Designing Organizations for the International Environment
Entering the Global Arena
Motivations for Global Expansion: economic, technological and competitive forces have combined to push many
companies from a domestic to a global focus.
Economies of Scale – building a global presence expands an organization’s scale of operations, enabling it to
realize economies of scale. Economies of scale also enable companies to obtain volume discounts from
suppliers, lowering the organization’s cost of production.
Economies of Scope – scope refers to/ the number and variety of products and services a company offers, as
well as the number and variety of regions, countries, and markets it services.
o Economies of scope can also increase a company’s market power as compared to competitors, because
the company develops broad knowledge of cultural, social, economic factors that affect its consumers
and can provide specialized products and services to meet those needs.
Low-Cost Production Factors – the opportunity to obtain raw materials and other resources (cheap labour) at
the lowest possible cost. Companies have gone international in search of lower costs of capital, sources of cheap
energy, reduced government restrictions, or other factors that lower the company’s total production costs.
Stages of International Development
Global Companies are considered as stateless corporations whose businesses transcend any single country.
o Domestic Stage
o International Stage
o Multinational Stage
o Global Stage
4 Stages of International Evolution
Domestic International Multinational Global
Domestically oriented Export oriented, multi-domestic Multinational Global
Stage of Initial foreign involvement Competitive positioning Explosion Global
Domestic structure, plus Domestic structure, plus Worldwide geographical Matrix,
Structure export department international division product transnational
Market Potential Moderate, mostly domestic Large, multi-domestic Very large, multinational Whole world
Global Expansion through International Strategic Alliances
Joint Venture is a separate entity created with two or more active firms as sponsors; strategy is used to lower
costs, share strengths and risks, take advantage of partner’s knowledge
Consortia – becoming involved in groups of independent companies – including suppliers, customers, or even
competitors – that join together to share skills, resources, costs, and access to one another’s markets
Designing Structure to Fit Global Strategy
Model for Global vs. Local Opportunities
Managers must decide whether they want each global affiliate to act autonomously (national responsiveness) or whether
activities should be standardized across countries.
Globalization Strategy – product and design, manufacturing, and marketing strategy are standardized
throughout the world; cannot use this strategy for services due to cultural differences
Multidomestic Strategy – competition in each country is handled independently of competition in other
countries. This strategy encourages tailoring of product design, assembly, and marketing to the specific needs to
High Globalization Strategy: Both Globalization and Multidomestic Strategy:
Forces for Global Integration Global Product Structure Global Matrix Structure
Export Strategy: Multidomestic Strategy:
Low International Division Global Geographic Structure
National Responsiveness International Division
Starting with an export department that grows into an international division.
The international division is organized according to product or geographical structures and has its own hierarchy
to handle business overseas.
Global Product Structure
Product divisions take responsibility for global operations in their specific product area.
Most commonly used, easier to manage, more focused employees, broader perspective on competition and
allows managers to be more responsive to the environment.
Works best when division handles similar products that can be standardized for marketing worldwide.
Sometimes encourages competition between product divisions and so they do not work together.
Global Geographical Structure
Divides the world into geographical regions, with each geographical division reporting to the CEO. Each division
has full control of functional activities in each geographical area.
Works best for companies with mature product lines and stable technologies.
Problems occur with autonomy of each division with sharing of innovation and ideas.
Global Matrix Structure
A combination of geographical areas and business functions, but distances for communication are greater and
coordination is even more complex
Building Global Capabilities
The Global Organizational Challenge
Managers taking their companies international face a tremendous challenge in how to capitalize on the incredible
opportunities that global expansion presents.
Increased Complexity and Differentiation – companies have to create a structure to operate in numerous
countries that differ in economic development, language, political systems and government regulations, cultural
norms and values, and infrastructure such as transportation and communication facilities.
o Global consumers are rejecting homogenized products and are demanding greater response to local
o More specialized positions and departments need to be set up as well as boundary spanning
Need for Integration – as organizations become more differentiated, with multiple products, divisions,
departments, and positions scattered across numerous countries, managers face a tremendous integration
Transfer of Knowledge and Innovation – or