International Business, 14e (Daniels et al.) Chapter 15 The Organization of International Business



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International Business, 14e (Daniels et al.)

Chapter 15 The Organization of International Business
1) Johnson & Johnson distributes decision-making power among departments and divisions. This policy provides managers with a sense of ownership and control at the company. Johnson & Johnson is best described as a(n) ________ organization.

A) vertical

B) centralized

C) horizontal

D) decentralized

Answer: D

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Application

Objective: 2


2) Johnson & Johnson embodies its organizational culture in "The Credo," which is the firm's ________.

A) code of conduct

B) vision statement

C) strategic plan

D) mission statement

Answer: A

Diff: 2

Skill: Concept



Objective: 5
3) Historically, managers built organizations by focusing on the boxes and lines of a(n) ________ structure.

A) formal

B) innovative

C) collaborative

D) flexible

Answer: A

Diff: 2

Skill: Concept



Objective: 2
4) Which of the following is the LEAST likely reason that global firms are shifting away from formal organizational structures?

A) advancements in communication systems

B) changes in managerial standards

C) opportunities in new markets

D) demands of stockholders

Answer: D

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


5) Concord Foods, an international firm based in the U.S., is in the process of transitioning from a classical organizational structure to a neoclassical structure. Which of the following tools would most likely enable Concord to make this change?

A) annual performance appraisals

B) cross-functional task forces

C) flexible benefits plans

D) merit awards

Answer: B

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Application

Objective: 3


6) The concept of organization includes how a company does all of the following EXCEPT ________.

A) specifies the framework for work

B) develops systems that coordinate and control tasks

C) cultivates a common workplace culture among employees

D) plans leadership and training programs to develop the managerial staff

Answer: D

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 1


7) Organization ________ refers to the formal arrangement of roles, responsibilities, and relationships within an organization.

A) structure

B) systems

C) culture

D) strategy

Answer: A

Diff: 1

Skill: Concept



Objective: 1
8) The balance between centralization and decentralization of authority in a company is known as ________.

A) systemic differentiation

B) horizontal differentiation

C) schematic differentiation

D) vertical differentiation

Answer: D

Diff: 1

Skill: Concept



Objective: 1
9) The ________ the level of the company at which managers make decisions, the more that organization is ________.

A) higher; decentralized

B) lower; centralized

C) higher; centralized

D) higher; unstructured

Answer: C

Diff: 2

Skill: Concept



Objective: 1
10) Tyrone is a production manager at Penderhall Electronics, an MNE with operations in Asia, Europe, and the U.S. Tyrone has very little decision-making authority at Penderhall, since most decisions are made at headquarters and distributed downward. Which structure is most likely used by Penderhall?

A) centralized

B) systematic

C) decentralized

D) multidomestic

Answer: A

Diff: 2

Skill: Application



Objective: 2
11) ________ is the matter of how the company balances centralization versus decentralization of decision making, whereas ________ is the matter of how the company opts to divide itself into specific units to do specific jobs.

A) Horizontal differentiation; vertical differentiation

B) Vertical differentiation; systemic differentiation

C) Schematic differentiation; schematic differentiation

D) Vertical differentiation; horizontal differentiation

Answer: D

Diff: 2

Skill: Concept



Objective: 1
12) Which of the following statements is most likely true regarding vertical differentiation?

A) MNEs with decentralized structures are more appealing to foreign workers.

B) Most MNEs balance authority between headquarters and subsidiaries because of globality.

C) MNEs with many organizational levels are less likely to perform well in emerging markets.

D) Most MNEs implement centralized authority structures due to the complexity of globalization.

Answer: B

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 1


13) In general terms, we see the principles of horizontal differentiation in the design logic of ________.

A) vertical differentiation

B) decentralization

C) the value chain

D) the unity-of-command principle

Answer: C

Diff: 2

Skill: Concept



Objective: 2
14) The idea of ________ involves how a company specifies organizational tasks; divides those tasks into jobs, departments, subsidiaries, and divisions; and then assigns authority and authority relationships.

