Globalization has made it possible for firms to trade across borders. However, the decision on which company structure to adopt has become a formidable task for many multinationals. For the most part, decentralization offers the best alternative for any organization seeking to gain entry into foreign markets. It simplifies management, promotes accountability, and instigates wise and timely decision-making (Hollenbeck, Ellis, Humphrey, Garza, & Ilgen, 2011). On the other hand, centralization primarily leads to the standardization of activities in the workplace thereby preventing confusion. However, it dramatically discourages employee creativity and enhances dictatorship, being among the requisites for the failure of a multinational. Therefore, decentralization will still be the best business structure for the cookware firm to use while gaining entry into foreign markets. Hence, it is beneficial to multinationals due to administrative efficacy it causes.
Organizational Structure
Decentralization
As mentioned above, decentralization is among the best corporate structures a business can adopt in a foreign market. Therefore, it can be applied to the up-scale cookware firm, currently bombarded with high demand and in the presence of a lot of capital. Decentralization of such a firm should be conducted through the formation of subsidiary companies in the host nation. Moreover, each country should be assigned a president to head operations and occasionally report to the parent company.
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However, it is essential to note that a standard business strategy may not work for the company in different geographic locations. Therefore, subsidiary businesses may have to adopt different policies based on the conditions prevailing in their market. According to Larson and Gray (2013), training unit managers is crucial in ensuring that they all conform to specific visions and objectives of the company. In essence, this safeguards the success of the organization as a whole.
Positive implications of decentralization. A decentralized organizational structure promotes diversification. Chanson and Quélin (2013) argue that it provides leeway for different entrepreneurial approaches aimed at coining business strategies, which efficiently exploit the market of the specified region. As such, subsidiary firms can engage in product differentiation or initiate new production lines without having to seek consent from the parent company. In addition to that, decentralization enhances the monitoring and development of the managerial personnel (Hollenbeck et al., 2011). Arguably, parent companies often designate administrative positions to employees who have been working for the firm beforehand. Moreover, mentorship programs in such organizations increase levels of competence among staff members.
What is more, decentralization facilitates effective control and accountability. Wong, Ormiston, and Tetlock (2011) argue that it simplifies large business functions thereby promoting better management of resources. Notably, decentralization and departmentalization are inextricably linked. Therefore, for a decentralized company to be named as such, it needs to have departments. In essence, these subdivisions simplify business functions and enhance accountability since each group is held accountable for its operations.
Apart from that, decentralization enables wise and timely decision-making in a company. Timeliness is a crucial factor in providing a feedback and implementing business functions (Chanson & Quélin, 2013). By its nature, the business environment is highly volatile and susceptible to information effects. Therefore, it is imperative for decisions to be made in a wise and timely manner. However, a centralized business administrative system may not be able to offer rapid responses. Most likely, this is because it lacks flexibility and proper knowledge of the market environment in every country. However, decentralization alleviates this through the formation of subsidiaries, which are well-informed and updated about the market they serve.
Negative implications of decentralization. Apart from being beneficial to the company, a decentralized organizational structure may also affect the cookware business adversely. To begin with, decentralization may lead to the emergence of several business policies. More often than not, managers are chosen independently in correspondence with their skills and abilities and make policies based on their intellectual capacity, which may be detrimental to the prescribed corporate culture of the firm (Larson & Gray, 2013). Therefore, a decentralized business is disadvantageous in a way that its managers may establish non-uniform policies based on their particular talents and abilities.
In addition to that, decentralization is very costly. For the most part, the formation of a decentralized business system involves setting up head offices in different regions and employing top-tier talents to oversee operations at subsidiary levels (Wong et al., 2011). By itself, this process is very costly. Moreover, decentralization requires highly trained workers, which are much more expensive to hire. Apart from administrative and set-up costs, it is costly to run specialist departments, as each will result in the increased expenditure on management.
Another problem associated with decentralization is cross-unit coordination. Given the fact that each unit operates in a different market niche, coordination for constructive purposes becomes a formidable task. Moreover, cross-unit coordination is highly susceptible to favoritism (Larson & Gray, 2013). Singularly, managers of distinct units may decide to share crucial information discriminatingly to reap more profits. Moreover, the pressure inflicted upon individual managers when it comes to profits may lead to conflicts and a reduction of voluntary cooperation.
Centralization
Alternatively, the cookware firm can decide to set up its administrative offices solely in the U.S., where all national and international operations are managed. Such a structure conforms to strict procedures, whereby orders from top-tier executives are exclusively implemented without the input of subordinate employees in the marketplace.
Positive implications of centralization. The primary advantage of centralization is that it allows for the standardization of activities in the workplace. As such, all business plans are laid out for employees preventing complex scenarios whereby employees have to make a sophisticated business choice. Additionally, this ensures that the best talents in the organization make crucial decisions, which may trigger either profits or losses (Hollenbeck et al., 2011). In conjunction with this, centralization optimizes business functions, thereby forestalling replication of work. As such, managers lay strict business plans and policies that dictate services that each employee is to perform, saving on labor costs.
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Negative implications of centralization. On the other hand, this form of business organization encourages autocracy in institutions. According to Hollenbeck et al. (2011), centralized organizational structures provide strict business directives, which must be followed in verbatim. In essence, this limits the power of subordinates. Moreover, such an arrangement does not give employees the chance to make independent decisions, thereby curbing their motivation and spirit of innovation. For the most part, centralization is highly inflexible. For instance, when a general manager is unavailable, crucial business decisions corresponding to the market share of a company are delayed.
Apart from that, a centralized structure limits communication between managers and employees. According to Larson and Gray (2013), a long chain of command often makes communication difficult in an organization. Even in the presence of an integrative communication system (ICS), the ratio of employers against employees is by far too high to facilitate any meaningful interactions. Moreover, some employees will not feel comfortable communicating directly to their seniors due to the lack of confidence or the fear of criticism. Therefore, this system of organization may not be very useful in the setup and management of the cookware firm. Instead, the decentralized structure will be more appropriate.
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Conclusion
Decentralization offers better alternatives to the cookware multinational business as opposed to centralization. It can simplify management functions and improve the morale of workers. Contrary to this, centralization promotes dictatorship and limits the culture of innovation among employees. Although it may be relatively cheaper during the establishment of a multinational, its impact on the performance of an organization in the long run is often very costly. However, as mentioned earlier, the cookware firm is well established and has a lot of capital, which it can use to cover setup, administrative, and operational expenses of the venture. On the contrary, the firm has been motivated to expand due to high demand. Most likely, it will recover its expenditures within a short period.
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