International Organizational Structures Companies Engaging in Global Essay

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International Organizational Structures

Companies engaging in global business ideally adopt business structures/models that give a significant competitive edge over other worldwide companies. Four of the major structures/models employed globally focus on Product, Geographic Area, corporate Functions or specific Customer groups (also known as "verticals"). Research shows that specific business adopt one or more of these models based on corporate circumstances and with varying degrees of success.

Global Product Structure/Model and Example

Global Product Structure configures business divisions along product lines. Allowing each division manager to handle all aspects of production and distribution for his/her division's product, the system also makes the product division manager fully responsible for worldwide success of his/her division's product. Global Product Structure is a commonly used framework because it provides several key advantages, given here in no particular order of importance. First, by controlling all functions of production and distribution for his/her product, the division manager is better able to quickly see and handle that division's unique international opportunities and problems. Secondly, this framework gives top corporate managers an extensive perspective on global competition, allowing the corporation to quickly respond to worldwide market dynamics. Third, this configuration allows an international company, particularly one dealing in global production and sale of standard products in all markets, to standardize production, marketing and advertising and achieve cost advantages through their expansion ("economies of scale"). There are some significant drawbacks to the Global Product Model: separate product divisions within a corporation may compete rather than cooperate with each other; since the division manager is responsible for all aspects of production and distribution, he/she may disregard or under-regard some countries (Daft, 2009, p. 220).

One international corporation using the Global Product Structure is Eaton Corporation. Founded more than 100 years ago, Eaton Corporation is a diversified power management corporation employing approximately 73,000 people, doing business in 150+ countries, and reporting sales of $16.0 billion in 2011. Eaton boasts an extensive energy-related product line, including but not limited to: electrical and hydraulic components, systems and services; aeronautic fuel, hydraulics and pneumatic systems for commercial and military customers; and drivetrain and powertrain systems for trucks and automobiles (Eaton Corporation, 2012). Eaton maintains separate groups (divisions) for such products as automotive components and/or electrical components and each group is responsible for global manufacture/sale of its product line (Daft, 2009, p. 220). Eaton chose the Global Product Structure because the company deals in worldwide production and sale of standard electrical, hydraulic, aeronautic, automotive and truck products across the globe. The Global Product Structure allows Eaton to standardize its production, marketing, advertising and distribution of its products worldwide. Eaton counteracts and neutralizes the possible problems of the Global Product Structure in its international markets by using regional coordinators who: enhance cooperation in manufacture and distribution across product groups throughout their regions, ensure that countries across their regions are included, and answer directly to Eaton's vice president of its international division (Daft, 2009, p. 220).

Global Area Structure/Model and Example

Global Area (or "Geographic") Division Structure is designed for emphasis on serving needs of local or regional markets with multiple domestic strategies (Daft, 2009, p. 221). Traditionally used by companies with long-established product lines and reliable technologies (Daft, 2009, p. 222), companies using Global Area Division Structure stress their adaptation and responsiveness to specific geographic areas; consequently, these companies divide the globe into geographic regions, giving each geographic division full control of its functions within its geographic area and allowing it to report to own CEO (Daft, 2009, p. 221). Though Global Area Division Structure is traditionally employed by companies manufacturing products, companies have begun using this Model for customer service as well, highlighting their abilities to tailor customer service responsiveness to customer needs in a particular region (Daft, 2009, p. 222). The difficulties encountered by companies employing the Global Area Division framework tend to arise from the autonomy of geographical divisions, making it difficult for global management to introduce new R&D and new products developed elsewhere to divisions that concentrate on local needs and locally developed technologies (Daft, 2009, p. 222).