A) systemic differentiation

B) horizontal differentiation

C) vertical differentiation

D) schematic differentiation

Answer: B

Diff: 1

Skill: Concept



Objective: 2
15) A ________ structure is the ideal way to organize work when global integration is more important than local responsiveness and the industry structure encourages cost leadership.

A) decentralized

B) matrix

C) divisional

D) functional

Answer: D

Diff: 1

Skill: Concept



Objective: 2
16) At Tyson Manufacturing, departments and units are organized around discrete business activities, such as finance, production, marketing, and human resources. Tyson most likely has a ________ structure.

A) network

B) matrix

C) functional

D) divisional

Answer: C

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Application

Objective: 2


17) Decision making in a functional structure tends to be ________.

A) decentralized

B) centralized

C) horizontal

D) collaborative

Answer: B

Diff: 2

Skill: Concept



Objective: 2
18) Functional structures for international operations are most likely found among those companies that ________.

A) have a narrow range of products that rely on economies of scale

B) multiple products that share few common technologies

C) rely on differentiated marketing methods

D) compete in unstable industries

Answer: A

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


19) Whereas executives specify roles and relationships in a functional structure in terms of ________, they use the divisional structure format to specify them according to ________.

A) inputs; outputs

B) buyers; suppliers

C) markets; countries

D) politics; economics

Answer: A

Diff: 2

Skill: Concept



Objective: 2
20) A major benefit of the international division structure is ________.

A) outsourcing distribution and shipping tasks

B) responding quickly to foreign events

C) diversifying most product groups

D) hiring low-cost, local workers

Answer: B

Diff: 2

Skill: Concept



Objective: 2
21) In which of the following situations would a company most likely benefit from using the international division structure?

A) when the company's different foreign markets pose significantly different opportunities and threats

B) when the company relies on local managers in foreign operations to make strategic decisions

C) when the company's domestic market activity is much more important than its international business activity

D) when the company's domestic business activity has reached its full market potential

Answer: C

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Application

Objective: 2

AACSB: Analytic Skills
22) A major benefit of the international division structure is ________.

A) the elimination of conflicts of interest among domestic and foreign operations

B) the integration of domestic and foreign operations

C) deemphasis of economies of scale

D) cost effectiveness

Answer: D

Diff: 2

Skill: Concept



Objective: 2
23) Chapman Enterprises is an MNE that markets a diverse portfolio of products including jewelry, luggage, and furniture. Which structure would most likely be used by Chapman?

A) international division

B) functional division

C) geographic division

D) product division

Answer: D

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Application

Objective: 2


24) Avery Designs is an MNE with a diverse portfolio of products including cookware and clothing. Both the foreign and domestic operations for the firm's cookware products report to the same manager. Which structure is most likely used by Avery?

A) matrix division

B) product division

C) international division

D) geographic division

Answer: B

Diff: 2

Skill: Application



Objective: 2
25) The primary limitation with the product division structure is the ________.

A) cost of duplicated functions and international activities

B) poor response to local market demands for a product

C) inability to transfer core competencies within units

D) difficulty of selling product lines

Answer: A

Diff: 2

Skill: Concept



Objective: 2
26) Historically, the geographic division structure is associated with companies pursuing ________ strategies.

A) multidomestic

B) transnational

C) global

D) international

Answer: A

Diff: 2

Skill: Concept



Objective: 2
27) Which of the following factors increasingly encourages MNEs to install a geographic division structure?

A) growth of emerging markets

B) diversification of products

C) rise of social networking

D) global recession

Answer: A

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


28) Gary is a manufacturing manager at Forman Enterprises. Gary works at the MNE's headquarters in the U.S. Before Gary can implement any major changes or decisions, he must communicate and coordinate his plans with Raj, a sales manager at Forman's facility in India. Which structure is most likely used by Forman Enterprises?

