizational Structures

1. Functional Structure2. International Division Structure3. Product Division Structure4. Geographic (Area) Division Structure5. Matrix Division Structure

1. Functional Structure

Specialized jobs are grouped according to traditional business functions.

Ideal for Co. having a narrow product line, sharing similar technology.

Helps maximize economies of scale

Highly efficient.

CEO

Production

India USA

Marketing

India USA

2. International division structure.

Grouping each international business activity into its own division.

Creates a critical mass of international expertise.

Creates quick response to environmental changes enabling them to deal with different markets.

Prevents duplication of activities. Often struggles to get resources

from domestic divisions. This structure is suited for

multidomestic strategies that demand little integration and standardization between domestic and foreign operations.

Frustrates its ability to exploit economies of scale.

CEO

Industrial Division

Automotive Division

Aerospace Electronics Division

International

Division

Diesel

Company

(France)

Electronics Company

(France)

Brake Company

(Mexico)

Product Division Structure

These are popular among international companies with diverse products.

Similar products are grouped under one product head e.g. Perfumes and Cosmetics, each focusing on a single product segment for its global market.

Suited for a global strategy There may be duplicate

functions and activities among divisions.

No formal means by which one product divison can learn from another international expertise.

CEO

Power Systems Group

Electric Company (Belgium)

Meter Company

(Argentina)

Industry And Defense

Group

Elevatoe Company (Belgium)

Construction Products Company

(Italy)

Geographic (Area) Division Structure

These are used when foreign operations are large and not dominated by a single country or region.

Useful when managers can gain economies of scale on a regional rather than on global basis.

Drawback is the potential of duplication of work among areas as the company locates similar value activities in several places rather than consolidating them in the most efficient place.

CEO

Europe and Latin America Division

U.K.Venezue

laItaly

North America and Pacific Division

U.S.Japa

nCanada

Matrix Division Structure

This tries simultaneously to deal with competing pressures for global integration and local responsiveness.

Institutes overlaps among functional and divisional forms.

Gives functional, product, and geographic groups a common focus.

It makes each group share responsibility for foreign operations and enables each group exchange information and resources more willingly.

Drawbacks- Stop championing their group’s unique needs, and thereby eliminate the multiple knowledge-generating and decision making relationship that it is supposed to engage.

Textile Groups

Agricul-tural Products Group

Europe-Africa Group

Latin America Group

U.K. Mex-ico

CEO

Thank You!jatinvaid@gmail.com