Which of the following organizational structures is typical of most transnational companies

Every international business firm has to face various issues related to organizational policies. These organizational issues are to be addressed carefully in order to keep the business healthy and profitable. Although there are numerous issues, both small and big, we will primarily concentrate only on the major issues that need to be addressed.

Centralization vs. Decentralization

Centralization is the systematic and consistent reservation of authority at central points in the organization. In centralization, the decision-making capability lies with a few selected employees. The implications of centralization are

• Decision making power is reserved at the top level.
• Operating authority lies with the mid-level managers.
• Operation at lower level is directed by the top level.

Almost every important decision and operational activities at the lower level are taken by the top management.

Decentralization is a systematic distribution of authority at all levels of management. In a decentralized entity, major decisions are taken by the top management to build the policies concerning the entire organization. Remaining authority is delegated to the mid- and lower-level managers.

Use of Subsidiary Board of Directors

International firms, especially the fully-owned ones, usually have a board of directors to oversee and direct the top-level management. The major responsibilities of board-members are to −

• Advice, approve, and appraise local management.
• Help the management unit in providing response to local conditions.
• Assist the top management in strategic planning.
• Supervise the firm’s ethical issues.

Any international business organization, depending on its requirements and operations, would have an organization structure to streamline all its processes. In this section, we will try to understand some of the major types of organizational structures.

Initial Division Structures

Initial division structures are common in subsidiaries, export firms, and on-site manufacturers. Subsidiaries that follow this kind of organization structure include firms where the main export is expertise, for example, consultants and financial firms. Export firms include those having technologically advanced products and manufacturing units. Companies having on-site manufacturing operations follow this structure to cut down their costs.

International Division Structure

This structure is built to handle all international operations by a division created for control. It is often adopted by firms that are still in the development stages of international business operations.

Advantages

• International attitude gets the attention of top management
• United approach to international operations

Disadvantages

• Separates domestic managers from their international counterparts
• Difficulty in ideating and acting strategically and in allocating resources globally

Global Product Division

Global product divisions include domestic divisions that are allowed to take global responsibility for product groups. These divisions operate as profit centers.

Advantages

• Helps manage product, technology, customer diversity
• Ability to cater to local needs
• Marketing, production, and finance gets a coordinated approach on a product-by-product, global basis

Disadvantages

• Duplication of facilities and staff personnel within divisions
• Division manager gets attracted to geographic prospects and neglects long-term goals
• Division managers spending huge to tap local, not international markets

Global Area Division

Global area division structure is used for operations that are controlled on a geographic rather than a product basis. Firms in mature businesses with select product lines use it.

Advantages

• International operations and domestic operations remain at the same level
• Global division managers manage business operations in selected geographic area
• Ability to reduce cost per unit and price competitively

Disadvantages

• Difficult to align product emphasis in a geographically oriented manner.
• New R&D efforts are often ignored, as sale in mature market is where the focus is.

Global Functional Division

This structure is to primarily organize global operations based on function; product orientation is secondary for firms using global function division structure.

Advantages

• It emphasizes on functional leadership, centralized-control, and leaner managerial staff

• Favorable for firms that require a tight, centralized coordination and control over integrated production mechanisms

• Helps those firms that need to transport products and raw materials between geographic areas

Disadvantages

• Not suitable for all types of businesses. Applicable to only oil and mining firms

• Difficult to coordinate manufacturing and marketing processes

• Managing multiple product lines can be challenging, as production and marketing are not integrated.

Mixed Matrix

This structure combines global product, area, and functional arrangements and it has a cross-cutting committee structure.

Advantages

• Can be designed to meet individual needs
• Promotes an integrated strategic approach tailored to local needs and priorities

Disadvantages

• Complex structure, coordinating and getting everyone to work toward common goals becomes difficult.
• Too many independent groups in the structure

In this course, learners develop a solid understanding of how national cultures shape international human resource management, international marketing, and international business generally. The course provides an overview of international culture, human resource management (HRM), and marketing. This may seem like a peculiar grouping of topics, but successful international HR management and marketing are highly dependent on national culture. Without understanding a people’s culture, managing and selling to those people is fraught. In the first module, the many determinants of national culture are explored as well as the dimensions or characteristics of a nation’s culture. In the next module, we review the various organizational structures appropriate for international business before turning to the HR challenges of managing a diverse population of international employees. In the final two modules, we explore the many challenges of international marketing across nations and across cultures.

Companies use three common types of organizational structure most often. But the type of organizational structure they choose is often based on their goals, reporting priorities and key strategies of upper management. Small companies usually start out with flat organizational structures, where workers of various backgrounds share business decision responsibilities. Small-business owners must eventually decide what organizational structure is most practical as their companies grow.

A functional structure is arguably the most common type of organizational structure. Divisional structures are used by smaller companies. Finally, small companies with diverse product lines may consider a product structure.

A functional structure is arguably the most common type of organizational structure. The objective of most small companies is to group their workers by department as their businesses grows, and grouping workers by various functions often makes the most sense. Companies that use functional structures divide their departments by functions such as marketing, accounting, engineering and business development.

An advantage of the functional structure is that grouping jobs by skills and knowledge enables a greater efficiency of human resources. Departments are likely to make the right management decisions because of the combined expertise. A disadvantage is that functional departments may become too efficient, often losing sight of the organization as a whole.

Small companies have two basic reasons for using divisional structures: to better service their customers or certain geographic regions. Some companies, even smaller ones, service highly diverse customer groups. They may sell products or services to consumers, corporations, financial institutions or schools. Departments may, therefore, be grouped by customers because each customer has different needs and demands.

It may also take a certain degree of expertise to service each type of customer. Companies divide their workers into different regions for the same reason. Consumers often have different needs and tastes in various regions. It helps to be in close proximity to meet needs, such as different feature, flavor, size and package preferences.

The downside to divisional structures is a duplication of resources. For example, marketing and human resource managers may be needed for each division, as well as for the corporate division.

Small companies with diverse product lines may consider a product structure. This type of organizational structure is common when product expertise is the top priority. Departments may be grouped this way because of the vastly different technical aspects of the products. The channels of distribution and pricing structures may also be different.

Product structures are common in department stores because of the variety of merchandise. The advantage of a product structure is product expertise. Companies that focus on superior product quality may consider this type of structure.

A disadvantage is again duplication of resources. Product and finance managers, for example, may be needed for each product group.

Small companies must take several things into consideration when selecting an organizational structure. One consideration is communication. Companies must ensure proper communication channels as they grow.

Other considerations are authority and span of control. Top management must decide which company officers should oversee various employees, and how many workers should be placed under them. These decisions must also be made throughout the organization.