MNES IN THE GLOBAL ECONOMY TOPIC 3A: INTERNAL ORGANIZATION OF MNE ACTIVITIES

MNES IN THE GLOBAL ECONOMY TOPIC 3A: INTERNAL ORGANIZATION OF MNE ACTIVITIES

OBJECTIVES To identify key MNE organizational characteristics To highlight home-country influences on MNE organizational features To describe the structure of MNES internal networks To describe the headquarters-affiliate relationships To describe MNEs internal geographies

KEY MNE ORGANIZATIONAL CHARACTERISTICS Structured as networks within networks Consist of internal corporate networks Embedded in external networks Internal and external boundaries not easy to determine Possession of legal personality partial answer In the external arena, in the inter-jurisdictional context, international law does not materially diminish ambiguity

HOME-COUNTRY INFLUENCES Source of organizational distinctiveness ( national corporate culture ) which persists, without resulting in entirely uniform national patterns Recruitment of senior executives from home country reinforces the trend Some cross-border convergence taking place because of need to adapt to local conditions, but MNEs not transformed into host-country clones Result: persistent, but diminishing, national differentiation

STRUCTURE OF MNES INTERNAL NETWORKS Diverse patterns Functional structure (firm subdivided into major functional units; effective coordination but lack of flexibility) Divisional structure (each product division responsible for its own functions; each division act as a separate profit center; handful of functions performed centrally; greater flexibility and ability to adapt to different conditions; crossdivisional coordination a problem)

STRUCTURE OF MNES INTERNAL NETWORKS, CON T International division added to divisional structure (short-term solution when international exposure limited; tension arises between product-based and geographically-based units when international exposures increases) Two possible solutions First, to organize the firm on a global product basis (i.e., apply the product division structure throughout the world and eliminate the international division)

STRUCTURE OF MNES INTERNAL NETWORKS, CON T Second, to organize the firm on a worldwide geographic basis Neither option resolves the tension between product- and geographically-based units Large MNEs thus often adopt a global grid or matrix structure, containing elements of both product and area elements and involving dual reporting links (conflicts of interests common; managerial supremo may be needed to resolve differences)

STRUCTURE OF MNES INTERNAL NETWORKS Integrated network organization, based on a web of cooperative and lateral relationships (as distinct from a pyramid of vertical control relationships) and flexible coordinating processes (heterarchical rather than hierarchical structure (great flexibility but coordination challenging; requires cultural transformation/cooperative and fluid culture) No structure fully meets needs of MNEs

STRUCTURE OF MNES INTERNAL NETWORKS, CON T Front-end-back-end structure (frontend/customer-facing component designed to meet needs of global customers; backend/production-related component designed to adjust flexibly to demands flowing from the front-end)

HEADQUARTERS-AFFILIATE Inevitably contested RELATIONSHIPS Varies from one organization to another depending on structural characteristics In a state of flux Nevertheless, three broad patterns may be discerned

HEADQUARTERS-AFFILIATE RELATIONSHIPS, CON T First, local implementer (limited geographic scope and functions; focus on adapting MNE products for host market) Second, specialized contributor (possesses specific expertise extensively relied upon by other MNE affiliates; makes distinct contribution, although narrow in nature, within an organizational framework marked by a high degree of interdependence)

HEADQUARTERS-AFFILIATE RELATIONSHIPS, CON T Third, world mandate carrier (exercises worldwide or regional responsibility for a particular product or business

MNES INTERNAL GEOGRAPHIES Different business functions have different locational needs Some tend to be concentrated and others dispersed Geographic configuration particularly relevant for control and coordination, R&D, marketing and sales, and production

MNES INTERNAL GEOGRAPHIES, CON T Corporate headquarters is locus of overall/strategic control and coordination Regional headquarters also common, performing similar role at regional level, and acting as intermediaries between corporate headquarters and affiliates within a particular region

