Determinants of Control Strategies
and Organisational Structures

by: Matthias Meier

Table of Contents

1 Introduction 4

2 Organisational Environment  4

2.1 Internal Environment  5
2.2 External Environment  5

2.2.1 PEST Analysis  5
2.2.2 Porter’s Five Forces  6

3 Control Strategies 7

3.1.1 International Strategy  8
3.1.2 Global Strategy  8
3.1.3 Multidomestic Strategy 9
3.1.4 Transnational Strategy  10

4 Organisational Structures and Control Mechanisms  10

4.1 Organisational Structures 11

4.1.1 International Division Structure  11
4.1.2 Global Functional Division Structure  12
4.1.3 Global Product Division Structure  13
4.1.4 Global Area Structure 14
4.1.5 Global Matrix Structure  15

4.2 Control Mechanisms 16

5 Synthesis 18

6 Cases  19

6.1 Procter & Gamble 19

6.1.1 Strategy 19
6.1.2 Structure 20

6.2 Johnson & Johnson 21

6.2.1 Strategy 21
6.2.2 Structure 22

7 Conclusion 23

Bibliography 24

Appendices 26
 

List of Abbreviations

FDI = Foreign Direct Investments
MNE = Multinational Enterprises
R&D = Research & Development
GDP = Gross Domestic Product
EBT = Euro Brand Teams
GBU = Global Business Unit
MDO = Market Development Organisation
GBS = Global Business Services
CF = Corporate Functions
[...]
 

1 Introduction

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.

2 Organisational Environment

The strategy of a company has to fit to its environment. Therefore the internal and external environment should be analysed carefully in order to choose the most appropriate strategy.

2.1 Internal Environment

The SWOT analysis assesses the internal strengths and weaknesses and the external opportunities and threats. Therefore it focuses on the internal and external environment. As this chapter deals with the internal environment, only strengths and weaknesses will be regarded. The relative strengths which a company might possess compared to its competitors could be a well-known brand name, high market shares, managerial talent or the use of technology. The main strengths of BMW are the expertise and skills of its workforce and its engineers and the “reputation for producing high-quality automobiles” (Griffin & Pustay, 1995, p. 356). Weaknesses, for example, could be the skills of the managers and the workforce, the distribution network, a bad R&D function or other factors which inhibit the competitiveness of a company. The high labour costs in the domestic market constitute the main weakness of BMW (Griffin & Pustay, 1995, p. 356).

2.2 External Environment

The external environment can be analysed with two different tools. The PEST analysis is used to identify the influences of the remote environment. Porter’s five forces, however, deals with the competitive environment.

2.2.1 PEST Analysis

The PEST analysis is used to assess and monitor the factors which influence the environment in the long run. PEST is an acronym for the political, economic, sociocultural and technological factors of an environment Political factors include taxation policy, foreign trade regulations, political stability and legal issues such as employment and competition laws. Economic factors affect the economic development, the level of wages and unemployment rate. Furthermore, prospects for GDP, inflation rate and foreign currency should be analysed.

Sociocultural factors are, for instance, demographics, dominant religion, education system and income distribution A company should consider technological factors such as government spending on research, infrastructure and costs of transportation, the number of new discoveries / innovations, availability of energy and costs, and legislation for intellectual property (Morrison, 2002, p.23 - 24).

2.2.2 Porter’s Five Forces

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