A) global

B) matrix

C) product division

D) geographic division

Answer: B

Diff: 2

Skill: Application



Objective: 2
29) The fundamental limitation of a matrix structure is that it ________.

A) creates a poor organizational culture

B) isolates upper management from operational levels

C) institutes a dual hierarchy that violates the unity-of-command principle

D) introduces more errors in the decision-making process due to the speed of the process

Answer: C

Diff: 2

Skill: Concept



Objective: 2
30) In reality, the organizational charts of ________ MNEs neatly depict a functional, divisional, or matrix structure.

A) no


B) few

C) most


D) all

Answer: B

Diff: 1

Skill: Concept



Objective: 2
31) IBM puts investments, people, and work anywhere in the world based on the best mix of costs, skills, and environment and uses sophisticated strategies and technologies to support and coordinate activities. IBM most likely uses a ________ structure.

A) classical

B) product

C) neoclassical

D) locational

Answer: C

Diff: 2

Skill: Application



Objective: 3
32) Neoclassical structures aim to support organizations ________.

A) in which the location of control in a network alliance is evident

B) that centralize decision-making authority to those who can make informed decisions

C) that dismantle horizontal, vertical, or external boundaries that block ideas and relationships

D) that create predictable workplaces with minimal collaboration among subsidiaries

Answer: C

Diff: 2

Skill: Concept



Objective: 3
33) Which of the following is the LEAST likely characteristic of neoclassical structures?

A) few barriers between people

B) extensive collaborative efforts

C) higher capacity for change and learning

D) centralized decision making

Answer: D

Diff: 2

Skill: Concept



Objective: 3
34) The neoclassical structure implemented by Cisco primarily enables the firm to ________.

A) respond quickly to new opportunities

B) thoroughly assess new competitors

C) assign leaders to new products

D) clarify managers' duties

Answer: A

Diff: 2

Skill: Concept



Objective: 3
35) Vertical and horizontal constraints that segment employees and their tasks within an organization are generally referred to as ________.

A) structures

B) networks

C) boundaries

D) classifications

Answer: C

Diff: 1

Skill: Concept



Objective: 3
36) Neoclassical structures attempt to minimize boundaries between all of the following EXCEPT ________.

A) vertical ranks and functions

B) horizontal units in different areas

C) the firm and its suppliers

D) the firm and its competitors

Answer: D

Diff: 2

Skill: Concept



Objective: 3
37) Which of the following is promoted by a neoclassical structure?

A) innovation of ideas

B) information control

C) project competition

D) minimal relationships

Answer: A

Diff: 2

Skill: Concept



Objective: 3
38) Which of the following is the most likely benefit of a network structure?

A) encouraging competition among members for resources

B) facilitating supplier changes anywhere in the value chain

C) developing core competencies in a broad range of value activities

D) maintaining a strong sense of organization in the face of dynamic partnerships

Answer: D

Diff: 2

Skill: Concept



Objective: 3
39) A Japanese keiretsu is best described as a ________.

A) family business

B) product division

C) network structure

D) centralized control system

Answer: C

Diff: 2

Skill: Concept



Objective: 3

AACSB: Multicultural and diversity understanding


40) A virtual organization is ________ of a traditional vertical hierarchy.

A) an elaboration

B) the antithesis

C) the latest interpretation

D) a selective application

Answer: B

Diff: 1

Skill: Concept



Objective: 3
41) The temporary arrangement of independent companies, suppliers, and free agents for the purpose of completing a task or project is best known as a(n) ________ organization.

A) virtual

B) independent

C) decentralized

D) international

Answer: A

Diff: 1

Skill: Concept



Objective: 3
42) Some MNEs that have tried contemporary structures have run into problems, most notably ________.

