The great Chicago architect, Louis Sullivan, urged builders to let “form follow function.” The same advice holds for managers designing the business organization. As business historian, Alfred D. Chandler observed: “structure follows strategy.” After choosing the company's strategy, managers should adjust the structural design of the organization to accomplish it. The international business poses important problems in organizational design. This chapter emphasizes the manager's choice of the horizontal structure of the firm – that is, the divisions of the organization.

The overall structure of the international organization depends on the company's global strategy. The corporate strategy of a multi-business company refers primarily to the company's choice of what businesses it wishes to operate. Corporate strategy thus entails maintaining some existing businesses, withdrawing from some businesses, and entering new ones. The process of expanding the company's range of business is referred to as diversification. Based on their choices about what businesses the company will operate, managers then establish the company's divisions; these divisions are an important aspect of the organizational structure of the company.

A market-based divisional structure is the best way to implement the company's global strategy. This organizational structure makes the best use of the information generated by the manager's “Star Analysis.” The market-based divisional structure allows the company to take advantage of the best features of the home country, supplier countries, customer countries, and partner countries.