442Researc Part 5 The Strategy and Structure of International Business 'fa S k (.:· globalcOGE gl.o bale dge . msu . e du The Organization of International Business Use the globalEDGE website (globaledge.msu.edu) to complete the following exercises: Exercise 1 Fortune conducts an annual survey and publishes the rankings of the world's most admired companies. Locate the most recent ranking available, and focus on the factors used to determine which companies are most admired. Prepare an executive summary of the strategic and organizational success factors for a company of your choice. Exercise 2 You work at a European-based pharmaceutical company that is planning to expand operations to other parts of the world. To design the structure of the organization as it expands internationally, management ha~ requested additional information on the pharmaceutical sector worldwide. Use the Industry Profiles section on the globalEDGE site to prepare a risk assessment of the food and beverage industry that can help management gain a better understanding of the external environment in foreign markets. Philips NV Established in 1891 in Holland, Philips Electronics NV is one of the world 's oldest multinationals. The company began making lighting products and over time diversified into a range of businesses that included domestic appliances, consumer electronics, and health care products. From the beginning, Holland's small domestic market created pressures for Philips to look to fo reign markets for growth. By the start of World War II, Philips already had a global presence. During the war, Holland was occupied by Germany. By necessity, the company's national organizations in countries such as Britain, Australia, Brazil, Canada, and the United States gained considerable autonomy during this period. After the war, a structure based on strong national organizations remained in place. Each national organization was in essence a self-contained entity that was responsible for much of its own manufacturing, marketing, and sales. Most R&D activities, however, were centralized at Philips' headquarters in Eindhoven, Holland. Reflecting this, several product divisions were created. Based in Eindhoven, the product divisions developed technologies and products, which were then made and sold by the different national organizations. During this period, the career track of most senior managers at Philips involved significant postings in various national organizations around the world. For several decades this organizational arrangement worked well. It allowed Philips to customize its product offerings, sales, and marketing efforts to the conditions that existed in different national markets. By the 1970s, however, flaws were appearing in the approach. The structure involved significant duplication of activities around the world, particularly in manufacturing, which created an intrinsically high-cost structure. When trade barriers were high, this did not matter so much, but by the 1970s trade barriers were starting to fall and competitors, including Sony and Matsushita from Japan, General Electric from the United States, and Samsung from Korea, were gaining market share by serving increasingly global markets from centralized production facilities where they could achieve greater scale economies and hence lower costs. Philips ' response was to try to tilt the balance of power in its structure away from national organizations and toward the product divisions. International production centers were established under the direction Holland. 3. Despite several reorganization efforts. they were loyal to them and tended to protect their autonomy. Images of Organization (Beverly Hills. Shaw. and they often maintained control over some local production facilities. but after this reorganization they finally lost their historic sway on the company. 331--41." Barron's. 1992). "A Reexamination and Extension of International Strategy Structure Theory. He famously described the company's organizational structure as a "plate of spaghetti" and asked how Philips could compete when the company had 350 subsidiaries around the world and significant duplication of manufacturing and marketing efforts across nations." Bloomberg Business Week. making them responsible for global product development. This has long been a central theme of the strategic management literature. The divisions also took over some sales responsibilities. 2. and Carrefour. for example.The Organization of International Business The headquarters of Phillips NV in Eindhoven. remained responsible for local marketing and sales. Gerstein. 4. some sales and marketing activities remained located at the national organizations:•4 Case Discussion Questions 1. The divisions were responsible for product strategy. Also see J." Academy of Management Review. global marketing. B. G. 4. 2010. Racanelli. March 10. Wolf and W. January 27. October 7. this time around just three global divisions. E. One problem Philips faced in trying to change its structure at this time was that most senior managers had come up through the national organizations. Naidler. Philips. lighting. the national organizations remained a strong influence at Philips until the 1990s. 2012. D. The Chapter 14 443 heads of the divisions reported directly to him. who succeeded Boonstra as CEO in 2001. In the mid-1990s Cor Boonstra became CEO. M . G. Organization Architecture (San Francisco: Jossey-Bass. See. Egelhoff. He reorganized yet again. CA: Sage Publications. 3. Tesco. Leslie and J. G. "How Siemens Got Its Mojo Back. The national organizations. W. of the product divisions. Boonstra instituted a radical reorganization. By 2008. He replaced the company's 21 product divisions with just 7 global business divisions. however. however." Strategic Management Journal 23 (2002). particularly dealing with global retail chains such as Walmart. Kammel and R. Morgan." Stanford Business School Case. J. 1987. . Consequently. Why do you think it did this? What is it trying to achieve? notes 1. The national organizations remained responsible for local sales and local marketing efforts. To accommodate national differences. production. continued to underperform its global rivals. pp. health care. C. "Strategy and Structure in the Multiproduct Firm. and consumer lifestyle (which included the company's electronics businesses). pp. Why did Philips' organizational structure make sense in the 1950s and 1970s? Why did this structure start to create problems for the company in the 1980s? What was Philips trying to achieve by tilting the balance of power in its structure away from national organizations and toward the product divisions? Why was this hard to achieve? What was the point of the organizational changes made by Cor Boonstra? What was he trying to achieve? In 2008 Philips reorganized yet again. L. Sorensen. however. Hoskisson. 2011. "The Culture Changer. V. decided Philips was still not sufficiently focused on global markets. Gerard Kleisterlee. 2. and marketing. S. Weiss. and R. while the national organizations reported to the divisions . 1986). "Siemens: Building a Structure to Drive Performance and Responsibility (A). 181 -90. and shifting production to low-cost locations (or outsourcing production). Hill and R.