Global Business Organizational Structures

The organizational structure is the framework of hierarchy, relationships, responsibilities, and information flow within a firm. It is shaped by several factors, including company size, international orientation, the number and consistency of product lines, and expansion plans.

Defining Organizational Structure

Dimensions of Activity and Responsibility

• Horizontal: Focuses on the division of *activities*.
• Vertical: Pertains to *authority* and *hierarchical relations*.

Key Organizational Structures for International Operations

Functional Structure

A functional structure groups each portion of the organization according to its purpose, such as a marketing department, a sales department, or a production department.

Export Department

Companies typically have two options: establishing an *independent export department* or attaching it to the existing *marketing department*. This structure works well for small businesses where each department can leverage the talent and knowledge of its workers and operate self-sufficiently. It is particularly appropriate for stable markets and companies with limited product lines.

• Advantage: There are economies of scale achieved by utilizing central services.
• Disadvantage: Coordination and communication between departments can be restricted due to organizational boundaries, as various departments often work separately.

Foreign Subsidiary

As international activity increases, companies often consider establishing a subsidiary in a foreign market. This model is typical for European multinational corporations (MNCs), such as Chocolates Valor or Famosa. Historically, subsidiaries were often managed by expatriates from the parent company's home country.

Most functional activities are concentrated at the headquarters (parent company) in the home country, while foreign subsidiaries primarily handle logistic and financial activities (see Figures 5.1.b and 5.2.b).

• Disadvantage: There might be asymmetries between the headquarters and the subsidiary, leading to significant bureaucracy.

Multidivisional Structure (M-Form)

The multidivisional structure involves the division of a company into quasi-autonomous divisions, often referred to as an M-form. Above these divisions, a corporate office is always present, responsible for strategic planning, resource distribution, supervision, and evaluation.

• Disadvantage: It can be quite difficult to establish this structure, especially if it requires appointing new executives.

International Division

The International Division operates at the same level as other domestic divisions. It is responsible for decisions concerning the company's international operations, logistics, and overall international activity. This structure facilitates coordination and adaptation to the host country environment (see Figure 5.3.a).

• Advantage: Better and more direct communication with the headquarters.
• Disadvantage: The international division may lack the freedom to act independently and often relies heavily on the corporate office for assistance.