We all have seen these top brands in markets both local and abroad. But have we asked ourselves, what makes them a success? The success of a firm is a function of the organizational structure for that firm. Many firms organize themselves with one of the four organizational structures: 1. International division 2. Geographic area 3. Global product division 4. Global Matrix.
Firms that expand abroad typically take the International Division structure. According, to the textbook these international divisions, "often engage in a home replication strategy" (Peng, 2014). MNEs that are organized according to different geographical areas (countries and regions) have a Geographic Area structure. The geographic area structure is organized with a localization strategy; a "focus on a number of foreign countries/regions, each of which is regarded as a standalone local (domestic) market worthy of significant attention and adaptation" (Ping, 2014).
Both structures include foreign subsidiaries and parent companies. However, subsidiary managers in the international division structure have a limited voice whereas, managers that are in the geographic area structure carry a great deal of weight. Managers at subsidiaries of geographic area origin have autonomy in their region since they're held accountable for their own performance. The decentralized leeway is also offered to the geographic area structure managers for better local responsiveness. In a international division structure, a centralized control system limits silo by making foreign subsidiaries mandatory to report to the CEO of parent company. Communication between representatives of the different business functions is much more personal in a geographical organizational structure (Ingram, 2014).
When Wal-Mart entered Japan, their home replication strategy seemed to not fully work. This was due in fact to their lack of local responsiveness to the local customer preferences. Customers in the region consumed more rice and fish in their diets. As a result Wal- Marts in the region had to quickly transition into the Japan market by transitioning their foreign subsidiary to become more decentralized. Japan subsidiary managers created a direct farm program, that allows customers to buy local fresh produce, and the Wal-mart also offers a wide fish market to accommodate to the mass local responsiveness in the region (Sugiyama, 2010).
Avon, a leading global beauty products company is noted in the textbook Figure 13.3 as a Geographic Area structure example. Each geographic area represented by Avon Products is standalone. The regional managers in China or South America have as much voice and power as those mangers in North America or Europe, Middle East, and Africa (EMEA).
References:
Ingram, David. (2014). The Advantages of Geographical Organizational Structure. Retrieved from:
http://smallbusiness.chron.com/advantages-geographical-organizational-structure-717.html
Peng, M. W. (2014). Global business (3 ed.). Mason, OH: South-Western, Cengage Learning
Sugiyama, Yoshihito. (October, 2010). Walmart Japan: Direct Farm Program. Retrieved from:
https://www.youtube.com/watch?v=vEO2-yHqwEI
*Photos retrieved from Google Images
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