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Chapter 4: Developing a Transnational Organization: Managing Integration, Responsiveness, and Flexibility

Chapter 4: Developing a Transnational Organization: Managing Integration, Responsiveness, and Flexibility

pp. 215-292

Authors

, Harvard University, Massachusetts, , University of Western Ontario
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Summary

In preceding chapters, we described how changes in the international operating environment have forced MNEs to simultaneously respond to the strategic need for global efficiency, national responsiveness, and worldwide learning. Implementing such a complex, three-pronged strategic objective would be difficult under any circumstances, but the very act of “going international” multiplies a company's organizational complexity.

Most domestic companies find it difficult enough to balance business units with corporate staff functions, so the thought of adding a geographically oriented management dimension to the organization can be daunting. It implies maintaining a three-way balance of perspectives and capabilities among organizational units responsible for the MNE's businesses, functions, and regions. The difficulty is further increased because the resolution of the inevitable tensions must be accomplished in an organization whose operating units are divided by distance and time, and whose key members are separated by barriers of culture and language.

Beyond Structural Fit

Because the choice of a basic organizational structure has such a powerful influence on the management process in an MNE, much of the attention of managers and researchers alike was historically focused on trying to find which formal structure provided the right “fit” in various conditions. The most widely recognized early study on this issue was Stopford and Wells’ research on the 187 largest US-based MNEs. Their work resulted in a “stages model” of international organization structure that defined two variables to capture the strategic and administrative complexity most companies faced as they expanded abroad: the number of products sold internationally (“foreign product diversity” in Figure 4.1) and the importance of international sales to the company (“foreign sales as a percentage of total sales”). Plotting the structural changes made by the sample companies, they found that these MNEs adopted different organizational structures at different stages of international expansion. This led Stopford and Wells to develop their international structural stages model.

According to this model, in the early stages of foreign expansion, MNEs typically managed their overseas operations by creating a separate international division. Subsequently, those companies that expanded further by entering more countries with a limited range of products typically adopted an area structure (e.g., European region, Asia–Pacific region). Other MNEs that chose to grow overseas by increasing their foreign product diversity in fewer countries tended to adopt a worldwide product division structure (e.g., chemicals division, plastics division).

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