A firm may establish an international division to contain its international activities, thus creating a separation between domestic and international activities. For example, a British food company may have several domestic product divisions to serve customers in its home country, and also an international division to manage affairs in its various international markets. Another variation is where the international division is a mirror image or a miniature replica of the core domestic business, with a mandate to sell the multinational’s products to foreign markets.

According to Charles Hill, the international divisions themselves are usually organized by geographic regions—he provides the example of WalMart, which established an international division in the early 1990s from which to manage its global ventures. He further suggests that the managers of foreign subsidiaries report into the international division, and that their role would be to sell the firm’s products to their foreign markets. Another structural possibility is whereby the international division has a market structure—i.e., it may be divided into one department that caters to corporate clients, another that serves the retail market, and another that specializes in serving large nongovernmental organizations (NGOs).

The headquarters of the international division are typically part of the corporate headquarters—if not in the same buildings or campus, then at least in the same home country. This may reflect a limited worldview and commitment to international markets. This corporate center also generally remains the center of knowledge creation, certainly at the early stages of internationalization. Thus we would expect the branding, information systems, strategic planning, human resource policies, and financial management to be parallel with those of the core domestic corporation.

The international division structure is generally used in a firm’s early-intermediate internationalization process. According to John Stopford and Louis Wells and other authors explaining the structural stages on the path to internationalization, firms tend to begin their international involvement by initially exporting their products and perhaps setting up an overseas sales office. If initially successful, the firm makes structural changes to accommodate their evolving international activities—from international divisions, to area divisions, to a worldwide product division with a global matrix structure, a multidomestic or some global structure.

The international division is thus an intermediate step in reorganizing a firm from domestic to global in scope. As such it is a compromise between home country orientation and control to realization that the epicenter of the firm has shifted toward foreign markets and a wider worldview. Strauss-Elite, an Israeli food company, added an international division several years ago alongside its domestic coffee, salty snacks, dairy, confectionary, and salads divisions. More recently the structure has been changed to reflect a hybrid global orientation, with two product divisions (coffee and a chocolate company) representing the company’s product focus and two geographic divisions (Israel and North America) representing the planned trajectory of market growth.

Howard Perlmutter identifies various mindsets associated with these shifts—including the “polycentric” phase, wherein the firm begins to identify with the foreign markets in which it now operates; and a truly global or “geocentric” mindset. For example, KPMG is a global professional service firm with member firms in 145 countries and a global geographic structure that divides the world into three regions (the Americas, Asia Pacific and Europe, the Middle East and Africa). However, the global firm is divided into three professional practices, namely, Audit, Tax, and Advisory. The emergent matrix structure is at once truly global (or geocentric) in that it enables KPMG to see the world as one market, and at the same time it allows the polycentric specialization in different markets that is essential to the delivery of professional services.

Customer-Focused Structures

More recent work has suggested that the international division structure, along with the other classical dimensions described by Stopford and Wells, has been superseded by approaches that place more emphasis on the customer interface. For example, Julian Birkinshaw and Siri Terjesen suggest that the emphasis has shifted from the classic structures—like product and geographic divisions—to structures that see the world from the customer’s perspective. Birkinshaw and Terjesen describe three characteristics of these “customer-focused structures.”

First, they include high levels of global integration and coordination to provide service to the customer, for example, using dedicated global customer units to offer a coordinated and higher value-added set of services to key client groups. Second, a high level of value-added through some market-focused structure at the customer interface. And finally, some combination of the integration/coordination unit with the high value-added structure. They call these “true customer-focused structures” and present contemporary examples from IBM, HP, ABB, and EDS that are able to separate between the product-focused business (manufacturing) and the customer-focused structures that give the customer a single point of contact with the firm.

Bibliography:

Julian Birkinshaw and Siri Terjesen, “The Customer-Focused Multinational: Revisiting the Stopford and Wells Model in an Era of Global Customers,” in The Future of the Multinational Company (Wiley, 2003);
Elhanan Helpman, Dalia Marin, and Thierry Verdier, The Organization of Firms in a Global Economy (Harvard University Press, 2008);
Charles Hill, International Business: Competing in the Global Marketplace (McGraw-Hill Irwin, 2009);
Johanson and J-E Vahlne, “The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Market Commitments,” Journal of International Business Studies (v.8/1, 1977);
Howard V. Perlmutter, “The Tortuous Evolution of the Multinational Corporation,” Columbia Journal of World Business (v.4, 1969);
John M. Stopford and Louis T. Wells, Managing the Multinational Enterprise (Basic Books, 1972).

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