The Organization of International Business 15 1 Organization

The Organization of International Business 15 -1

Organization in the International Business • The organization of international business is challenging due to: the geographic and cultural distances that separate countries the need to operate differently among countries the large number of uncontrollable factors the high uncertainty resulting from rapid change in the international environment – problems in gathering reliable data in many places – – 15 -2

Vertical Differentiation • Vertical differentiation is the matter of how the company balances centralization versus decentralization of decision making • Centralization is the degree to which high-level managers, usually above the country level, make strategic decisions and pass them to lower levels for implementation. • Decentralization is the degree to which lower-level managers, usually at or below the country level, make and implement strategic decisions. • Decision making should occur at the level of the people who are most directly affected and have the most intimate knowledge about the problem. 15 -3

Horizontal Differentiation • Horizontal differentiation describes how the company designs its formal structure to perform three functions: – Specify the total set of organizational tasks – Divide those tasks into jobs, departments, subsidiaries, and divisions so the work gets done – Assign authority and authority relationships to make sure work gets done in ways that support the company’s strategy 15 -4

Coordination and Control Systems • No matter what sort of structure the MNE uses, it needs to develop coordination and control mechanisms to prevent duplication of efforts, to ensure that headquarters managers do not withhold the best resources from the international operations, and to include insights from anywhere in the organization 15 -5

Organization Culture • The set of fundamental assumptions about the organization and its goals and practices that members of the company share • A system of shared values about what is important and beliefs about how the world works. 15 -6

Importance of Culture • Key features of a company’s organization culture include: – Values and principles of management. – Work climate and atmosphere. – Patterns of “how we do things around here. ” – Traditions. – Ethical standards. • An organization’s culture often shapes the strategic moves it considers. – Remember Denton 15 -7

Challenges and Pitfalls • Managers from different countries often have values that differ from those endorsed by the company • Evidence suggests that mixing national cultures on teams does not necessarily improve performance 15 -8