Integrated global structures
Senior management may choose to replace the international division with an integrated global structure. This is done in response to increased product diversity and to get as much benefit as possible from both domestic and foreign operations. This structure can be organized along functional, product, geographic or matrix lines.
Functional structures
The major concerns of managers adopting this model are the functions of their companies, including production, marketing, finance, work systems and the management of personnel. Overseas operations are integrated into these existing specialized functions in all departments to achieve economies of scale. Each function – such as marketing – is overseen by people at global headquarters.
This is an unusual set-up for general business enterprises, but it can be found in natural resource industries such as mining and oil. It is used also by small firms with highly centralized systems. It is particularly appropriate for product lines using similar technology and for businesses with a narrow spectrum of customers, resulting in plants that are highly integrated across product» and that serve single or similar markets.
Advantages:
Small number of staff needed in global headquarters
High level of centralization and coordination
Integrated vision worldwide
High level of functional expertise.
Disadvantages:
Difficult to coordinate regional production and marketing
Except for the chief executive, managers and staff have no responsibility for business achievement
Probability of serious management problems due to the large number of production lines
Many advantages from economies of scale and functional specialization may be lost if managers and work systems become too narrowly defined to have the necessary flexibility to respond to local environments.
Product structures
These arise when departments are set up with full responsibility for global products in marketing, financial management and production. The senior manager in charge of each global product department has similar authority to the subsidiary’s general manager. Each department is a profit center and has great flexibility' and independence.
Enterprise managers adopt this model when the operation is in an early development stage. The main objective is to raise the level of global coordination. A global product structure provides an integrated and centralized plan to increase each subsidiary’s efficiency in product promotion. It also provides the means of adjusting product specifications and characteristics to satisfy local market demands.
Advantages:
All support functions based on product, not region
Manufacturing based on customers' requirement
Research and development directed to global customers' wants and needs
Emphasis on world market and cross-border coordination
Integrated and centralized world vision.
Disadvantages:
Duplicates support functions within each global product department
Senior manager of global product department normally comes from domestic marketing department, therefore may lack requisite experience
Subsidiary management concentrates on maximum investment returns
Coordination and corporate learning across product group* more difficult.
An example of how to overcome this last problem comes from the Japanese electronics industry. Formerly, the parent organization transferred knowledge and technology to the subsidiaries – often a difficult and complicated business. More recently, Matsushita and Murata changed their policies and upgraded the technologies in their subsidiaries in Singapore, Taiwan and Korea. By this means they differentiate product designs and supply them as needed to plants in East Asia. Any company might use this strategy towards reorganizing itself into an area or worldwide conglomerate.
Area designs
These are created to organize activities around specific areas, as part of polycentric or multi-domestic policies. They are most likely when products are not readily transferable, for market-driven strategies, or if a firm’s competitive strength is in its reputation for brand- name products. Cadbury Schweppes PLC, the British soft-drink and confectionary firm, is a good example.
Advantages:
A geographic focus allows the development of local expertise.
Disadvantages:
Lost cost-efficiencies (no global production);
Slow diffusion of technology;
Duplication of resources;
High cost of coordination across areas;
Discourages global product planning.
Grouping a number of countries under a region is an example of a global area strategy. Together, the various agencies provide services to brand owners such as BAT, P&G, Volkswagen, Microsoft, AXA and Nokia.
A domestic example of an area, or market-oriented, strategy is one that led to reform in the Australian electricity industry. From World War II until the early 1980s, electricity in Australia was provided by public monopolies owned primarily by state governments, and operated as statutory authorities. The reforms of the 1980s and 1990s were designed to change almost even aspect of these institutional frameworks. The integrated, state- owned and bureaucratically run electricity monopolies were replaced by a profit-oriented, privately owned industry operating in a competitive national market characterized by clear separation between activities of generation, transmission and distribution, and retailing. Though full privatization has been rejected in several states, for the most part consumers are free to choose their supplier in a competitive retail market.
Matrix structures
These are hybrids of overlapping responsibilities. One advocate of this structure is business journalist Darren Bagulf. In an article for the Australian Institute of Management in July 2006 he argued for 'the matrix' – that new styles and concepts of management arc making organizational hierarchies more horizontal and responsive to the needs of a fast-changing market.
Traditional vertical management structures are proving inadequate because it is easier to sell existing customers additional products or services than it is to get new customers.
Such structures are not new: they first came into vogue in the late 1980s, and are common in manufacturing as well as investment banks. The idea is simple enough: there are two different lines of authority that, in theory at least, work together to make a balanced decision. No one person has sole decisional power over any given situation. Effectively, this breaks down the traditional, vertical, hierarchical command-and-control style that emerged from die industrial revolution.
