Global Product Divisions

Global product divisions are part of a multinational's organizational structure when the primary division of the firm's activities is based on product (or service) categories. For example, an automobile manufacturing firm may be primarily divided into a truck division, a passenger car division, and an SUV division; or a large professional service firm may be divided into audit, business advising, information technology, and tax divisions. Then each of these “global product divisions” may be divided into several geographic (e.g., Americas, Africa-Middle East, Asia-Pacific, Europe) and/or market subdivisions (e.g., corporate, government, and private clients).

The strategic logic underlying the global product division is the need to concentrate resources at the level of the product (or product group). Thus, in the above automobile example, the firm 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 businesses and compete more effectively. Further, C. K. Prahalad and Gary Hamel and other proponents of the resource-based view of the firm would insist that the firm should be structured around the key resources that give the firm sustainable competitive advantage. Thus, for example, a certain set of products could 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 value chain relevant to its market. For example, Procter & Gamble (P&G) has three global product divisions, namely Global Beauty, Global Household Care, and Global Health & Well-being (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 de-emphasized the advisability of this kind of control for two sets of reasons. First, as stated by Stephen Young and Ana Teresa Tavares, complete autonomy is not necessarily an optimal situation. Along these lines, authors like Julian Birkinshaw have suggested that the overall global firm is better off with coordinating mechanisms across 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, facilities, and services across its product divisions; and P&G's Global Operations division would have a mandate to facilitate many of these synergies.

Another popular contemporary approach is “outsourcing” (or off-shoring) of parts of the value chain—such as production of various components [Page 780]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 airframe, allowing Italian, Japanese, and Russian engineering concerns to design and build major parts of the fuselage and wings. The benefits of these programs include cutting costs and forging relationships with potential clients. For example, Kristien Coucke and Leo Sleuwaegen report on a recent study whereby off-shoring programs increase the likelihood that Belgian manufacturing firms will survive.

Nevertheless, there is a general acceptance and adoption of global product divisions by multinational firms. This is especially the case in corporations moving away from international division structures—over time, the domestic and international businesses are recombined and then split into either product, market, or geographic structures. However, along the same developmental process, these structures often continue to evolve into some form of matrix—whereby managerial authority descends to the business via two (or sometimes, three) dimensions. For example, one dimension may be like the global product structure responsible for various offerings and the other may be geographic. A more advanced stage of development would be what Chris Bartlett and Sumantra Ghoshal call the “transnational” structure, whereby the firm develops dual capacity to deal with both local (national) as well as global contingencies.

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