Global Product Division Structure of MNE’s

Global Product division structure contains the functions necessary to the specific goods or services a product/service division produces. The parental organization has headquarters divisions for different major product categories with respective resources, human and others. Overseas subsidiaries producing a particular product or class of product have to report to headquarters division responsible for that product or class of products. Global Product Division Structure locates manufacturing and value creation activities in appropriate global locations to increase responsiveness to competitive opportunities, efficiency, quality, or innovation. Global product divisions are responsible for Global Product Design and operate in divisional, cluster, or holding company formats. Global Product divisions have little in common. They are highly independent of each other. Following figure gives a simple model of Global Product Division Structure.

Global Product Division Structure

Ford adopts this structure, abandoning its Global Geographic Structure. Today most of the multinational enterprises with their diverse acquisitions world-wide have diverse product portfolios. They mostly adopt product structure as that offers certain great synergies.

Merits of Global Product Structure

Global vision is articulated effectively because of exposure to diverse consumption conditions world-wide to draw insights for new products. Product division structure increases the specialization of work such that the number of similar products can be increased. The structure helps in expansion into new markets and production of totally new kinds of products. Resource leverage is another advantage. This is especially true of intellectual resource. Committed R&D for different product lines possible and new perspectives is shared with all units of the product class. Vertical knowledge sharing within the product division is inherent in this organizational pattern. Strategic focus is a great advantage, because every product line concentrates on its domain with focused attention rather than scatted concerns. Other advantages abound. Simplicity, accountability, standard product introductions, enhanced speed and decision quality, self-contained product development and introduction, development of talent, low interference from other divisions are other advantages.

Demerits of Global Product Structure

Horizontal knowledge sharing across different product lines is conspicuously absent. It is too difficult to organize communication across divisions. There is no formal means by which one product division can learn from another’s global experience. There are duplicated functions among the product divisions. Different subsidiaries from different product divisions within the same foreign country will report to different groups at headquarters. There is little cooperation between divisions. It is costly to maintain across the globe. Due to scale differences of different product lines in different geographies, it may become necessary to club product lines in a market, but that is not possible because at the headquarters the product lines are under different product structures. Synergy is lost within countries if different subsidiaries don’t communicate with each other or to a common manager. For instance, at one time in Westinghouse, one subsidiary was borrowing funds locally at an exorbitant rate, while another in the same country had excess cash.

Suitability of Global Product Structure

MNEs with vastly diversified product/service portfolio go for product organization structures. Westinghouse with more than 8,000 different products in diverse areas adopts this structure. The product division structure is well-suited for a global strategy because both the foreign and domestic operations for a given product report to the same manager which helps in achieving synergies by sharing information on the successes and failures of each, sharing resources – human or otherwise, and sharing core competencies. American MNEs use this structure well more than the European MNEs.