Chapter 5 Global Organization Design. Motivations for Global Expansion Economies of scale Economies of scope Low-cost production factors.

Chapter 5Chapter 5

Global Organization Global Organization DesignDesign

Motivations for Global Motivations for Global ExpansionExpansion

• Economies of scale• Economies of scope• Low-cost production factors

Economies of ScaleEconomies of Scale

• The property whereby long-run average total cost falls as the quantity of output increases

Economies of ScopeEconomies of Scope

• Scope : the number and variety of goods and services a company offers.

• Increase a company’s market power and synergy

• Ex : Bancassurance

Low-Cost Production Low-Cost Production FactorsFactors

• Opportunity to obtain raw materials, labor, and other resources (reduced government restrictions) at the lowest possible cost.

Stages of InternationalStages of International Development Development

• Domestic stage• International stage• Multinational stage• Global stage

Domestic StageDomestic Stage

• Domestically oriented• Managers are aware of the

global environment.

International StageInternational Stage

• Takes exports seriously

• Begins to think multi -domestically

Multinational stageMultinational stage

• Extensive experience in the international markets

• Business units scattered around the world

Global stageGlobal stage

• Stateless corporations

Designing Structure to Fit Designing Structure to Fit Global StrategyGlobal Strategy

Global StandardizationGlobal Standardizationvs. vs.

Local OpportunitiesLocal Opportunities

Globalization StrategyGlobalization Strategy

Products are standardized across national markets

Decisions regarding business-level strategies are centralized in the home office

e.g. Boeing, Intel

Advantages Disadvantages- Economies of scale efficiencies- Save costs- Faster introduction of products- Coordinating prices- Eliminating overlapping facilities

- Services are less suitable for globalization (advertising, marketing)- Different customs and habits throughout the countries- Economic and social changes

Multidomestic StrategyMultidomestic Strategy

Strategy and operating decisions are decentralized.

Products and services are tailored to local markets.

Differentiation and Customizatione.g. Pizza Hut

Designing Structure to Fit Designing Structure to Fit Global StrategyGlobal Strategy

Forces forGlobal

Integration

Forces forNational

Responsiveness

International DivisionInternational Division

International Division = Other major departments

Export department International division Product/Geographic Matrix Structure

Domestic Divisions International Divisions- Organized along functional or product lines- Lines of functional hierarchy tends to extend too long- Therefore, subdivide the org. into smaller units

- Organized according to geographic interests- Own hierarchy to handle business

Global Product Division Global Product Division StructureStructure

Standardization & Centralized

Division manager’s responsibility- Planning, organizing, and controlling functions and distributions of productions throughout the world

Global Product Division Global Product Division StructureStructure

Advantages Disadvantages

- Economies of scale- Effective way to manage a variety of business and products- A broad perspective on competition- Respond more rapidly to a changing global environment- Can save the cost by standardizing activities and products

- Compete instead of cooperating - Some countries are ignored by product managers- Doesn’t know what each customer wants throughout the world

Globalization Strategy

Global Geographic Division Global Geographic Division StructureStructure

Local responsiveness & Decentralized- Divides world into geographic region- Each division has full control of functional activities within its geographic area- Local managers (regional manager) have authority

Global Geographic Division Global Geographic Division StructureStructure

Advantages DisadvantagesIt’s good for a company which has…

- Mature product lines and stable technologies- Low-cost manufacturing within countries- A strategy to customize the products to meet specific needs(for marketing and sales as well)

It is difficult to…

- Plan on a global scale (R&D)- Transfer new domestic tech. and products to int’l markets- Rapidly introduce products developed offshore into domestic markets- Track and maintain control of costs- Duplication of line and staff managers across regions

Multidomestic Strategy

Global Matrix StructureGlobal Matrix Structure

Both Globalization and Multidomestic Strategy

It works best….- When pressure for decision making balances the interests of both product standardization and geographic localization

- When coordination to share resources is important

Building Global CapabilitiesBuilding Global Capabilities

The Global Organizational The Global Organizational ChallengeChallenge

Com

plexity and D

ifferentiationNeed for

IntegrationTransfer of

Knowledge and

Innovation

Increased Complexity and Increased Complexity and DifferentiationDifferentiation

• Greater level of internal and external complexity than on the domestic front

• Differentiation – new positions and departments to cope with specific sectors in the environment

• Meet local needs and preferences

Need for IntegrationNeed for Integration

Integration – the quality of collaboration across organizational units

Operating units can be divided by: goals, work attitudes, geographic distance, time differences, cultural values, language.

Transfer of Knowledge and Transfer of Knowledge and InnovationInnovation

• Learn from their international experiences by sharing knowledge and innovations across the enterprise

• Systems for sharing knowledge and innovation

Main problems creating systems for sharing knowledge and innovation:

• Language, culture• Managers don’t appreciate value of

organizational integration, or views knowledge as power to gain influential position in firm

• Knowledge is in the minds of employees

Global Coordination Global Coordination MechanismsMechanisms

Expanded Coordination Roles

Global Teams

Headquarters Planning

Global TeamsGlobal Teams

Global Teams – cross border work groups made of multi skilled, multinational members whose activities span multiple counties.

Two main types: intercultural and virtual global teams.

Same problems as making systems for knowledge and innovations sharing.

Headquarters PlanningHeadquarters Planning

• Headquarters take an active role in planning, scheduling and controlling of global organization.

• Control through centralized systems

Expanded Coordination Expanded Coordination RolesRoles

• Managers responsible for coordinating across countries

• More responsibilities for functional managers

Three National Approaches to Three National Approaches to Coordination and ControlCoordination and Control

Centralized Coordination in

Japanese Companies

European Firms: Decentralized Approach

The United States: Formalization

Centralized Coordination in Centralized Coordination in Japanese CompaniesJapanese Companies

• Coordination mechanisms that rely on centralization

• Activities centralized in home country

• Strong structural linkages

• Comon to all Asia countries

European FEuropean Firirmsms:: DecentralizedDecentralized

• Units have a high level of independence

• Rely on strong mission, shared values and informal personal relationships

• Each international unit focuses on its local market

The United States: The United States: FormalizationFormalization

• Responsibility is delegated international divisions

• Management control systems (policies, standarts, procedures)

• Limited flexibility

The Transnational Model of Organization

Brands of European carsBrands of European carsVolkswagen GroupVolkswagen GroupSkoda autoSkoda auto

A bit of historyA bit of history

• Established in 1895 as bike manufacture (Laurin & Klement)

• 1905 first car produced• 1924 Skoda and Laurin & Klement merged• 1991 become brand of Volkswagen group• 1996 “Big change”• 2008-2009 growing during financial crisis

Skoda cars todaySkoda cars today

SummarySummary

What gave 19 years of being part of global organization?

• 8 factories around world (Czech Republic, Ukraine, India, Bosnia and Herzegovina, Kazakhstan, China and Russia)

• Recovered good name of company• Growing sales, despite economical

crisis in Europe

Thank You

Thank You

We hope it was interestin

g

We hope it was interestin

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