An example of a company using Global Area (or "Geographic") Division configuration is Nestle. Established circa 1866 (Nestle, 2012), Nestle has developed stable product lines in baby foods, bottled water, cereals, chocolate and confectionary products, coffee, adult foods, dairy, drinks, food service, healthcare nutrition, ice cream, pet care, sports nutrition and weight management (Nestle, 2012). With established technologies, Nestle has developed in excess of 8,000 products during its 140+-year history. Based on its stable product lines and technologies, Nestle is an ideal company to employ the Global Area Division Model and has done so extensively. The company has consciously worked to "establish a presence in almost every country in the world" (Nestle, 2012), giving significant autonomy to Its local managers who understand their local cultures. As a result, Nestle boasts that its concentration on geographic presence has given the company one of its competitive global advantages (Nestle, 2012) because it has developed close relationships with its customers in specific geographic areas and has a deep understanding of local trends and needs (Nestle, 2012).

Global Functional Structure/Model and Example

The Global Functional Structure divides business activities according to specialization, with a sales department engaging only in sales activities, an engineering department that only engages in engineering activities, and a marketing department that engages only in marketing activities, for several examples. Within this Global Functional Framework, processes are significantly standardized and authority is concentrated at the top of the company, with each department ultimately reporting to top management (Accounting CPE, 2012). Larger companies tend to use Global Functioning Structure due to volumes of sales and production so large that this structure is far more efficient than other Models. The most effective situations for the Global Functional Framework involve: large volumes of standardized products/service and large fixed asset bases; relatively little change in the industry; minimal new product lines and minimal changes based on fashion, taste or technology; competition based primarily on cost (Accounting CPE, 2012). The Global Functioning strategy is advantageous in that: allowing a division's concentration on one specialty significantly increases efficiency in that specialty, as the process flow and management focus on the most effective methods for that specialty; there is a clear chain of command, allowing individuals in the company to know which decisions they may make and which decisions require supervisory guidance; career paths and progress are more easily set and monitored; employees allowed to specialize can develop into extraordinarily strong experts in that area; employee training is more easily developed and monitored (Accounting CPE, 2012). The Global Functional Framework is disadvantageous in that: modifications for changing market conditions may be more slowly facilitated; processes involving multiple divisions may be slowed due to the unique processes within each division; it is more difficult to pinpoint problems within a division when the entire division is involved in all its processes; there may be poor communication between specialized divisions; it is difficult for specialists in a somewhat isolated division to see the company's "big picture." (Accounting CPE, 2012).

An example of a company using the Global Functioning Framework was NetLogic Microsystems, purchased in 2011 by Broadcom (Murph, 2011). NetLogic Microsystems was organized according to specialized processes within the company, with a clear chain of command from: the board of directors at the top; to the CEO; to vice presidents in charge of product development, business development and operations, marketing, sales, systems architecture and the chief financial officer; the director of manufacturing operations and the director of intellectual property management and legal affairs, both of whom reported to the vice president of business development and operations; a controller who reported to the chief financial officer (Czinkota & Ronkainen, International Marketing, 2007, p. 221). Dealing in "knowledge-based processors, multi-core embedded processors, and digital front-end processors" (Murph, 2011), NetLogic Microsystems was able to take full advantage of the Global Functional framework because it manufactured and sold large volumes of processors with relatively little change in the industry, minimal changes in the technology and its competition was based primarily on cost. NetLogic Microsystems employed the Global Functioning Model so well that it was purchased for $3.7 billion in cash by a corporation that was intent on readily absorbing NetLogic's critical product lines into its own product offerings.

Global Customer Structure/Model and Example

The Global Customer Structure is employed by companies dealing with distinct customer groups stretching across the globe (Czinkota & Ronkainen, 2007, p. 218). Though the company's products may be identical or similar for all groups, the selling/buying processes for these groups are so unique to each group that corporations develop a specialized division for selling to each group (Czinkota, Ronkainen, & Moffett, Fundamentals of international business, 2008, p. 310). These groups may be divided along consumer/business/government lines (Czinkota, Ronkainen, & Moffett, Fundamentals of international business, 2008, p. 310) and/or industry lines such as automotive/printing/mining industries (Hisrich, 2010, p. 200) with each customer group being called a "vertical." An example of differentiation in buying can be found in…

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