We discuss some of these at the end of the chapter and again in Chapter 10. Most multinationals are more interested in the degree of control they will have over the company than in their share of the profits.
Licensing
However, careful analysis must be done to ensure that the market for the desired goods and services is large enough, that all parties understand their responsibilities, and that everyone agrees on the overall operation of the business. The nearby International Management in Action, "Joint Venturing in Russia," illustrates some of the problems that must be overcome for a JV to succeed. For example, Microsoft announced that it had agreed to a licensing deal with ARM Holdings PLC that allows the software giant to design chips based on ARM's technology, a common component in mobile phones and tablet-like computers.
According to The Wall Street Journal, most ARM licensees “create complete designs for application processors – which run software in mobile phones – and often combine them with other circuitry, such as baseband processors for managing mobile phone radios. But Microsoft signed up for what ARM calls an “architectural license,” a broader agreement that allows a company to use the underlying instructions used in ARM chips and create completely original designs.”14.
Franchising
This "local" approach was created to help Coke improve its international reputation, although Coke's new management is rethinking some aspects of this approach in the face of increasing cost pressures. A second example of how firms are meeting international challenges through reorganization is provided by Li & Fung, the largest export trading company in Hong Kong and an innovator in the development of supply chain management. For example, when the MNC receives an order from a European retailer to produce a large number of dresses, it must decide where to buy the thread in the world market, which companies should receive the orders to weave and dye the fabric, where it is completed. purchases such as buttons and chains should be made and how the final delivery to the customer should be made.
The previous examples of Coca-Cola and Li & Fung show how multinationals are dramatically reorganizing their operations to compete more effectively in the international arena. If the strategy must respond quickly to changes in the local market, this will involve a change in the organizational structure.
Initial Division Structure
However, the overall goal is to meet the needs of both the local market and the home office strategy of globalization. If the company has a narrow product line, the export manager usually reports directly to the marketing manager, and international operations are coordinated by this department. If the company has a broad product line and intends to export a variety of products to the international market, the export manager will head a separate department and often report directly to the president.
The overseas factories show the government that the company wants to be a good local citizen. Each foreign subsidiary is responsible for operations within its own geographic area, and the subsidiary manager reports either to a senior manager who coordinates international operations or directly to the home office CEO.
International Division Structure
Furthermore, an export arrangement enables the firm to reduce the risk and size of investment in establishing significant international operations, while at the same time testing the size of international markets. At the same time, these plants help the MNC to significantly reduce transportation costs, thereby making the product more competitive. The grouping of international activities under one senior manager ensures that the international focus receives top management's attention.
Additionally, as an international operation grows, the home office may find it difficult to think and act strategically and allocate resources globally; thus international division can be punished. Finally, most research and development efforts are directed at home countries, so ideas for new products or processes are often given low priority in the international market.
Global Structural Arrangements
In doing so, global product division managers generally run operations with considerable autonomy; they have the authority to make many important decisions regarding the product. A global product structure offers the most advantages when the need for product specifications or differentiation in different markets is great. Also, if a product is in a different lifecycle (mature versus growth stage) across regions, global product divisions can ensure that each location responds appropriately.
Global Area Division Instead of a global product division, some MNCs prefer to use a global area division. It differs from the global product division structure because each division focuses on regional flavor and offers specialized products for and within that area, as opposed to focusing on a product set and discovering where it can survive and then distributing it to that region.
Transnational Network Structures
The company has also created a new division that will focus exclusively on the mobile phone business. Distributed subunits are subsidiaries located anywhere in the world where they can benefit the organization. Specialized operations are activities carried out by subunits that focus on specific product lines, research areas and marketing areas, and are designed to exploit specialized expertise or other resources in the company's global subsidiaries.
The transnational network structure is difficult to draw in the form of an organizational chart because it is complex and constantly changing. In recent years, MNCs have increasingly expanded their operations in ways different from those used in the past.
