Every international business firm has to face various issues related to organizational policies. These organizational issues are to be addressed carefully in order to keep the business healthy and profitable. Although there are numerous issues, both small and big, we will primarily concentrate only on the major issues that need to be addressed.
Centralization is the systematic and consistent reservation of authority at central points in the organization. In centralization, the decision-making capability lies with a few selected employees. The implications of centralization are
Almost every important decision and operational activities at the lower level are taken by the top management.
Decentralization is a systematic distribution of authority at all levels of management. In a decentralized entity, major decisions are taken by the top management to build the policies concerning the entire organization. Remaining authority is delegated to the mid- and lower-level managers.
International firms, especially the fully-owned ones, usually have a board of directors to oversee and direct the top-level management. The major responsibilities of board-members are to −
Any international business organization, depending on its requirements and operations, would have an organization structure to streamline all its processes. In this section, we will try to understand some of the major types of organizational structures.
Initial division structures are common in subsidiaries, export firms, and on-site manufacturers. Subsidiaries that follow this kind of organization structure include firms where the main export is expertise, for example, consultants and financial firms. Export firms include those having technologically advanced products and manufacturing units. Companies having on-site manufacturing operations follow this structure to cut down their costs.
This structure is built to handle all international operations by a division created for control. It is often adopted by firms that are still in the development stages of international business operations.
Global product divisions include domestic divisions that are allowed to take global responsibility for product groups. These divisions operate as profit centers.
Global area division structure is used for operations that are controlled on a geographic rather than a product basis. Firms in mature businesses with select product lines use it.
This structure is to primarily organize global operations based on function; product orientation is secondary for firms using global function division structure.
It emphasizes on functional leadership, centralized-control, and leaner managerial staff
Favorable for firms that require a tight, centralized coordination and control over integrated production mechanisms
Helps those firms that need to transport products and raw materials between geographic areas
Not suitable for all types of businesses. Applicable to only oil and mining firms
Difficult to coordinate manufacturing and marketing processes
Managing multiple product lines can be challenging, as production and marketing are not integrated.
This structure combines global product, area, and functional arrangements and it has a cross-cutting committee structure.