Global product divisions are part of the organizational structure of a multinational when the main division of the company’s activities is based on product (or service) categories. For example, an automobile manufacturing company may be divided primarily into a truck division, a passenger car division, and an SUV division; Or a large professional services firm may be divided into audit, business advisory, information technology, and tax divisions. Each of these “global product divisions” can then be divided into various geographic (eg, Americas, Africa-Middle East, Asia-Pacific, Europe) and/or market (eg, corporate, government, and private customers) subdivisions. ). The strategic logic behind the global product division is the need to concentrate resources at the product (or product group) level.
Thus, in the car example above, the company may feel that these three markets are quite independent and that appointing a separate management team for each division will allow each to focus on their markets and thus develop their own interests. business and compete more effectively. Furthermore, CK Prahalad and Gary Hamel and other advocates of the resource-based view of the firm would insist that the firm should be structured around the key resources that give it a sustainable competitive advantage. So, for example, a certain set of products might be based on certain technologies and competencies, and a global product division is a natural structure to house these products and resources. Traditionally, a global product division had control over most of the value chain relevant to its market.
For example, Procter & Gamble (P&G) has three global product divisions, namely Global Beauty, Global Home Care, and Global Health & Wellness (as well as a Global Operations division). Thus, the Global Beauty division would have its own manufacturing facilities, suppliers, brands, distribution network and service department. However, contemporary managerial and organizational approaches have downplayed the desirability of this type of control for two sets of reasons. First, as Stephen Young and Ana Teresa Tavares state, full autonomy is not necessarily an optimal situation.
In this sense, authors such as Julian Birkinshaw have suggested that the global company in general is better off with coordination mechanisms between its global divisions that seek to find economies of scale, economies of scope and other efficiencies and synergies. Thus, the normative tendency would be to share information systems, production, installations and services between its product divisions; and P&G’s Global Operations division would be mandated to facilitate many of these synergies.
Another popular contemporary approach is the “outsourcing” (or offshoring) of parts of the value chain, such as the production of various components or a service call center, to an external service provider. For example, Stanley Holmes writes that Boeing is outsourcing more than 70 percent of the 787’s fuselage, allowing Italian, Japanese, and Russian engineering firms to design and build significant parts of the fuselage and wings. The benefits of these programs include cost reduction and building relationships with potential customers. For example, Kristien Coucke and Leo Sleuwaegen report on a recent study in which offshoring programs increase the survival probability of Belgian manufacturing firms.
However, there is a general acceptance and adoption of global product divisions by multinational companies. This is especially the case for corporations moving away from international division structures: Over time, domestic and international businesses recombine and then divide into product, market, or geographic structures. However, throughout the same development process, these structures often continue to evolve into some sort of matrix, whereby managerial authority descends into the business through two (or sometimes three) dimensions. For example, one dimension might be like the global product structure responsible for various offerings, and the other might be geographic.
A more advanced stage of development would be what Chris Bartlett and Sumantra Ghoshal call the “transnational” structure, whereby the company develops a dual capability to deal with both local (national) and global contingencies.