Organizational Arrangements from Mergers, Acquisitions, Joint Ventures, and Alliances
The JV will initially be housed at a facility in Al Ain, an Emirati city about 100 miles east of the capital Abu Dhabi, on the border with Oman. One of the main objectives in developing the structure for joint ventures is to help the partners to address and effectively fuse their different values, management styles, action orientation and organizational preferences. Figure 9–9 illustrates how Western and Asian firms differ in these four areas; the figure is also useful in illustrating the types of considerations that must be addressed by MNCs from the same area of the world.
The result is an organization design that builds on the more traditional structures examined here, but still has a unique structure that specifically addresses the needs of the two firms. Many companies are finding that M&As do not work or they involve significant financial risk due to the high sale price.
The Emergence of the Electronic Network Form of Organization
A growing number of academic institutions from Europe to North America now offer both bachelor's and master's degrees, and in some cases full-fledged degrees, via the Internet. In a sense, then, this new structure is a version of the matrix design discussed earlier in this chapter. The big difference is that many of the people in the structure are not just temporary, temporary employees, but never see each other and only communicate in an electronic environment.
Organizing for Product Integration
If we look at all the things Toyota is good at, we find two foundations for its product development system: chief engineers who use their expertise to gain leadership, and functional engineers who use their expertise to increase the amount of communication, supervision, trial and error Reduce. and confusion during the process. Although multinationals have similar organizational structures, they do not all operate in the same way. A large study of Korean companies found that, unlike employees in the United States, Korean employees experience a more positive work environment when expectations for their jobs are set more strictly and formally.
Commenting on the differences in the use of formalization, the researchers concluded that American and Japanese companies appear to have nearly the same level of formalization of written objectives. The less reliance on formal rules and structure in Japanese companies is also reflected in the emphasis on face-to-face or behavioral control, as evidenced by the ratio of the number of foreign expatriates to the total number of employees in subsidiaries.
Specialization
These findings indicate that although the external structural design of overseas subsidiaries may appear to be similar, the internal functioning in characteristics such as formalization may be quite different. Examples include jobs in areas such as customer service, sales, recruiting, training, purchasing, and marketing research. Vertical specialization assigns work to groups or departments where individuals are collectively responsible for performance.
Vertical specialization is also characterized by clear differences between levels in the hierarchy, such that the higher levels are given much more status than those lower, and the overall structure is usually quite large. Vertical specialization can also be measured by the amount of group activity, such as in quality circles.
Centralization
Like any other place in the world, Europe in general and Germany in particular have gone through economic ups and downs. At the same time, many medium-sized and small German companies continue to be among the most successful in the world. It is a common practice among German multinationals to over-serve the market by providing more than is required.
The German companies will overperform in the area that is most important and thus further connect with the customer. Many of these relatively small companies have world market shares in the range of 70 to 90 percent.
Putting Organizational Characteristics in Perspective
Another strategy used by German MNCs is to closely match people's talents to customer needs. However, each of these companies is a market leader not only in Europe, but also worldwide, and in some cases its relative market power is up to 10 times that of its nearest competitor. Then think about the chapter's main topics, forms of entry, and organizational structure, and answer the following questions: (1) Which organizational structure described in the chapter most closely resembles ABB's "customer-oriented" structure.
Although multinational companies still use a variety of structural designs that can be drawn in a hierarchical fashion, recently they have begun to merge or acquire other companies or parts of other companies, and the resulting organizational arrangements are quite different from those of the past. The same is true of the many joint ventures now taking place around the world.
In the
International Spotlight
Questions
Ruehter has spoken with the Dutch company and the two have reached a mutually acceptable sale price. There are two areas Ruehter intends to address in his reorganization effort: (1) how to structurally integrate the subsidiary into the current organization, and (2) whether there can be joint R&D efforts between the two groups. The EU is currently developing a strategy that will help member states counter the threat from the US.
Many strong European-based multinationals could provide a solid foundation for the EU to defend itself against economic invasions from outside. This acquisition will help us enter the European market by getting in on the ground floor,” he said.
You Be the International
