Organization structure in international business

1. P R E S E N T E D B Y :
J A T I N V A I D
Organization Structure in
International Business

2. 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.

3. 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.

4. 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

5. 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.

6. Types of Organizational Structures
1. Functional Structure
2. International Division Structure
3. Product Division Structure
4. Geographic (Area) Division Structure
5. Matrix Division Structure

7. 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

8. 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)

9. 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)

10. 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. Venezuela Italy
North
America
and Pacific
Division
U.S. Japan Canada

11. 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
Agricultural
Products
Group
Europe-
Africa Group
Latin
America
Group
U.K. Mexico
CEO

12. Thank You!
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