How can organization be matched with a strategy to improve the performance of an international business?
- Localization strategy
For the localization strategy, the decision-making processes should be decentralized in order to achieve best possible local responsiveness. It should also be divided into an area division structure, again to focus on local responsiveness over cost reductions. Given how all subunits work independently, producing the full product group in each separate entity, the need for coordination and integrating mechanisms are low, which also results in low performance ambiguity thus all entities are responsible for their own production and no need for cultural controls.
- International strategy
For an international strategy, decision-making should be partially centralized and decentralized, with important functions such as R&D centralized to head quarter and production functions decentralized to a few major facilities in favorable locations. Worldwide product divisional structure is prefered to this strategy as it does not need to focus on local responsiveness, but rather keeping cost low in order to achieve high profitability. The strategy requires some coordination in order to transfer core competencies and skills between subsidiaries, which indicates a certain need for integrating mechanisms as well as cultural controls. Performance ambiguity exists in a moderate scale.
- Global standardization strategy
Given how global standardization focuses on standardized products, it requires some centralization in decision-making in order to achieve consistency in its R&D, production and marketing. Furthermore, this strategy is most likely to function the best with a worldwide product divisional structure since it focuses on realizing economies of scale, learning effects and location economies to reduce costs. Given how this strategy requires a firm to disperse its value creation activities across the globe, high coordination is necessary and that means many integrating mechanisms, high performance ambiguity and need for cultural controls.
- Transnational strategy
Finally, the transnational strategy, focusing on both low cost and differentiation, needs both centralized and decentralized decision-making. It should apply a global matrix structure to facilitate both goals, but this increases the need for coordination greatly which furthermore increases performance ambiguity and the need to integrating mechanisms and cultural controls.