Another driving force behind the development of matrix structures is that many firms have centralized functions, globally supported by geographical business units.
While the idea behind the matrix' is simple, it is complicated in execution and most managers struggle to get it right. Nevertheless, companies – especially large ones – are perennially restructuring to adapt to new situations. Thus managers of firms in startup mode will find a certain structure works well; but it may not be good for established businesses aggressively trying to grow market share; and needs are different again for market leaders frying to maintain their position. A matrix may be appropriate at one of these stages.
A major advantage of matrix structures is that, as well as aligning firms more closely with the needs of their customers, managers can also gain efficiencies by centralizing functions such as marketing, information technology', finance and human resources to support a range of business units. However, it may be that any efficiency gains will be offset by the fact that matrices by their very nature tend to create conflict and confusion. For example, employees have to talk to each other a great deal, hold more meetings and find it more difficult to identify who should make decisions.
On the other hand, introducing a matrix can promote cultural and leadership change by its absolute requirement for collaboration, but if that comes at too high a cost the structure is likely to revert fairly soon to a more traditional model. Moreover, power in any organization lies ultimately with whoever controls the budget. If real power is only vested in one person, then the other lines of reporting are merely those of influence.
When Suncorp Metway restructured in 2003, a traditional matrix structure was considered but ultimately senior managers chose to design a hybrid structure in an attempt to incorporate the strengths and minimize the weaknesses of a matrix. Basically, the result was a structure with clear lines of accountability and reporting lines for all concerned while making sure that it was still very much a collaborative cross-business approach.
The ramifications can be serious for companies with inappropriate structures. Not only will the bottom line suffer but also such firms will fall behind from the perspective of market share. They may find themselves mere followers in the market because their ability and agility to innovate is badly hampered. Twenty-first-century internationalization and new communication technologies have exposed many limitations in traditional forms. One solution may be to develop corporate designs that resemble a matrix with a horizontal form of authority superimposed over vertical levels – as well as reporting up the hierarchy, individuals will be responsible also for reporting across it.
For example, a product manager in the branch of a global company might be responsible to the global chief of a particular product line for matters related to that product, but the same manager may also report to the local sales manager for sales targets. As a result, decisions regarding the product would take into account the needs of both managers – although the weighting would usually not be 50-50 as this would tend to lead to conflict.
ORGANIZING FOR GLOBALIZATION
The concept of globalization is not new. In the 21st century, the locus of power has shifted from an industrial to an information economy worldwide. There is a close relationship between modern communication technologies, transnational companies and the economic processes of globalization.
Modern characteristics include new communication technologies, international marketing, fast transport, global language, internationalization of credit, removal of barriers to free trade and international recruiting of labor. After the fall of communism in Europe it is probable that money previously spent on fighting the Cold War then went into consumer goods and trade.
These factors have enabled a greater level of global capitalist integration than ever before. The literature no longer refers to First, Second and Third World economies – they are all part of global markets. By acquiring earth-spanning technologies, by developing products that can be produced anywhere and sold everywhere, by spreading credit around the world, and by connecting global channels of communication that can penetrate any village or neighborhood, transnational corporations are becoming the world empires of the 21st century.
On a more practical level, no matter what the stage of internalization, a firm's structural choices always involve two opposing forces: the need for differentiation (focusing on and specializing in specific markets) and the need for integration (coordinating those same markets). However, global trends and competitive forces have put increasing pressure on multinational corporations to adopt a strategy that treats the world as much as possible as one market by using a standardized approach to products and markets.
Such attempts at standardization through the omnipresence of information technology can be abused as well as used to implement this ‘one-market’ concept, and consumers may need legal protection from such abuses. The following are examples of companies reorganizing to achieve globalization by unacceptable activities.
In 2007 the Australian Communications and Media Authority (ACMA) fined the Pitch Entertainment Group (Pitch) $ll 000 for extensive breaches of the Act. This was the largest fine imposed by the ACMA to date under the Spam Act. Pitch and its directors were also required to give an enforceable undertaking that required future compliance with the Act and contained stringent reporting and staff education obligations. The ACMA found that the Pitch Entertainment Group, which trades as Splash Mobile in Australia, sent over one million commercial electronic messages to mobile phones without a functional unsubscribe facility.
In an unrelated investigation, the ACMA also fined International Machinery Parts Pty Ltd (IMP Mobile) $4400 for breaches of the Spam Act. IMP Mobile also failed to provide a functional unsubscribe facility when sending messages to mobile phones.
