Organizational Structure of a Multinational Enterprise
There are several organizational structures that a non-MNE can use: organization by function (i.e. production, marketing, finance, etc.), by product line (hand soaps, shampoos, etc.), by division (foods, health care, etc.), or in a few cases by a matrix. For an MNE the central problem lies in where to locate the firm's international activities within each functional area (e.g., international finance within the finance functionЈby products or by geographical area.
One of the prime responsibilities of the HRM function is to evaluate the organizational structure of the MNE and how it functions in relation to the firm's strategy and external environment. The MNE must choose how its organization can be most effectively subdivided: by function, by product line, or by area (region/ country).
In a functional organizational structure the major functional areas are typically production (often including R&D), finance, human resources, and marketing
International division (see fig. 1) within an MNE is headed by the general manager, who has the same level of authority as a general manager of the major product-line divisions of the firm. Foreign subsidiaries are organized by region and report to the international division. The general managers in the regions control the activities of their functional units (marketing, production, finance). The major advantage of trie international division is that it provides the base for the international operations of the MNE. This enables the firm to balance the interests of the subsidiaries to the benefit of the company as a whole. Knowledge of the international aspects of the firm's business is concentrated in a separate, centralized division.
An international division is often appropriate for a firm which is just starting international operations, since it allows the centralization of the firm's international expertise in one place. An international division is also often used by firms whose international operations are not closely linked with the domestic operations in the home country, such as banks and hotels.
An ethnocentric firm may view the world as one market for its product and organize by product line. The MNE is organized into world product groups, such as for product division 1 (see fig.2). Within each product division activities are centralized, but there is little connection between the world product groups. Therefore, in any host nation the MNE appears to be decentralized.
The product division structure works best when there are diverse product lines, many end users, and a requirement for high-technological expertise. Scale economies and experience curve effects can be realized while high shipping costs, tariffs and other costs are reduced. Most important, organization by product line enables the MNE to compete on a global basis, as the product division
The matrix structure for the MNE combines responsibilities for both product lines and regions. The matrix organization of the MNE is extremely difficult to operate, as it requires sensitive and well-trained middle managers, who assume responsibility for both products and nations. Essentially they have two bosses, as indicated in fig.4. In this figure, matrix manager 1 may be the product-line boss and matrix manager A - the regional boss. The middle manager has to work out how to resolve the often conflicting demands of product lines and nations.
managers can respond quickly to the actions of their competitors.
A polycentrie MNE is organized by area that is by geographical region (see
The senior manager of Region A runs that region in a decentralized manner as an independent profit centre. The regional manager controls the product lines of the operating companies in that region. Product-line managers control functional units such as marketing, production and finance. Again, there is little integration of the worldwide operations, yet the MNE is responsive to the needs of the host nations.
A polycentrie structure works best when theMNE has many mature, standardized product lines. The focus is upon marketing and'servicing'the host nations by autonomous regional managers who can determine the best delivery system for the product lines of the MNE. The major advantage of organizing by area is the ability to differentiate markets and obtain an optimal marketing mix. Regional subsidiaries operate as separate profit centers.
A geocentric firm integrates its worldwide operations and, being world-oriented, attempts to serve the stakeholders in each nation. The usual method of doing this is bv a matrix structure
The matrix structure has some benefits of decentralization, as the managers are aware of regional needs and know the product lines. The main advantage of the matrix organization is its greater attention to markets, competition and environmental aspects. Because of the complexity, only MNEs with adequate financial resources can use it.
The ultimate choice for any MNE is between centralization and decentralization of its functional areas. Organization by product line, region, or matrix must also meet special requirements of each functional area. The successful MNEs have organizational structures which resolve the competing demands of functional divisions, product lines, and regions.
The choice facing the MNE in its staffing strategy is relatively easy. It can hire host-country nationals, and train them to be specialists in the functional or production area (polycentric staffing), or it can use home-country people who can operate in a global context (ethnocentric staffing). The geocentric approach implies that the best person for the job is chosen, regardless of nationality.