Week 4 Part 1: Firm Structure & control
How should the multinational/global firm to be organized?
Theory: Theory of integration -responsiveness
Practice: organizational structure, headquarter-subsidiary relationships, top management
teams, corporate governance.
The theory of integration-responsiveness
There are forces pushing a firm to globalize, and one pushing the firm to localize.
Two things we need to know:
1. Not all industries have the same mix of pressures
2. Different pressure lead to different strategies and organizational forms.
The theory of integration-responsiveness is a tool for understanding what organizational
form, at the industry level, is the best given the relative importance of the globalization and
the localization force. (An industry-level theory)
1. Not all industries have the same mix of pressures: some industries have more
pressures for global integration, for example industries with:
a. Economies of scale = few locations, centralization
b. Convergent consumer trends = global products (coca cola)
c. Uniform services=central services are easier to standardize
d. Global sourcing of raw materials, components, energy and labor
e. Global competition=global perspective is necessary to monitor
f. Availability of media that reaches customers in multiple markets
Some industries hav more pressures for local responsiveness, for example industries
with:
a. Diversity of local needs=local adaptation
b. Differences in distribution channels=Japan vs Europe
c. Local competition=greater pressure to compete locally
d. Cultural differences=local level adaption (eg. Books) and marketing
e. Host government requirements and regulations
In fact, industries and industry segments can be broadly positioned into three types
of competitive situations:
Global forces¨: global forces dominate. Few advantages for local adaption and
responsiveness. Higher pressure to globalize. (cars, microchips, medical instruments.
No customization necessary).
Local forces: local forces dominate. Few advantages to globalization, standardization.
Higher pressure to localize. (food is highly customized depending on the country and
the region it is supplied to)
Mix of global and local: mix of forces. Pressure to globalize and to customize.
(telecommunications are tailored to markets. The iPhone has both male and female
voices as standard)
, Not all industries have the same mix of pressures:
2. Different pressure leads to different strategies and organizational forms
Each one has a different strategy, different organizational structure and a different
value.
The implication seems to be: there is an optimal way to organize the firm, given the forces
that dominate the industry. In other words, in any given industry, with the resultant
pressures, the firms should structure themselves the same way. (Don’t fall into the
decentralization trap. All the evidence for globalization says to stay centralized, and not to
hire managers in India if you are a Dutch firm)
Organisational structure
organizing the firm
‘Centralization’ and ‘Decentralisation’ describe the organization of the firm in terms of
where the decision making occurs. But how are the firms actually organized?
, - Partnerships: economies of scale in information
gathering, and risk-pooling (share). Difficult to obtain
through the market transactions.
- Peer groups: a group of equals can cooperate, and
function without a hierarchy. As size increases, hierarchy is necessary to reduce
shirking (free-riding; if someone is not cooperating but taking the advantages). As a
student, and without a ‘boss’ it’s easier to manage a group of 2 student team
members than a group of 10.
- Simple hierarchies: a simple hierarchy reduces communication and
decision-making processes and with a division of labor, leads to
efficiency.
- U-form firms: efficient for employees to specialize. This leads to the formation of
functional departments, with managers also specializing.
- M-form firms: more product lines/business units, decrease control, and increases the
risk of agency. The solution is to create a multi-divisional.
head-quarter subsidiary relations
Any of these organizational forms can be internationalized. But as soon as we
internationalize these structures, we talk about headquarters and subsidiaries, and
headquarter subsidiary relations.
So how should we manage our subsidiaries? (IR=integration responsiveness)
Local
Both
How should the multinational/global firm to be organized?
Theory: Theory of integration -responsiveness
Practice: organizational structure, headquarter-subsidiary relationships, top management
teams, corporate governance.
The theory of integration-responsiveness
There are forces pushing a firm to globalize, and one pushing the firm to localize.
Two things we need to know:
1. Not all industries have the same mix of pressures
2. Different pressure lead to different strategies and organizational forms.
The theory of integration-responsiveness is a tool for understanding what organizational
form, at the industry level, is the best given the relative importance of the globalization and
the localization force. (An industry-level theory)
1. Not all industries have the same mix of pressures: some industries have more
pressures for global integration, for example industries with:
a. Economies of scale = few locations, centralization
b. Convergent consumer trends = global products (coca cola)
c. Uniform services=central services are easier to standardize
d. Global sourcing of raw materials, components, energy and labor
e. Global competition=global perspective is necessary to monitor
f. Availability of media that reaches customers in multiple markets
Some industries hav more pressures for local responsiveness, for example industries
with:
a. Diversity of local needs=local adaptation
b. Differences in distribution channels=Japan vs Europe
c. Local competition=greater pressure to compete locally
d. Cultural differences=local level adaption (eg. Books) and marketing
e. Host government requirements and regulations
In fact, industries and industry segments can be broadly positioned into three types
of competitive situations:
Global forces¨: global forces dominate. Few advantages for local adaption and
responsiveness. Higher pressure to globalize. (cars, microchips, medical instruments.
No customization necessary).
Local forces: local forces dominate. Few advantages to globalization, standardization.
Higher pressure to localize. (food is highly customized depending on the country and
the region it is supplied to)
Mix of global and local: mix of forces. Pressure to globalize and to customize.
(telecommunications are tailored to markets. The iPhone has both male and female
voices as standard)
, Not all industries have the same mix of pressures:
2. Different pressure leads to different strategies and organizational forms
Each one has a different strategy, different organizational structure and a different
value.
The implication seems to be: there is an optimal way to organize the firm, given the forces
that dominate the industry. In other words, in any given industry, with the resultant
pressures, the firms should structure themselves the same way. (Don’t fall into the
decentralization trap. All the evidence for globalization says to stay centralized, and not to
hire managers in India if you are a Dutch firm)
Organisational structure
organizing the firm
‘Centralization’ and ‘Decentralisation’ describe the organization of the firm in terms of
where the decision making occurs. But how are the firms actually organized?
, - Partnerships: economies of scale in information
gathering, and risk-pooling (share). Difficult to obtain
through the market transactions.
- Peer groups: a group of equals can cooperate, and
function without a hierarchy. As size increases, hierarchy is necessary to reduce
shirking (free-riding; if someone is not cooperating but taking the advantages). As a
student, and without a ‘boss’ it’s easier to manage a group of 2 student team
members than a group of 10.
- Simple hierarchies: a simple hierarchy reduces communication and
decision-making processes and with a division of labor, leads to
efficiency.
- U-form firms: efficient for employees to specialize. This leads to the formation of
functional departments, with managers also specializing.
- M-form firms: more product lines/business units, decrease control, and increases the
risk of agency. The solution is to create a multi-divisional.
head-quarter subsidiary relations
Any of these organizational forms can be internationalized. But as soon as we
internationalize these structures, we talk about headquarters and subsidiaries, and
headquarter subsidiary relations.
So how should we manage our subsidiaries? (IR=integration responsiveness)
Local
Both
