An organization based on functions is the traditional and the most logical. International Functional structure of Multinational Enterprises, involve grouping together functionally like-activities along functional lines like marketing, R&D, production, etc and place them under specialist classes of personnel. Functional heads of foreign affiliates communicate to and get communication from same functional specialists at the parent concern. Marketing people of the foreign affiliate report to marketing people of the parent or their order. Finance people of the foreign affiliate report to finance people of the parent or their order and so on. But a firm offering many product lines will find this structure less successful. Following figure gives a simple model of Global Functional Structure.
Merits of the Global Functional Structure
Some advantages of the functional structure are:
- The structure is simple and clear, making communication lines distinct and direct
- Reduces overhead
- Provides clearly marked career paths for hiring and promotion
- Employees work alongside colleagues who share similar interests
- This structure is suited for globalized firms, providing further synergies of specialization.
Demerits of the Global Functional Structure
Some disadvantages of the functional structure are as follows:
- Coordination of functional tasks is difficult
- Little reward for cooperation with other groups, making coordination difficult to achieve
- Provides scope for different functional heads to disown (pass the buck) project failures
Suitability of Global Functional Structure
Global Functional structures are suitable when product/service range offered by both the parent and the subsidiaries are few resulting in undifferentiated production and marketing methods among them. Horizontally integrated multinational enterprises like McDonalds and Pepsico, which produce the same or similar products follow this structure and their establishments located in different countries report on functional structural lines.
For diversified entities offering different products/services this structure becomes cumbersome or less suited. Westinghouse which produces more than 8,000 different products in such diverse areas as real estate, finance, nuclear fuel, television production, electronics systems, and soft drink bottling, it is difficult to imagine that the production head knows intricacies of production of all the products. Oil and mineral extraction companies, such as Exxon use this structure, which is ideal when products and production methods are basically undifferentiated among countries. Under this structure, coordination is left to top management, with functional heads pursuing their responsibilities with tunnel vision orientation, unless otherwise advised by top management.