A) frequent managerial intervention in decision making

B) relentless centralization of decision making

C) employees too motivated by bonuses

D) resource competition

Answer: A

Diff: 2

Skill: Concept



Objective: 3
43) A hyperarchy is ________.

A) a form of structure with precise superior and subordinate relationships

B) a form of structure that relies on extensive centralization

C) a large-scale, self-organizing community

D) analogous to a hierarchy

Answer: C

Diff: 1

Skill: Concept



Objective: 3
44) Coordination refers to ________.

A) linking various value activities within an organization

B) identifying the span of control within an organization

C) portioning the performance of specific tasks

D) assigning tasks to qualified managers

Answer: A

Diff: 2

Skill: Concept



Objective: 4
45) Which of the following is NOT one of the three prevalent approaches to coordination?

A) standardization

B) mutual adjustment

C) adaptation

D) planning

Answer: C

Diff: 1

Skill: Concept



Objective: 4
46) Patrons of McDonald's can enter the restaurant located in any part of the world and expect to see employees wearing the same uniforms and menus offering the same products. McDonald's most likely uses which system of coordination?

A) standardization

B) consensus

C) plan


D) adaptation

Answer: A

Diff: 1

Skill: Application



Objective: 4
47) Which of the following begins with a company defining critical success factors and specifying objective targets and hard deadlines?

A) coordination by standardization

B) coordination by consensus

C) coordination by plan

D) coordination by intervention

Answer: C

Diff: 2

Skill: Concept



Objective: 4
48) Abel Enterprises has implemented a system based on coordination by mutual adjustment. Which of the following would most likely be used by Abel Enterprises?

A) strict scheduling

B) social networking

C) synchronized training

D) centralized decision making

Answer: B

Diff: 2

Skill: Application



Objective: 4
49) Three types of control systems are used in MNEs. These are ________.

A) market control, bureaucratic control, and clan control

B) standardization control, adjustment control, and clan control

C) market control, adjustment control, and clan control

D) planning control, market control, and clan control

Answer: A

Diff: 2

Skill: Concept



Objective: 4
50) Falcon Enterprises is an MNE that uses price competition and relative market share to establish internal performance benchmarks and standards. The firm is most likely applying a system of ________.

A) bureaucratic control

B) market control

C) standardization control

D) clan control

Answer: B

Diff: 2

Skill: Application



Objective: 4
51) Martin Manufacturing is an MNE that centralizes authority to implement an extensive set of rules and procedures to govern a broad range of activities. Martin Manufacturing is most likely applying a system of ________.

A) market control

B) adjustment control

C) bureaucratic control

D) clan control

Answer: C

Diff: 2

Skill: Application



Objective: 4
52) Grover Enterprises is an MNE that relies on shared values among all employees to idealize the preferred behaviors and identify performance measures within the company. Grover is most likely applying a system of ________.

A) market control

B) bureaucratic control

C) planning control

D) clan control

Answer: D

Diff: 2

Skill: Application



Objective: 4
53) Formal reports, management performance evaluations, and financial metrics are three examples of ________.

A) coordinating tools

B) coordinating systems

C) control systems

D) control mechanisms

Answer: D

Diff: 1

Skill: Concept



Objective: 4
54) MNEs typically use reporting systems for foreign operations that are similar to the ones they use domestically ________.

A) primarily in the early stages of operating abroad

B) because common systems allow comparative evaluations

C) until the subsidiary demonstrates mastery of the form

D) only in those countries with extremely similar systems of information technology

Answer: B

Diff: 2

Skill: Concept



Objective: 4
55) Market-share increase and turnover ratios are examples of ________.

A) nonfinancial evaluation metrics

B) financial evaluation metrics

C) cost and accounting metrics

D) enterprise resource planning (ERP)

Answer: A

Diff: 2

Skill: Concept



Objective: 4
56) Which tool is used by most firms to monitor the data linkages among product planning, parts purchasing, and inventory maintenance activities?

