Organizations and Organization Theory

Chapter Four: International environment

Nowadays, domestic markets for many organizations are becoming saturated and they find
that the only way for growth is to discover the international environment. Then,
organizations have to deal with this new environment to get involved in the international
markets and to keep surviving.
This chapter will explore how managers design the organization for the international
environment.
Todays companies must think globally because they are part of an international influence.
Companies cant avoid global influence.
Motivations for Global Expansion:
In general, three primary factors motivate companies to expand internationally:
Economies of Scale: The presence in the global environment enables organizations to
attain economies of scale. In domestic markets, many companies cant make the
high level of sales needed to maintain economies of scale. The new technologies and
production methods cant enable organization to realize economies scale without a
larger market to sale more.
Economies of Scope: ( Gamme de pdts ) 'economies of scope' refers to lowering
average cost for a firm in producing two or more products.
Low-Cost production Factors: Companies can find raw materials and other resources
at the lowest possible cost in other countries. They also turn to other countries as a
source of cheap labour.
Stages of International Development:
The domestic stage: The Company is domestically oriented and initial foreign sales
are handled through an export department.
The international stage: The Company deals with each country individually and takes
exports seriously. An international division replaces the export department.
The multinational stage: At this stage, the company develops a high percentage of
sales outsides the home country. It develops also a big experience in international
markets by developing marketing, manufacturing and R&D.
The global stage: Global companies operate in truly global fashion, and the entire
world is their marketplace.

Global Expansion through International Strategic Alliances:

Companies get involved in international operations in through international strategic
alliances (Licensing, joint ventures, and consortia). Companies often seek joint ventures to
take advantage of a partners knowledge of local markets.

Designing structure to fit Global Strategy:

Global Vs Local Opportunities:
Managers have to find a new way to adapt the organization to the new global environment
in which it is newly involved. They faced the problem of choosing if they have to emphasize
global standardization or multidomestic global strategy.
The globalization strategy: Marketing strategy, manufacturing and the product design
are standardized throughout the world.
A multidomestic strategy: The competition in each country is handled independently
of competition id other countries.
Companies can be characterized by whether their product and service lines have potential
for globalization. They have to know whether they can take advantages from the
globalization or their products and services are appropriate for a multidomestic strategy.
Sometimes, companies need to respond to both global and local opportunities
simultaneously, in which case the global matrix structure can be used.
Global Product Division:
With a global product division, each divisions manager is responsible for planning,
organizing and controlling all functions for the production and distribution of its products for
any market around the world. The product structure is great for standardization production
and sales around the globe. However the product divisions do not work well together,
competing instead of cooperating in some countries and some countries may be ignored by
product managers.
Global Geographical Division Structure:
The global geographical structure divides the world into geographical regions. Each division
is autonomous and has the full control of all the activities within its geographical area. The
problem encountered by senior management using this global geographical structure is the
autonomy of each regional division. Each division acts to meet only the need of its region.
Global Matrix Structure:
The matrix works best when decision making balances the interests of both product
standardization and geographical localization and when we have an important coordination
to share resources.
Building Global Capabilities:
It is not easy to transport an idea, a structure, a strategy or product in another country.
There are many factors to do it minimizing losses. Managers taking companies international
face a tremendous challenge in how to capitalize on the incredible opportunities that global
expansion presents.

The Global Organizational Challenge:

The three primary segments of the global organizational challenge:
Complexity and Differentiation:
Once organizations enter the international arena, they have to adapt their structure to
operate in numerous countries that differ in economic development, language, political
systems and government regulations, cultural norms and values, and infrastructures such as
transportation and communication facilities. There is also the problem of the growing
number of global consumers who are rejecting the notion of homogenized products and
service. The product must be adapted to the culture of the region.
Need for Integration:
The organization must achieve the coordination and collaboration thats necessary for a
global organization to reap the benefits of economies of scale and economies of scope.
Transfer of Knowledge and Innovation:
Organizations have a big opportunity of knowledge and sharing it across the enterprise. They
have all the skills to meet environmental challenges that arise in that particular locale. The
organizations need systems that promote the transfer of knowledge and innovation across
the global enterprise.
Global Coordination Mechanisms:
The coordination and the transferring of knowledge and innovation is a big challenge for the
manager. He can succeed on this by:
Global Teams
Headquarters planning
Expanded Coordination Roles
Cultural Differences in Coordination and Control:
National Value Systems:
Two dimensions seem to have a strong impact within organizations:
Power distance
Uncertainty avoidance
Three National Approaches to Coordination and Control
Centralized Coordination in Japanese Companies
European Firms Decentralized Approach
The United States: Coordination and Control through formalization