MNES INTERNAL GEOGRAPHIES, CON T Both require a strategic location on the global transportation and communications network Both require access to high-quality external services and particular range of labor market skills Strong agglomeration forces involved Preference for location rich in social and cultural amenities Characteristics displayed by a handful of global cities, the geographic control points of the global economy

MNES INTERNAL GEOGRAPHIES, CON T Geographic inertia for corporate headquarters Greater willingness to move regional headquarters However, within countries, tendency to decentralize corporate headquarters, but refraining from wide dispersal

MNES INTERNAL GEOGRAPHIES, CON T R&D undertaken by MNEs falls into three categories First, support laboratory, whose purpose is to adapt parent company technology to host market and provide technical back-up Second, locally integrated laboratory, a more substantial unit, carrying out product innovation and development for host market

MNES INTERNAL GEOGRAPHIES, CON T Third, international independent R&D units, serving the integrated global firm as a whole rather than any individual or regional market Open innovation blurring these distinctions, but they persist Support laboratories widely dispersed and close to production units Locally integrated laboratories and, even more so, international independent R&D units tend to be confined to particular types of location (large urban complexes with ample supply of highly skilled workers and proximity to academic and research institutions; often close to corporate and regional headquarters, in an amenity-rich, intellectually stimulating, and physically attractive environment )

MNES INTERNAL GEOGRAPHIES, CON T Marketing and sales units most geographically dispersed Some difference between marketing and sales, with marketing more concentrated, often close to corporate and regional headquarters, at times also close to R&D activities, particularly those at developmental stage Sales units normally smaller and more widely dispersed

MNES INTERNAL GEOGRAPHIES, CON T Locational requirements of production units vary greatly, depending on organizational and technological factors and distribution of production resources Nevertheless, four patterns may be discerned First, globally concentrated production (at single location and exported)

MNES INTERNAL GEOGRAPHIES, CON T Second, host-country production (located in and oriented toward a specific host market; designed to reflect host-market and/or overcome host-market barriers) Third, product specialization for global or large regional market (focus on one product to serve a global or large regional market; substantial plant size; few locations but may be in different regions)

MNES INTERNAL GEOGRAPHIES, CON T Fourth, transnational vertical integration (geographic specialization by process or semifinished product) There two ways to achieve this First, materials, semi-finished products, components, and finished products are transported between geographically dispersed units, with each performing a separate part of a production sequence, whereby output of one is the input of the next one

MNES INTERNAL GEOGRAPHIES, CON T Second, (nearly) finished product is exported to the home market of the parent firm or a third-country market, where the assembly plant is located, for final processing, with the host country serving as an export platform The choice of location for a production unit at the global scale partly reflects difference in labor costs and incentives offered by host-country governments, although proximity to home-country also plays a role, as is the desire to avoid the risk of over-reliance on a single source whose operations may be disrupted

FUNCTIONAL ORGANIZATIONAL STRUCTURE

IMPROVING INTEGRATION IN A FUNCTIONAL STRUCTURE BY COMBINING SALES AND MARKETING

DIFFERENTIATION AND INTEGRATION: HOW ORGANIZATIONS INCREASE CONTROL OVER THEIR ACTIVITIES

PRODUCT DIVISION STRUCTURE

THE ASSIGNMENT OF PRODUCT-ORIENTED TEAMS TO INDIVIDUAL FUNCTIONS

MULTIDIVISIONAL STRUCTURE

A MULTIDIVISIONAL STRUCTURE IN WHICH EACH DIVISION HAS A DIFFERENT STRUCTURE

PRODUCT TEAM STRUCTURE

GEOGRAPHIC STRUCTURE

WAL-MART S CORPORATE STRUCTURE

MARKET STRUCTURE

MATRIX STRUCTURE

MULTIDIVISIONAL MATRIX STRUCTURE

TARGET S HYBRID STRUCTURE

NETWORK STRUCTURE