A) reports

B) clan controls

C) financial metrics

D) information systems

Answer: D

Diff: 1

Skill: Concept



Objective: 4

AACSB: Use of information technology


57) ________ is a system of shared values about what is important and beliefs about how the world works among the employees of an organization.

A) Organizational system

B) Organizational structure

C) Organizational culture

D) Organizational vision

Answer: C

Diff: 1

Skill: Concept



Objective: 5
58) Which of the following is most likely a true statement about organization culture?

A) Many organizations use a robust organization culture to create consistently high performance.

B) Fewer and fewer companies allow an organization's culture to emerge naturally.

C) Typically, managers from different countries have values similar to those endorsed by the company.

D) Divergent values among managers and employees ease the exchange of ideas between people from different countries.

Answer: B

Diff: 3

Skill: Concept



Objective: 5
59) A company adopting a(n) ________ strategy will likely aim to develop an organization culture that helps employees around the world unconditionally accept common goals and practices.

A) domestic

B) multidomestic

C) national

D) global

Answer: D

Diff: 1

Skill: Concept



Objective: 5
60) Which of the following is NOT one of the main priorities for most corporate universities?

A) complying with labor regulations in local markets

B) facilitating strategic understanding among executives

C) strengthening employee commitment to organization goals

D) improving the influence of the organization's culture

Answer: A

Diff: 3

Skill: Concept



Objective: 5
61) Current approaches to designing an organization see the task of building knowledge-generating and decision-making relationships as less important than specifying the best structural arrangement.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 1
62) New configurations of value activities create coordination and control challenges that cannot be addressed by the functionality outlined in a formal structure.

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 2
63) A firm's vertical differentiation determines where in its organization structure managers have decided to concentrate decision-making authority.

Answer: TRUE

Diff: 1

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 1


64) Decentralization has the key advantage of letting decisions be made by those who directly deal with customers, competitors, and markets.

Answer: TRUE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 1


65) One advantage of centralized corporate practices is a reduced risk that lower-level employees make costly, wrong decisions.

Answer: TRUE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 1


66) Horizontal differentiation is concerned with how the managers of a firm decide to divide the company into discrete subunits.

Answer: TRUE

Diff: 1

Skill: Concept



Objective: 1
67) Technology such as e-mail, VoIP, teleconferencing, and social networks help MNEs respond to increasing globality.

Answer: TRUE

Diff: 1

Skill: Concept



Objective: 1

AACSB: Use of information technology


68) The functional structure is inappropriate for firms with products and manufacturing methods that are largely undifferentiated among countries.

Answer: FALSE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


69) The functional structure is ideal when the company faces complex and changing environments.

Answer: FALSE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


70) A divisional structure tends to be adopted by firms that are diversified by products or markets.

Answer: TRUE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


71) Companies tend to use geographic divisions when they have large foreign operations that are not dominated by a single country or market.

Answer: TRUE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Concept

Objective: 2


72) Andrews Enterprises, which uses an international division structure, should be able to respond quickly to foreign activities but will most likely experience costly country-to-country duplication.

Answer: FALSE

Diff: 2

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Application

Objective: 2


73) In a matrix structure, product, functional, or geographic groups compete for resources.

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 2
74) A matrix organization is a hybrid of the functional and geographic organizations.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 2
75) Neoclassical structures aim to centralize decision-making authority by removing boundaries that impede the decentralization of decision making.

Answer: FALSE

Diff: 1

Skill: Concept



Objective: 3
76) A common feature of neoclassical structures is greater cross-functional collaboration.

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 3
77) The notion of boundaries, within the context of neoclassical structures, refers to those limitations that interfere with communication and collaboration between the firm and its suppliers, distributors, allies, competitive rivals, and customers.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 3
78) The keiretsu structure long used by Japanese companies is an example of virtual organization.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 3
79) Coordination methods include mutual adjustment, planning, and standardization.

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 4
80) Coordination by plan deals with exact rules and procedures that spell out what needs to be done and how.