When managers reorganize their companies for globalization they usually rationalize existing practices and develop strategic alliances. For example, they choose the manufacturing location for each product based on where the best combination of cost, quality and technology can be achieved. Often this involves producing different products or component parts in different countries. Typically, it also means that product design and marketing programs are essentially the same for all end markets around the world – to achieve optimal economies of scale. The downside of this strategy is a lack of differentiation and specialization for local markets.
Standardizing products worldwide requires close coordination between representatives of the various countries involved. This is easier to achieve if one manager – or one team – at headquarters becomes responsible for a specific product around the world. However, this is not always easy to arrange in multi-product companies. Perhaps the solution is for managers to center overall control headquarters while treating national subsidiaries as partners in managing the business. They might act as holding companies responsible for the administration and coordination of cross-divisional activities.
An example of this strategy is provided by Nexon Asia Pacific Pty Ltd.18 In 2003 Nexon announced that it had acquired the customers and all support infrastructure of Zircon Systems Pty Ltd (formerly PSINet Australia and a wholly owned subsidiary of the National Telecoms Group Ltd). Nexon is one of Australia’s growing service providers and a key supplier of technology infrastructure and communication services.
Nexon claims it has a 'unique combination' of qualities: strong industry and vendor relationships backed by client-focused and professional staff. This combination, the company claims, ‘creates new opportunities and value for its customers and partners'. In acquiring other companies in this way, organizations like Nexon hope to broaden the base of their operations while gaining cost saving and adding value to the services they provide.
Nevertheless, managers are aware that structurally sophisticated global networks built to secure cost advantages, leave their firms exposed to environmental risks from multi-country sourcing and supply networks.
Organizing to 'think global, act local'
This much-abused slogan was devised in 1997 by Mary Brandel as a warning to international managers that in their rush to get on the globalization bandwagon they might be in danger of losing the ability to respond to local market structures and to cater for individual consumer preferences.
The competitive environment for SMEs is not just local but global. It is essential for managers of the enterprises to get the balance right for their business by exploiting new technologies at appropriate levels, times and places.
Managers now realize – depending on relevant products, services and markets – that a compromise must be made along the globalization-regionalization continuum, and they are experimenting with various structures that will enable them to 'think global’ but 'act local’.
Kalena Jordan, writing for Site Pro News (a webmaster news source) in 2007, warned that many designers of websites appear to be thinking more locally than globally in spite of the fact that the Internet by its nature is worldwide.
There is the case of a US firm that sells high-quality gold chains throughout North America, Europe and Australia, whose owner complained of poor sales in the UK and Australia. There are actually a number of cultural mistakes on the webpage likely to deter non-US customers:
US American spelling throughout
Toll-free phone number for US customers but no contact number for overseas callers
Use of the word 'national' throughout the advertisement, thus excluding everybody outside the US
Offer of free shipping throughout the US’ but no mention of transport costs for overseas.
These are the kinds of mistakes that many Internet marketers make. They alienate thousands of potential clients, maybe more, by publishing a one-size-fits-all webpage: they do not even consider, for example, that potential customers from overseas might search for keywords in varieties of world ‘Englishes’ and would want information about international air and shipping costs.
The term ’glocalization’ is used also to indicate the symbiotic relationship between local and global corporate strategies. It originated in the 1980s from business practices in Japan, became popular through publications by the British sociologist Roland Robertson in the 1990s, and in the 21st century has been applied to responses to the threat of global warming. One example is a report by Silvia Marcoccio and Salvatore Nigro on the history and activities of the C40 Large Cities Climate Leadership Group.
Marcoccio is a writer with the Glocal Forum, an international organization for the promotion of city-to-city cooperation in peace building and international development in the non-governmental sector. She and Salvatore Nigro reported in 2007 that the first C40 Large Cities Climate Summit was held in London in October 2005 to create long-term international collaborations among large cities to drive down carbon emissions and encourage cities to work with businesses and national governments to accelerate action on climate change.
As an outcome of the summit, the С10 Large Cities Climate Leadership Group was formed and partnered with the Clinton Climate Initiative to address climate change. At the 2007 Summit in New York, ex-US President Bill Qlinton announced a landmark program – the global Energy Efficiency Building Retrofit Program, a project of the Clinton Climate Initiative (CCI). This program brought together four of the world's largest energy service companies (ESCOs), five of the world’s large banks, and 16 of the world’s largest cities to reduce energy consumption in existing buildings. It is remarkable example of globalization.
EMERGENT STRUCTURAL FORMS
Because of the difficulties experienced by companies trying to be ‘global’, managers increasingly are abandoning rigid structures in favor of becoming more flexible and responsive to the dynamic global environment. For example they form interorganizational networks, global e-corporations and transnational corporation network structures.