International Division Structure Essay

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A firm may establish an international division to contain its international activities, thus creating a separation between domestic and international activities. For example, a British food company may have several domestic product divisions to serve customers in its home country,  and also an international division to manage affairs in its various international markets. Another variation is where the international division is a mirror  image or a miniature  replica of the core domestic business, with a mandate  to sell the multinational’s products to foreign markets.

According to Charles Hill, the international divisions themselves  are usually organized  by geographic  regions—he provides the  example of WalMart, which established an international division in the early 1990s from which to manage its global ventures. He further  suggests that the managers of foreign subsidiaries report  into the international division, and that  their  role would be to sell the firm’s products  to  their  foreign  markets.  Another  structural  possibility is whereby  the  international division has a market  structure—i.e., it may be divided into one department that caters to corporate clients, another  that  serves the  retail market,  and another that  specializes in  serving  large nongovernmental organizations (NGOs).

The headquarters of the international division are typically part  of the corporate  headquarters—if  not in the same buildings or campus, then at least in the same home country. This may reflect a limited worldview and commitment to international markets. This corporate  center also generally remains the center of knowledge creation,  certainly  at the  early stages of internationalization. Thus we would expect the branding, information  systems, strategic planning, human resource  policies, and  financial  management  to  be parallel with those of the core domestic corporation.

The  international  division  structure   is generally used in a firm’s early-intermediate internationalization process. According to John Stopford and Louis Wells  and  other  authors  explaining  the  structural stages on the path to internationalization, firms tend to begin their  international involvement  by initially exporting  their  products  and perhaps  setting  up an overseas sales office. If initially successful, the  firm makes structural changes to accommodate their evolving international activities—from international divisions, to area divisions, to a worldwide product division with a global matrix structure, a multidomestic or some global structure.

The international division is thus an intermediate step in reorganizing  a firm from domestic  to global in scope. As such it is a compromise  between home country  orientation and  control  to  realization  that the epicenter  of the firm has shifted toward foreign markets  and  a  wider  worldview.  Strauss-Elite,  an Israeli food company, added an international division several years ago alongside its domestic coffee, salty snacks,  dairy,  confectionary,   and  salads  divisions. More  recently  the  structure   has  been  changed  to reflect a hybrid global orientation,  with two product divisions (coffee and a chocolate company) representing the company’s product  focus and two geographic divisions (Israel and North America) representing the planned trajectory of market growth.

Howard Perlmutter identifies various mindsets associated with these shifts—including the “polycentric” phase, wherein the firm begins to identify with the foreign markets  in which it now operates; and a truly  global or  “geocentric” mindset.  For  example, KPMG is a global professional service firm with member  firms  in  145 countries  and  a global geographic  structure  that  divides the  world into  three regions (the Americas, Asia Pacific and Europe, the Middle  East and  Africa). However,  the  global firm is divided into  three  professional  practices,  namely, Audit, Tax, and Advisory. The emergent matrix structure  is at once truly global (or geocentric)  in that  it enables KPMG to see the world as one market, and at the same time it allows the polycentric specialization in different markets that is essential to the delivery of professional services.

Customer-Focused Structures

More  recent  work  has  suggested  that  the  international  division structure,  along with the other  classical dimensions  described  by Stopford  and  Wells, has been superseded  by approaches  that place more emphasis  on  the  customer  interface.  For  example, Julian Birkinshaw and Siri Terjesen  suggest that  the emphasis has shifted from the classic structures—like product and geographic divisions—to structures  that see the world from the customer’s perspective.  Birkinshaw and Terjesen  describe three  characteristics of these “customer-focused structures.”

First, they include high levels of global integration and coordination to provide service to the customer, for example, using dedicated  global customer  units to offer a coordinated  and higher value-added set of services to key client groups. Second, a high level of value-added through  some market-focused  structure at the customer  interface. And finally, some combination  of the integration/coordination unit with the high value-added structure.  They call these “true customer-focused structures” and present contemporary examples from IBM, HP, ABB, and EDS that are able to separate between the product-focused business (manufacturing) and the customer-focused structures that give the customer  a single point of contact with the firm.

Bibliography:   

  1. Julian Birkinshaw and Siri Terjesen, “The Customer-Focused  Multinational:   Revisiting  the   Stopford and Wells Model in an Era of Global Customers,” in The Future of the Multinational Company  (Wiley, 2003);
  2. Elhanan Helpman, Dalia Marin, and Thierry Verdier, The Organization of Firms in a Global Economy (Harvard University Press, 2008);
  3. Charles Hill, International  Business: Competing in the Global Marketplace (McGraw-Hill Irwin, 2009);
  4. Johanson and J-E Vahlne, “The Internationalization Process of the Firm: A Model of Knowledge Development and  Increasing  Market  Commitments,”  Journal of International  Business Studies (v.8/1, 1977);
  5. Howard V. Perlmutter, “The Tortuous  Evolution of the Multinational Corporation,”  Columbia  Journal  of World  Business (v.4, 1969);
  6. John M. Stopford and Louis T. Wells, Managing the Multinational Enterprise (Basic Books, 1972).

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