What are the advantages and disadvantages of the five basic types of structures for multinational firms?
Multinational organization can utilize any of the five basic types of structures to develop different work teams and groups of its employees and achieve a work coordination among these groups and teams for maximum productivity. The five basic types of structures for multinational organization according to Frynas & Mellahi (2015) are a functional structure, an international division structure, an area or geographic division structure, a product division structure and a matrix structure. Multinational organization may adapt to these structures due to their advantages on the multinational arena. But there are also some disadvantages associated with these structures. In the following discussion, I would like to discuss some of the advantages and disadvantages of these structures one by one.
The functional structure can be useful in managing the subsidiaries in different countries. When a multinational organization has clear separate functions, it can use the functional structure to control different function in different countries. An example is the multinational organizations that have their production functions in one country while their target market is in another country.
The disadvantage of this approach is if there are big units operating in subsidiaries which are responsible for the large amount of profits, they might not be willing to be controlled by the headquarters and might feel like being treated autonomously. This could result in conflict between the headquarters and the subsidiary.
International division structure
Unlike the functional structure, the division structure is suitable when the international subsidiaries are not responsible for the larger amount of the profits, instead the company gains its profits from its domestic market. In this case, the multinational organization sets an international division and it can help in an efficient control of the subsidiaries.
The disadvantage of this approach is that the company might be losing on the international front as they do not have the amount of focus on the international subsidiaries as they should have. The subsidiaries may also feel controlled and could seize to give suggestions and feedback for growth among the local population.
Area or geographic division structure
In this kind of structure, the international subsidiaries are grouped together based on geographical regions. These groups can then come up with region specific business strategies.
The disadvantage of this approach is the kind of regions that are grouped together. For example if Middle East is grouped together with North Africa, the business strategies could go wrong as these two regions have diverse and different cultural backgrounds. Cultural norms would not be easy to manage in such situations.
A product division structure
This approach is suitable for organizations like Nestle and likes who have a diverse product line and need different strategies for each product. The advantage is that the different product divisions would be able to focus on their specific product and come up with productive solutions.
The disadvantage is the fact that different divisions might get into competitions to reach their target and start working as competitors instead of looking at the broader picture or achieving the organizational goals of the multinational company.
A matrix structure
This is a productive type of organizational structure where different employees and managers from different departments come together and work as a part of a team. This approach is efficient in information sharing and motivating employees.
The disadvantage of this approach is that it can add up to the internal complexity of an organization (“Advantages & Disadvantages of Matrix Organizational Structures in Business Organizations”, 2017). It can make the decision making process more complex as this is a democratic type of approach and everyone has a say in organizational decisions.