stages model. However, we will see that these early studies have now been
replaced by a more integrated approach which recognizes that organizational
processes are as important as organizational structure. In line with our discus-
sion in Section 3, we will focus on Bartlett and Ghoshal’s four models of MNCs
as a key representative of this new approach. In a final subsection, we’ll discuss
what has become the most influential model in the international management
literature: the integration–responsive grid.
Strategy and structure: the early studiesEarly studies on the structure of MNCs were usually based on the work of
Chandler (1962) who proclaimed a deterministic relationship between strategy
and structure. Chandler distinguished four growth strategies: expansion of
volume, geographic dispersion, vertical integration, and product diversifi-
cation. These strategies called for different structures, hence his adage ‘struc-
ture follows strategy’. Stopford and Wells’s (1972) classic study investigated this
relationship in an international context. In an empirical investigation of 187
large American multinational companies, they identified two strategic vari-
ables that were able to ‘predict’ organizational structure: foreign product diver-
sity and percentage of foreign sales. A model was constructed (see Figure 2.2)
that showed how MNCs adopt different organizational structures at different
stages of international expansion.
When firms start to internationalize and both their foreign sales and for-
eign product diversity are limited, the preferred organizational structure is usu-
ally an international division. The domestic organizational structure is left
untouched and all international activities are simply concentrated in one inter-
national division. This might be an advantage if international presence is still
very limited. It does not require a complete overhaul of the organization and
the structure is simple and understandable. In addition, it creates a central pool
of international experience and expertise. The international division structure
does create a number of problems, however. First, it tends to underplay the
importance of international activities, since the international division is only
one of the many divisions of the company. It also underestimates the diversity
that might be inherent in international operations: the head of the inter-
national division is assumed to represent the interest of all countries in which
the company operates. In addition, the isolation of domestic and international
activities may create duplication of efforts and limits the transfer of knowledge
in the company. Because of the structural separation, there is a complete lack
of coordination between domestic and foreign operations, which might hinder
both the company’s effectiveness and efficiency.
Therefore, once companies expand their international operations, they
usually choose one of two worldwide structures: the area division structure or
the product division structure. The choice is again dependent on the two
42 International Human Resource Management