THE ORGANISATION OF INTERNATIONAL BUSINESS

[yummy1984]

THE ORGANISATION OF INTERNATIONAL BUSINESS


VERTICAL DIFFERENTIATION :- a firms vertical differentiation determines where in its hierarcy the decision-making power is concentrated. There are arguments for centralization and decentralization.

CENTRALISATION :-
ADVANTAGES

1. Can facilitate co-ordination e.g. a firm has its component manufacture in Taiwan and its assembly in India then there is a need to co-ordinate the activities of these two locations. This can be achieved by a centralized production scheduling done at the head office.
2. Can help ensure that decisions are consistent with organizational objectives. If decision making is decentralized it may lead to a variance with top management goals.
3. Concentration of authority with the top management can give them the means to bring about needed major organizational changes.
4. Centralisation can avoid duplication of activities e.g. R & D functions are centralization to avoid duplication of work . Similarly product designing, advertisement etc.


DECENTRALISATION :-
ADVANTAGES

1. Top management can become over burdened when decision making authorities are centralized which can result in poor decisions. Thus decentralization gives top management time to focus on critical issues by delegating more routine issues to lower-level managers.
2. Behavioral scientists argue that people are willing to give more to their jobs when they have a greater degree of individual freedom and control over their work.
3. Permits greater flexibility – more rapid response to environment change.
4. Can result in better decision making since decisions are made more closer to the spot by managers who have better information on the issue.
5. Decentralisation can increase control it can be used to establish relatively autonomous self contained sub-units within an organization.


STRATEGY & CENTRALISATION IN IB

The choice between centralization and decentralization cannot be absolute. It makes sense to centralize some decisions and decentralize some depending on the type of decision and the firms strategy. Firms pursuing global strategies must decide how to disperse various value-creation activities. The head office must take decisions on the location of R & D, production, marketing and so on. In addition the global web must be co-ordinated. Centralisation of some operating decisions may become necessary. In contrast emphasis on local responsiveness may create strong pressures for decentralization.

Thus international firms tend to maintain centralized control over their core competencies like R & D and decentralize operating decisions to foreign subsidiaries.


HORIZONTAL DIFFERENTIATION

Is basically concerned with how the firm decides to divide itself into submits. The decision is mainly made on the basis of function, types of business or geographical area.


THE STRUCTURE OF DOMESTIC FIRMS

Most firms have no formal structure but as they grow the demands of management become too great for one individual to handle. At this point the organization is split into functions reflecting the firms value-creation. These functions are typically co-ordinated and controlled by a top-management team.

TYPICAL FUNCTIONAL STRUCTURE

TOP MANAGEMENT






Buying Unit Plants Sales unit Accounting Unit

TYPICAL PRODUCTION DIVISION STRUCTURE













Branch Sales Units Plants Buying units Accounting units

By its nature decision making in such firms is centralized. A different structure may be required if a firm diversifies its product offering. In such a case a functional structure can become very clumsy. Problems of co-ordination and control can arise when different business areas are managed under a functional structure. At such a stage most firms switch to a “product division structure”. Here each product division is responsible for a distinct product line. Each product division is self-contained, with its own functions.


THE INTERNATIONAL UNIT
When firms expand abroad they typically group all their activities into an international division. Regardless of a firms domestic structure, its international division tends to be organized on geography.

INTERNATIONAL DIVISION STRUCTURE














FUNCTIONAL UNITS









Many firms expand internationally by exporting the product manufactured domestically. On time it may prove viable to manufacture the product in each country.

For firms with functional structure at home it means replicating the functional structure in every country in which the firm does business.

For firms with a divisional structure this might mean replicating the divisional structure in every country. This structure is followed by 60 % of all firms that have expanded internationally as per a Harvard study. The dual structure may create certain problems like conflicts and co-ordination problems between domestic and foreign operations. The heads of foreign subsidiaries are not given as mush voice in the organization as the heads of domestic functions. Thus when a companies international operations grow this structure is dropped.

Worldwide Area Structure :- is preferred by companies that had diversified into international market and have a domestic structure based on functions. The worldwide area structure divides the world into areas. An area may be a country or a group of countries. Each area tends to be self contained with its own production, marketing, R & D , HR and finance functions, operations authority are decentralized. While the HO maintain overall financial & strategic decision control.

The great strength of this structure is that it facilitates local responsiveness. Because decision-making responsibilities are decentralized. Each area can customize product offered, marketing and business strategy.

The weakness of the structure is that it encourages fragmentation of the organization into highly autonomous entities. This can make it difficult to transfer core competencies between areas. Firms structured on this basis may encounter significant problems if local responsiveness is less.


WORLDWIDE PRODUCT DIVISION STRUCTURE

A worldwide product division structure tends to be adopted by firms that are diversified and have domestic structure based on product divisions. The worldwide product division is designed to help overcome the problems of co-ordination that arise with the international division. The strength of this structure is that it provides an organization where it is easy to consolidated value- creation activities at key location necessary. It also facilitates transfer of core competencies.

The main problems is limited voice is given to area managers.
AWORLD WIDE AREA STRUCTURE












WORLD WIDE PRODUCT DIVISION STRUCTURE















Functional units Functional units



GLOBAL MATRIX STRUCTURE

In the classic global matrix structure horizontal differentiation proceeds along two dimensions product division and geographical area. The basic aim is that responsibility for operating decisions pertaining to a particular product should be shared by the product division & various areas.
Thus the nature of the product offered the marketing and business strategy to be pursued in Area / for products of Div A are determined by consultation between Div A & area management.

This dual – decision making enables the firm to achieve its objectives.

The reality of the global matrix structure is that it does not work as well as the theory predicts. The matrix often turns out to be clumsy. It can require so many meetings that it is difficult to get any work done. The dual hierarchy structure can also lead to conflict and power struggles. Ascertaining accountability is also tough.

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[harsh9]

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[shoeb.shaikh]

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[kdrocks]

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