From 1980 to 2002 Foreign Direct Investments (FDI) have grown by 12% per year (Unctad, 2004, p. 33). This indicates that Multinational Enterprises (MNEs) increasingly operate abroad through fully owned subsidiaries which have to be managed, controlled and coordinated by domestic headquarters. Therefore, it becomes more and more important for MNEs to choose an adequate control strategy combined with the most suitable organisational structure.
Due to a changing global environment, some of our competitors seem to change their organisational strategies and structures in order to achieve a competitive advantage. This report presents an overview of the determinants of strategies and structures adopted by MNE’s, the location of decision making and the types of mechanisms used to control foreign subsidiaries. The second chapter of this paper deals with the organisational environment and describes tools which can be used to assess the internal and external environment. The third chapter examines four control strategies. Organisational structures and control mechanisms are described in Chapter four. The fifth chapter examines the strategies and structures of our main competitors Procter & Gamble and Johnson & Johnson.
Table of Contents
1. Introduction
2. Organisational Environment
2.1 Internal Environment
2.2 External Environment
2.2.1 PEST Analysis
2.2.2 Porter’s Five Forces
3. Control Strategies
3.1.1 International Strategy
3.1.2 Global Strategy
3.1.3 Multidomestic Strategy
3.1.4 Transnational Strategy
4. Organisational Structures and Control Mechanisms
4.1 Organisational Structures
4.1.1 International Division Structure
4.1.2 Global Functional Division Structure
4.1.3 Global Product Division Structure
4.1.4 Global Area Structure
4.1.5 Global Matrix Structure
4.2 Control Mechanisms
5. Synthesis
6. Cases
6.1 Procter & Gamble
6.1.1 Strategy
6.1.2 Structure
6.2 Johnson & Johnson
6.2.1 Strategy
6.2.2 Structure
7. Conclusion
Objectives and Topics
This report investigates the critical factors influencing the selection of control strategies and organizational structures within Multinational Enterprises (MNEs) to achieve competitive advantages in a changing global environment.
- Analysis of internal and external environmental factors (PEST, Porter's Five Forces).
- Evaluation of four primary control strategies: International, Global, Multidomestic, and Transnational.
- Examination of diverse organizational structures and their alignment with specific corporate strategies.
- Study of formal and informal control mechanisms used to coordinate foreign subsidiaries.
- Case studies on the strategic and structural evolution of Procter & Gamble and Johnson & Johnson.
Excerpt from the Book
3.1.1 International Strategy
Companies pursuing an international strategy transfer their knowledge and their core competencies to foreign subsidiaries which are regarded as appendages to the parent company (Dicken, 2003, p. 216). Major decisions and functions like R&D, product design and marketing are centralised in the domestic country (Hill, 2002, p. 404). However, manufacturing and distribution might be decentralised to the foreign subsidiaries (George & Jones, 1999, p. 622).
Customisation of products and marketing strategies tends to be limited and head office retains tight control over foreign operations (Hill, 2002, p. 391). In some cases, foreign subsidiaries are only responsible for selling the product which has been manufactured in the domestic country. For example, Microsoft produces and customises (only the language) all its software in the US. Finally the products are exported and sold to software distributors all over the world (George & Jones, 1999, p. 623).
The international strategy is suitable for companies facing weak pressure for local responsiveness and cost reductions. Moreover, the strategy is appropriate if the company has valuable skills which are unique in the foreign environment (Hill, 2002, p. 392).
Summary of Chapters
1. Introduction: This chapter highlights the rising importance of Foreign Direct Investment and the subsequent necessity for MNEs to select optimal control strategies and organizational structures to maintain a competitive edge.
2. Organisational Environment: This section details tools for assessing the internal and external environment, specifically focusing on SWOT analysis, PEST factors, and Porter’s Five Forces.
3. Control Strategies: This chapter examines four distinct international business strategies—International, Global, Multidomestic, and Transnational—based on their respective pressures for cost reduction and local responsiveness.
4. Organisational Structures and Control Mechanisms: This part explores various organizational configurations and the formal or informal mechanisms employed to control and coordinate subunits effectively.
5. Synthesis: This chapter provides an overview table that links strategy, structure, locus of decision-making, and the requirement for cultural controls.
6. Cases: This section presents real-world applications of strategic and structural shifts within two major corporations: Procter & Gamble and Johnson & Johnson.
7. Conclusion: This final section summarizes the necessity for dynamic alignment between a company's strategy and its organizational structure to respond effectively to environmental change.
Keywords
Multinational Enterprises, MNE, Foreign Direct Investment, FDI, Control Strategy, Organisational Structure, International Strategy, Global Strategy, Multidomestic Strategy, Transnational Strategy, PEST Analysis, Porter's Five Forces, Corporate Culture, Performance Ambiguity, Subsidiary Coordination
Frequently Asked Questions
What is the primary focus of this assignment?
The assignment investigates the determinants that influence the choice of control strategies and organizational structures in multinational enterprises, specifically looking at how companies balance cost efficiency and local responsiveness.
Which strategies are analyzed in the document?
The document covers the International, Global, Multidomestic, and Transnational strategies, evaluating the conditions under which each is most effective.
What is the central research question?
The report aims to provide an overview of the determinants of strategies and structures adopted by MNEs, focusing on the location of decision-making and the mechanisms used to control foreign subsidiaries.
Which scientific methods are utilized?
The author employs literature-based theoretical analysis and comparative case study analysis of two prominent global companies.
What does the main body of the text cover?
The main body examines organizational environment assessments, detailed control strategies, various organizational structures like the matrix structure, and specific control mechanisms such as cultural and output controls.
Which keywords best characterize this work?
Key terms include Multinational Enterprises, Control Strategy, Organisational Structure, Transnational Strategy, and Subsidiary Coordination.
How does the author define performance ambiguity in the context of global firms?
Performance ambiguity is defined as the extent to which a subunit's performance depends on the performance of other subunits, which typically increases as firms shift from multidomestic to transnational strategies.
How does the Euro Brand Teams (EBT) model support P&G's strategy?
The EBT model serves as a forum for information sharing and coordinating key brand rollouts, allowing P&G to maintain local responsiveness while leveraging global economies of scale.
- Arbeit zitieren
- Matthias Meier (Autor:in), 2006, Determinants of Control Strategies and Organisational Structures, München, GRIN Verlag, https://www.hausarbeiten.de/document/52011