Answer: FALSE

Diff: 1

Skill: Concept



Objective: 4
81) MNEs typically design their control systems in terms of either market control, bureaucratic control, or adaptation control.

Answer: FALSE

Diff: 1

Skill: Concept



Objective: 4
82) Adopting a market control system requires that the MNE uses external market mechanisms to establish internal performance benchmarks and standards.

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 4
83) MNEs use different report formats and schedules for foreign operations according to local customs.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 4
84) The benefits of managerial visits to foreign subsidiaries can easily be replicated with frequently submitted and reviewed operational reports and schedules.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 4
85) The common values shared by a company's employees are known as its organization culture.

Answer: TRUE

Diff: 1

Skill: Concept



Objective: 5
86) The character of a company's corporate culture is a product of the core values and business principles that management advocates, as well as the behaviors that define "how we do things around here."

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 5
87) According to the unity-of-command principle, workers and organizations benefit the most from dual hierarchies of communication.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 3
88) Neoclassical structures promote tightly connected networks both vertically and horizontally to ensure that strategic requirements are fulfilled.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 4
89) The primary benefit of neoclassical structures is the ability of MNEs to coordinate responses and maintain effective control of various units.

Answer: FALSE

Diff: 2

Skill: Concept



Objective: 3
90) The open source model is a hyperarchy that involves giving source code to volunteers who fix software bugs.

Answer: TRUE

Diff: 2

Skill: Concept



Objective: 3
91) How might centralization of decision making adversely affect local managers in an MNE?

Answer: Although some decisions are better left to corporate management, doing so may cause morale problems among local managers who perceive their responsibility has been taken away. When local managers are prevented from acting in the best interest of their own operation, they tend to think, "I could have done better, but corporate management would not let me." If local managers cannot participate in developing global strategies, they may lack the positive attitude to work hard to implement global strategic decisions. These managers also may not gain the experience needed to advance within the company.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Critical Thinking

Objective: 2

AACSB: Reflective thinking skills
92) Profile the idea and features of horizontal differentiation, paying particular attention to its implications to how managers design their company's structure.

Answer: In figuring out who does what work, where, when and for whom, MNEs must horizontally differentiate their international operations—that is, managers must divide the company into discrete units that are assigned responsibility for specialized tasks. Failing to tend to these fundamental questions in an effective manner leaves the company open to the risk of building an inefficient operation that ultimately will fail. The idea of horizontal differentiation describes how the company designs its formal structure to perform three functions: specify the total set of organizational tasks; divide those tasks into jobs, departments, subsidiaries, and divisions so the work gets done; and assign authority and authority relationships to make sure work gets done in ways that support the company's strategy. In traditional terms, MNEs resolved these issues on the basis of function, type of business, geographic area, or some combination of these three factors. While the specific design standards of each format differ, they all speak to the matters of horizontal differentiation.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Synthesis

Objective: 1, 2

AACSB: Reflective thinking skills
93) Explain the major types of classical organization structures and the advantages and disadvantages of each for international operations.

Answer:


a. Functional division structure: Divide personnel functionally so that marketing people report to other marketing people, finance people to other finance people, and so on. Functional divisions are popular among companies with a narrow range of products, particularly if the production and marketing methods are undifferentiated among them. However, as they add new and different products, this structure becomes cumbersome.

b. Product division structure: Product divisions are particularly popular among companies that make a variety of diverse products, especially those that have become diverse through acquisitions. Because these divisions may have little in common, they may be highly independent of each other. As is true for the functional structure, the product division structure is well suited for a global strategy because both the foreign and domestic operations for a given product report to the same manager who can find synergies between the two, such as by sharing information on the successes and failures of each.

c. International division structure: Grouping international business activities into their own division puts internationally specialized personnel together to handle such diverse matters as export documentation, foreign exchange transactions, and relations with foreign governments. This prevents duplication of these activities in more than one place in the organization. It also creates a large enough critical mass so that personnel within the division can wield power within the organization to push for international expansion.

