International Business: The Organization of International Business

Organizing a Company for international Business: Evolving Process

To successfully operate a global company is the benchmark of international business. There

is a need to standardize for global efficiency yet adapt for local effectiveness which

determines the company’s strategy. Hereon, one plans the essential organization: the

structure that specifies the framework for work, the systems that coordinate and control

what is done, and a culture that will sustain it. Johnson and Johnson exemplifies such a

company and relied on its Credo “to put the needs...of the people we serve first.”

Managers must polish the traditional methods to organizing companies and respond to

environmental trends, industry conditions, and market opportunities. Changing markets,

specifically the growth of emerging economies like the BRIC, demands high-level strategies

by an equally sophisticated organization. When one draws on the internet as a design

standard, one would rethink the conventional pattern of business. The internet is extremely

efficient and effective yet has no formal structure. Furthermore, workplace managerial

standards have developed with slowly disappearing knowledge gaps. This gave birth to

novel coordination and control systems. Social contracts aim to answer new performance

expectations. In essence, companies try to build ‘magical’ organizations with the best mix of

structure, system and values.

Organization Structure

The organization structure is the formal arrangement of roles, responsibilities and

relationships in the firm. Determining the ideal structure is dependent on environmental

and workplace factors, and balancing the pressures between global integration and local

adaptation. Two basic structural issues look at the degree of vertical (balance between the

centralization and decentralization of authority) and horizontal differentiation

(specifying which people do which jobs in which units).

Firms implementing a global strategy lean more towards centralization while those adopting

the multi-domestic strategy decentralizes authority down to the subsidiary who will have a

better understanding of the local situation. The challenge is to strike a dynamic balance to

respond to the ever-changing market. J and J have espoused decentralization as technology

have made it possible for local managers to track global and local performance in real time.

Horizontal differentiation deals with the separate tasks or skills in the organization. Classical

structures are differentiated into a functional structure, the area or divisional structure, and

the matrix and mixed structures. While functional structures are based on common

expertise and resources, divisional structures are based on the product, customer segment,

or geographical location, hence functions and resources are duplicated across divisions. The

matrix structure responds to global and local pressures by an overlap among the functional

and divisional structures creating a dual reporting relationships violating the unity of

command principle. A mixed structure combines elements of all the classical structures.

Neoclassical Structures:

The classical command-and-control model rely on a specified hierarchy. The neoclassical

format harnesses the potential of the coordinate-and-cultivate approach which bypasses the

horizontal and vertical boundaries. Coordination, collaboration, and control are made

efficient through improved telecom capabilities which were impossible decades ago.

Neoclassical structures are fluid, hence constantly changing. IBM’s decision to be a ‘globally

integrated enterprise’ have reversed their workflow whereby work is assigned anywhere in

the world where it will be done most efficiently. They have moved towards the ideal of

boundarylessness which improves collaboration. The boundaries that defines the classical

structures hamper the flow of information and relationship-building. It would seem to be

obsolete in this era of electronic commerce.

Neoclassical structures can be a network structure or a virtual organization. A network

structure connects people, products, and processes into a logical system where each unit

focuses on its core competencies. Nike and Apple concentrate on R&D and product design

and outsourced the manufacturing of their products. A virtual format is a dynamic agreement

among stakeholders whose links are strengthened by communication technology. It has a

core of full-time employees who hire free-lance specialists worldwide. Despite its apparent

versatility, neoclassical structures likewise suffer operational problems primarily due to its

evolving nature.

Coordination Systems:

Sophisticated strategies demand a well-coordinated and controlled system. Coordination

assures effective decision-making and efficient use of resources. Coordination can be

achieved by standardization, planning or mutual adjustment. Standardization sets universal

rules and standard operating procedures for worldwide conformity. Starbucks in the US and
in the Philippines project the same aura, aesthetics and efficiency due to effective

standardization. Planning relies on general goals, detailed objectives and guidelines, and

precise schedules and deadlines. Planning requires orchestrating people and processes

across countries where cultural orientations may be a challenge. Mutual adjustment relies

on extensive interaction among related parties and rely heavily on social networking tools.

Control Systems

Control systems complement the structural design and coordination system. They are meant

to compare and identify the gap between plans and performance so corrective action can be

instituted. The mechanisms of control are bureaucratic, market, and clan. Bureaucratic

control is in keeping with a classical structure and coordination by standardization where

emphasis is put on detailed rules and regulations. Market control fits the principles of

classical and neoclassical structures and coordination by plan. It uses external market

mechanisms like market share as objective indicators to regulate performance. Clan control

shares principles with neoclassical structures and coordination by mutual adjustment. The

goal is towards shared values and ideals towards a unifying vision. The Toyota Way and the

J and J Credo exemplify this control. Depending on the company’s strategy, control tools

include 1. Reports 2. Visits to subsidiaries 3. Evaluative metrics and 4. Information systems.

Most MNEs use multiple methods of control to respond to the structure and coordination

system set by the pressures of integration and responsiveness.

Role and Characteristics of Organization Culture:

Organization culture is the the set of values shared among employees, expressed as behavior
patterns that new hires are expected to emulate. Simply put, it is the ‘way things are done’ in

the company. Firms proactively cultivate their organization culture, in much the same way

as they design their structure and systems. Managers have realized that it is a potent means

to drive superior performance beyond that of financial rewards as employees are principle-

driven. That is the success of the J and J Credo, the company’s ethics manifesto.

Building an organization culture is important for business success. The fundamental features

that management has to communicate are: values & principles of management, work climate

and atmosphere, patterns of ‘how we do things around here”, traditions, and ethical

standards.

In summary, firms involved in international, multi-domestic, global, or transnational strategies will

tailor their structures, systems, and cultures to the respective demands of their choices for global

integration against local responsiveness.

References:

1. Daniels J., Radebaugh L., Sullivan D. International Business Environments and

Operations 15e. 2015

2. Perreault WD., McCarthy EJ. Basic Marketing: A Global Managerial Approach. 14e. 2002