Historically, a firm reorganizes as it internationalizes to accommodate new strategies. The structure typically continues to change over time with growth and with increasing levels of investment or diversity and as a result of the types of entry strategy chosen. Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification. As discussed in Chapter 6, the firm's managers weigh alternatives and decide on appropriate entry strategies. Perhaps the firm starts by exporting or by acting as a licensor or licensee and then, over time, continues to internationalize by engaging in joint ventures or by establishing service, production, or assembly facilities, or alliances, abroad, moving into a global strategy. At each stage, the firm's managers redesign the organizational structure to optimize the strategy's chances to work, making changes in the firm's tasks and relationships and designating authority, responsibility, lines of communication, geographic dispersal of units, and so forth. This model of structural evolution has become known as the stages model, resulting from Stopford and Wells' research on 187 U.S. MNCs. Of course, many firms do not follow the stages model because they may start their internationalization at a higher level of involvement - perhaps a full-blown global joint venture without ever having exported, for example.
Even a mature MNC needs to make structural changes from time to time to facilitate changes in strategy - perhaps a change in strategy from globalization to regionalization (as discussed in Chapter 6. or an effort to improve efficiency or effectiveness. The reorganization of Aluminum Company of America (Alcoa), for example, split the company into smaller, more autonomous units. This reorganization gives more focus to growing businesses, such as automotive products,
where the mark4t for aluminum is strong. It also enables Alcoa to link businesses with similar functions that are divided geographically - that is, to improve previously insufficient communication between Alcoa's aluminum operations in Brazil and its Australian counterparts.3
The typical ways in which firms organize their international activities are shown in the following list. (Larger companies often use several of these structures in different regions or parts of their organization.) After discussing some of these structural forms, we will introduce new, transitional organizational arrangements.
• Domestic structure plus export department
• Domestic structure plus foreign subsidiary
* International division
• Global functional structure
• Global product structure
As discussed, many firms - especially the smaller ones - start their international involvement by exporting. For this they may simply use the services of an export management company, or they may reorganize into a simple domestic structure plus export department.
To facilitate access to and development of specific foreign markets, the firm can take a further step toward worldwide operations by reorganizing into a domestic structure plus foreign subsidiary in one or more countries (as illustrated in Exhibit 8-1.. To be effective, subsidiary managers should have a great deal of autonomy and should be able to adapt and respond quickly to serve local markets. This structure works well for a company with one or a few subsidiaries located relatively close to headquarters.
With further market expansion, the firm may then decide to specialize by creating an international division, organized along functional, product, or geo graphic lines. With this structure, the various foreign subsidiaries are under the international division, and subsidiary managers report to its head, typically called
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