Why is organizational structure an important issue for international companies?

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Organizational structure is important for all businesses, but it is especially important for multinational corporations and for companies with clients and/or vendors headquartered in other countries. Every country has its own laws and regulations governing the conduct of business. Some countries (China would be a prime example) maintain distinctly different sets of laws for domestic and foreign-owned companies—laws that favor domestic industries and place additional bureaucratic obstacles in front of foreign businesses. Companies whose businesses cross international borders must be cognizant of these legal differences and structure themselves accordingly, for example, by maintaining legal and accounting departments dedicated to individual foreign countries.

Organizational structure is not only important for legal and accounting purposes; foreign markets often differ qualitatively from domestic ones. Products popular or in demand in the domestic market are not necessarily in demand in foreign markets. For example, kitchen appliances designed with large American houses in mind are not suited for Japanese houses where there is a greater premium placed on spatial issues. The same company, therefore, needs to structure itself into divisions consistent with the unique characteristics of each market.

Finally, organizational structure is important for international companies because every part of those companies requires a firm understanding of how the whole is designed and constructed. The greater the level of horizontal growth, especially when foreign business practices are concerned, the greater the risk of misunderstandings emanating from ignorance regarding what part of the company in question has what authorities and responsibilities. Productivity may hinge on a department manager’s ability to navigate the organizational structure in a way that ensures the proper flow of material and information pertinent to that manager’s responsibilities. Again, the challenges of operating internationally are considerably greater than operating solely within the confines of one’s own city, state, or country. Decision-making can prove challenging when foreign operations are involved and concurrence by main headquarters is sought before a decision can be translated into action. The organizational diagram must clearly indicate the chains of command and the various departments or officials who need to be kept “in the loop” and whose authority may supersede those of others.

Organizational structure, as noted, is key to the efficiency of all companies. In the case of companies with foreign interests and operations, clarity of structure is even more important lest costly errors occur.

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Organizational structure is important for all firms of any significant size.  It is important to set up lines of authority and communication so that jobs can be done as efficiently as possible.  However, one can argue that this is even more important in international (multi-national) companies.

The reason for this is that these companies face more complex organizational problems.  They will have operations in many different countries that may need to coordinate with one another.  Their employees in the various countries may or may not be able to work well together.  The firm must decide whether to add layers of bureaucracy, for example, to help coordinate the activities of related sections of the company that are in different countries.

Because international companies are larger and face more complex organizational issues, organizational structure is particularly important for them.

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