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Changing Structures

One approach to globalisation has been demonstrated by Coca-Cola in Japan, whereby it used the ‘insiderisation’ model, which aims to develop the subsidiary as a true insider in the host market. Successful ‘insiderisation’ in the Japanese market. By becoming a full-fledged insider it was able to move not just soft drinks but also fruit juice, sports drinks, vitamin drinks as well as canned coffee. Its competitors were not able to even dent its 70% market share by spending huge amounts on advertising because of not having built up their own distinctive insider strengths.

The typical progression of a firm in its path to becoming a truly global organisation starts with exporting from the home country, moves on to setting up local sales and distribution centres, then to local assembly/packaging and finally to establishing full manufacturing and associate activities in foreign locations. This maybe by Greenfield development or by acquisition and may include a variety of joint ventures.

In all organisations managers have to establish structures and provide a basis for the co-ordination and control of activities and these structures become more important the more global an organisation becomes. As these corporations expand their operations into different environments, they increase the level of

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uncertainty associated with their investment as well as facing complex issues of organisational control in order to ensure that the different parts of the enterprise are contributing as required to the overall goals (Change and Taylor, 1999).

It is due to this reason that Kamoche, (1996) argues that the relationship between the corporate centre and the country-based subsidiaries is one of the most significant issues for global firms. It is said that structure and control has to be consistent with strategy and global firms tend to choose either a multidomestic or a global strategy. This choice will be strongly influenced by the industry the firm is in. Firms operating in such a global market realise that they must be able to co-ordinate their strategy and activities across nations.

The demands of standardisation, centralisation and strategic alignment are best met by a global orientation, with strong centre, rather than a multidomestic orientation with fairly autonomous national subsidiaries. However although multinationals are seeking global economies they must also meet the needs of their customers and therefore be locally responsive. Bartlet and Ghosal (1988,1992) suggest that in the past companies must follow one of three strategies in order to prosper: Developing either local responsiveness, transfer of know-how or lastly Global Efficiency.

However now it is vital for a global firm to follow all three strategies in order to be prosperous. This is referred to by them as the “Transnational solution” The evolution of management attitudes during the globalisation process moves from an initial ethnocentric, to polycentric and last of all a geocentric approach. The ethnocentric approach emphasises parent company knowledge and control and can generally be found in Stopford and Wells’ “Autonomous Subsidiary” model10.

This is an effective way to run an organisation that has a small percentage of operations overseas. The limitations however are that Headquarters has little knowledge of the host market and this does not provide a sufficient basis for growth into a multinational organisation. A more polycentric approach gives more local recognition and can be found in the Stopford and Wells’ “International Division” model11 or the “Multidomestic” structure.

The International division will still prioritise its home market, however it will move towards a 50% split of home and foreign operations. Even though it does encourage the foreign subsidiary to perform crucial tasks such as arbitrage and leverage issues, Stopford and Wells12 believe that the organisation will still not acquire the full benefits of a global company as it will encounter difficulties when it comes to R&D, Communications and levels of power in the international division.

This structure still remains very bureaucratic and “Top Down although control will be generally decentralised. However a Transnational strategy or Stopford and Wells’ “Global Structure”13 would require the Geocentric approach which sees the subsidiaries as part of the whole organisation and focuses itself on both worldwide and local objectives. In theory the global structure will either be ‘Geographically’ or ‘Product’ based however in practice an organisation would never be 100% committed to either strategy.

Both structures have their benefits and weaknesses. A geographical based organisation will be able to maximise coordination and marketing locally along with increasing leverage with host governments however it sacrifices product development and R&D economies of scale as duplication of products can occur. The product orientated organisation have strong levels of innovation and will operate most efficiently where the product is standardised and globalised however it will not be coordinated as effectively when it comes to local consumer preferences.

Stopford and Wells have also developed a fourth option that combined both Geographically and Product based structure. This “Matrix”14 structure however has been criticised by theorists such as Bartlett and Ghoshal. This structure emphasises interdependence of subsidiaries but a loss of specific management responsibilities can be identified, as the structure is too complex. This results in slow decision-making in a changing environment.

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