Organisational structure in the global context

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    Business
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    Masters
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Organizational Structure in the Global Context
7

Organizational Structure in the Global Context

Table of Contents

Introduction 3

3Joint ventures versus fully owned subsidiary

Basic Organisational Structure-Initial Division Structure during initial efforts to go international 4

International Division Structure if the firm decides to expand to Asia 4

Global Area Division Structure 5

Formalization, specialization, and centralization impact on MNC organization structures 5

Conclusion 6

References 7

Introduction

Small firms can enter into global market using different means. Before entering into global market, it is important to carry out market research. Consultant firms help in availing market information to firms entering global markets. This report gives advice to a small firm entering global markets. The firm wants to create a popular line for their handheld tools which are crafted for the local market.

Joint ventures versus fully owned subsidiary

Most of the MNCs choose to use joint-ventures when entering a new market. This is due to the fact that joint ventures lead to low manufacturing costs, reduced tax rates and better currency conversion rates. Through use of international joint venture, it becomes possible for the firm to reduce their risk and expand their market (Baird, Lyles & Orris, 1994). At the same time, the firm is able to benefit from their partner sharing of the resources such as capital, knowledge and manpower. Despite this, international joint ventures are risky and expose the business to possibility of naturalisation and foreign government interference (Birkinshaw & Morrison, 1995). It would be advisable to take a wholly owned subsidiary approach. This is a good approach for a smaller company especially in cases where the international transition costs and negotiation costs are high. The main advantage of using wholly owned subsidiary is the fact that it allows the MNC to have a total control and a belief that without partners, managerial efficiency will be better (Li, 1995). Despite this, there are drawbacks which include the fact that wholly owned subsidiary may not be able to enter multiple markets or countries due to high investment in one place (Meyer et al., 2009).

Basic Organisational Structure-Initial Division Structure during initial efforts to go international

The firm of organisation structure which can best help the firm is initial division structure. Being a small firm, this structure will make it possible to have future growth without making major changes to responsibilities, management structure and budgets. This can be implemented through use of an export arrangement which is common with the manufacturing firms. Since there will be low initial competition for the handheld tools at the outset, the firm can take this advantage and charge premium prices. The sales can be handled through use of a sales manager who will be reporting directly to the head of marketing. This structure should continue to be in use until the firm has attained sufficient growth in the market. The firm can change this structure to a more complex one if it grows to a point where the current arrangement is not sufficient for its operations (Cosh, Fu & Hughes, 2012).

International Division Structure if the firm decides to expand to Asia

If the firm is to expand to Asia, it would be important to use an international division structure. Through use of this structure, it will be possible to separate domestic and international market. This is a structure which has been proved to work in firms which are just starting out in international business (Olson, Slater & Hult, 2005). Through this structure, it will be possible for the business to increase their flexibility. At this point, the international business operations for the organisation hence its subsidiaries should be grouped into international divisions. Through this arrangement, an international division head will be selected to monitors overseas activities and make report directly to the CEO. It will be possible to come up with decisions based on a divisional level and better react to local conditions. The decisions made using this form of structure will be as close as possible to the customer. This structure, the organisation will benefit from enhanced accountability, competition, culture, local decisions and speed (Daft, 2012).

Global Area Division Structure

As the organisation grows to a point that it can sell 50 percent of its output overseas, it may require the firm to change its structure to Global Area Structure where operations will be divided based on geographical lines. This will make it possible for the firm to use its strategies in a locally responsive fashion. This can be attained through division of the operations on geographic basis rather than using product basis. The business operations can be organised into several groups which can include domestic, European and Asian. The managers in this case will have a responsibility in all business operations based on their given geographic area. The top management will have a role in formulating strategy which will ensure that all global divisions work in a coordinated manner (Harper, 2015). This is an approach which in most cases is used in signalling major changes in the company strategy. This is because the Asian and European markets are now an important part of the company just like the domestic operations.

Formalization, specialization, and centralization impact on MNC organization structures

Formalisations lead to the need to use financial data, budgets and other tools to control subsidiary operations (Sine, Mitsuhashi & Kirsch, 2006). An informal structure leads to a wide use of face to face and informal controls. While the outward structural design for the overseas subsidiaries seems similar, formalisation which is an internal functioning is very different. Use of specialisation and centralisation may lead to a bureaucratic organisational structure while generalisation and decentralisation leads to a flat structure (Pertusa-Ortega, Zaragoza-Sáez & Claver-Cortes, 2010). Large MNCs such as Ford and IBM have flatter structures hence more flexible, decentralised and able to cope with changes. IBM is well known for its lateral communication and easy exchange of information. This is through the use of organic structure with low centralisation and loosely defined responsibilities rather than using rigid job definitions.

Conclusion

From the report, the firm should follow the advice given when entering international markets. The report proves that wholly owned subsidiary would be better for an MNC entering international market compared to joint ventures. The firm should start by Initial Division Structure when entering the market and change to International Division Structure if they expand to Asia. Global Area Division Structure will be useful if the firm continue expanding.

References

Baird, I. S., Lyles, M. A., & Orris, J. B. (1994). The choice of international strategies by small businesses. Journal of small business management, 32(1), 48-51.

Birkinshaw, J. M., & Morrison, A. J. (1995). Configurations of strategy and structure in subsidiaries of multinational corporations. Journal of international business studies, 26(4), 729-753.

Cosh, A., Fu, X., & Hughes, A. (2012). Organisation structure and innovation performance in different environments. Small Business Economics, 39(2), 301-317.

Daft, R. (2012). Organization theory and design. Toronto: Nelson Education.

Harper, C. (2015). Organizations: Structures, processes and outcomes. Routledge.

Li, J. (1995). Foreign entry and survival: Effects of strategic choices on performance in international markets. Strategic management journal, 16(5), 333-351.

Meyer, K.E., Estrin, S., Bhaumik, S.K. and Peng, M.W., 2009. Institutions, resources, and entry strategies in emerging economies. Strategic management journal, 30(1), pp.61- 80.

Olson, E. M., Slater, S. F., & Hult, G. T. M. (2005). The importance of structure and process to strategy implementation. Business horizons, 48(1), 47-54.

Pertusa-Ortega, E. M., Zaragoza-Sáez, P., & Claver-Cortes, E. (2010). Can formalization, complexity, and centralization influence knowledge performance?. Journal of Business Research, 63(3), 310-320.

Sine, W. D., Mitsuhashi, H., & Kirsch, D. A. (2006). Revisiting Burns and Stalker: Formal structure and new venture performance in emerging economic sectors. Academy of Management Journal, 49(1), 121-132.