d. Geographic division structure: Companies use geographic divisions if they have large foreign operations that are not dominated by a single country or area. This structure is more common to European MNEs than to U.S. MNEs, which tend to be dominated by the strong domestic market. The structure is useful when maximum economies in production can be gained on a regional rather than on a global basis because of market size or the production technologies for the industry. A drawback is possibly costly duplication of work among areas.

e. Matrix division structure: Due to the problems inherent in either integrating or separating foreign operations, many companies are moving toward matrix organizations. In this organizational structure, a subsidiary reports to more than one group. This structure is based on the theory that because each group shares responsibility over foreign operations, the groups will become more interdependent, exchange information, and exchange resources with each other. One drawback, however, concerns how groups compete for scarce resources to enact their preferred operating methods.

Diff: 3


Learning Outcome: Discuss factors affecting the organizational structures of international businesses

Skill: Critical Thinking

Objective: 2

AACSB: Reflective thinking skills


94) Profile the causes and likely benefits that prompt companies to consider adopting a neoclassical structure.

Answer: Some MNEs, notably IBM and GE, find that the traditional structures, such as an area or product division, provide an inadequate format to respond to the demands of their dynamic environments and complex strategies. More precisely, managers note a rich set of triggers, including increasing international activities, expanding internal relationships, rising expectations of foreign customers, and growing power of knowledge-based strategies. Capturing these opportunities pushes managers to look beyond the range of traditional structures and consider contemporary formats that are better equipped to help them achieve outcomes such as keeping international and domestic personnel in closer proximity to each other in order to improve idea exchange and knowledge transfer. Successfully done, these sorts of actions help managers reset the roles and responsibilities dictated by the company's structure to let more employees, particularly those on the front line who deal more directly with resources and markets, have greater authority.


Several environmental trends further spur managers to engage contemporary formats. Specifically, lower trade barriers and cheaper telecommunications and computing capabilities enable a globally dispersed labor force to collaborate more easily. Both individually and collectively managers note that these developments encourage them to move from the classic structure of separate businesses organized in different countries to a worldwide company that can divide and parcel out work to the most efficient locations.

Diff: 3


Learning Outcome: Discuss factors affecting the organizational structures of international businesses

Skill: Critical Thinking

Objective: 3

AACSB: Reflective thinking skills


95) Describe how an MNE might use reports as a control mechanism.

Answer: Headquarters needs timely reports to allocate resources, correct plans, and reward personnel. Their decisions on how to use capital, personnel, and technology are almost continuous, so reports must be frequent, accurate, and up-to-date to assure meeting the MNE's objectives. Headquarters uses reports to evaluate the performance of subsidiary personnel so as to reward and motivate them. Most MNEs use reports for foreign operations that resemble those they use domestically. The reasons for this include the following:

a. If the reports have been effective domestically, management often believes they also will be effective internationally.

b. There are economies from carrying over the same types of reports. The need to establish new types of reporting mechanisms is eliminated, and corporate management is already familiar with the system.

c. Reports with similar formats presumably allow management to better compare one operation with another's.

Diff: 3


Learning Outcome: Discuss factors affecting the organizational structures of international businesses

Skill: Critical Thinking

Objective: 4

AACSB: Reflective thinking skills


96) In a brief essay, discuss how decentralized management and organizational culture affect Johnson & Johnson.

Answer: Decentralized management is the heart of J&J's organization. It allows managers who are closest to customers and competitors to make decisions. As the company says, it aims to be big and small all at once, building a global profile based on the conglomeration of many small units. By design, each of its 250 units operates with substantial autonomy, commanding the authority to act as it believes best given local conditions. Each is its own business, entrepreneurial in character, and aware that success depends on anticipating local customers' needs and delivering solutions. Encouraging employees to act as local entrepreneurs while ensuring they act with a global awareness takes us to the role of culture in J&J. Fundamentally, from the CEO to the director of the smallest unit, management believes that the people and their values are J&J's greatest assets. Separating J&J from the pack is its organizational culture, embodied in "Our Credo," Crafted in 1943 by Robert Wood Johnson, company chair from 1932 to 1963, this one-page ethical code of conduct states how J&J fulfills its responsibilities. Collectively, the "Credo underscores J&J's personal responsibility to put the needs of the people we serve first. It liberates our passion and deepens our commitment to delivering meaningful health innovations." The company maintains that the Credo is more than just a moral compass; it is the basis of success.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Synthesis

Objective: 2, 5

AACSB: Reflective thinking skills
97) What is the difference between a classical structure and a neoclassical structure? Provide examples of each type.

Answer: Classical structures, like the functional, divisional, and matrix formats, rely on the hierarchy to arrange roles, responsibilities, and relationships. Neoclassical structures, like the network or virtual format, arrange work roles, responsibilities, and relationships in ways that bypass the horizontal, vertical, or external boundaries that block the development of knowledge-generating and decision-making relationships.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Synthesis

Objective: 3, 4

AACSB: Analytic Skills
98) What role does a firm's strategy play in determining organizational structure? Why are boundaries problematic for firms with international strategies?

Answer: Firms engaging different strategies build different organizations. Firms engaging international, multidomestic, global, or transnational strategies tailor their structure, systems, and cultures to their respective demands. Sophisticated international strategies require improving collaboration, sharing, and engagement across an organization. The boundaries of vertically and horizontally differentiated structures, by hampering these activities, constrain performance. The intrinsic boundaries of classical structures impede knowledge flows and interrupt coordination. Resolving those rests upon busting the boundaries between vertical ranks and roles, between horizontal units in different functions, products, and areas, and between the firm and its suppliers, distributors, joint-venture partners, strategic allies, and customers.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Synthesis

Objective: 1, 3

AACSB: Analytic Skills
99) Why is it essential for MNEs to consider coordination systems when implementing an organizational structure? Briefly describe each approach to coordination.

Answer: The importance of coordination follows from the reality of life in the MNE. Designing innovative products in Taiwan, sourcing inputs from Australia, transporting them to production facilities in China, and distributing them to consumers worldwide creates interdependencies. Coordination systems synchronize rules, responsibilities, and relationships so that the MNE uses its resources efficiently and makes decisions effectively. Without the means to coordinate activities, the competitiveness of a strategy, no matter how brightly conceived, erodes. Therefore, designing an organization, whether the format is classical or neoclassical, requires managers apply coordination methods. Prevalent approaches include coordination by standardization, plan, and mutual adjustment. Standardization relies on specifying standard operating procedures; planning relies on general goals and detailed objectives; and mutual adjustment relies on frequent interaction among related parties.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Synthesis

Objective: 1, 4

AACSB: Reflective thinking skills
100) Why do you think corporate universities are becoming more popular among MNEs? How do both MNEs and employees benefit from corporate universities?

Answer: Originally, corporate universities aimed to teach practical skills and workplace systems. MNEs are now thinking of training as a strategic imperative. They use their corporate university to embed new hires with a strategic understanding of operations as well as fortify the commitment of current workers. The need to generate, transfer, and adopt ideas from wherever they originate to wherever they add value, particularly compelling for the MNEs building a globally integrated enterprise, calls for preparing all employees to do so. In addition, MNEs implementing an international, multidomestic, or global strategy face pressures, given growing globalization, to help employees understand worldwide operations, opportunities, and constraints. Another reason for corporate universities is integrating diverse workforces. Hiring people from around the world expands the mix of nationalities and ethnicities.

Diff: 3

Learning Outcome: Discuss factors affecting the organizational structures of international businesses



Skill: Critical Thinking

Objective: 5

AACSB: Reflective thinking skills


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