International Division Structure

A firm may establish an international division to contain its international activities, thus creating a separation between domestic and international activities. For example, a British food company may have several domestic product divisions to serve customers in its home country, and also an international division to manage affairs in its various international markets. Another variation is where the international division is a mirror image or a miniature replica of the core domestic business, with a mandate to sell the multinational's products to foreign markets.

According to Charles Hill, the international divisions themselves are usually organized by geographic regions—he provides the example of Wal-Mart, which established an international division in the early 1990s from which to manage its global ventures. He further suggests that the managers of foreign subsidiaries report into the international division, and that their role would be to sell the firm's products to their foreign markets. Another structural possibility is whereby the international division has a market structure—i.e., it may be divided into one department that caters to corporate clients, another that serves the retail market, and another [Page 910]that specializes in serving large nongovernmental organizations (NGOs).

The headquarters of the international division are typically part of the corporate headquarters—if not in the same buildings or campus, then at least in the same home country. This may reflect a limited world-view and commitment to international markets. This corporate center also generally remains the center of knowledge creation, certainly at the early stages of internationalization. Thus we would expect the branding, information systems, strategic planning, human resource policies, and financial management to be parallel with those of the core domestic corporation.

The international division structure is generally used in a firm's early-intermediate internationalization process. According to John Stopford and Louis Wells and other authors explaining the structural stages on the path to internationalization, firms tend to begin their international involvement by initially exporting their products and perhaps setting up an overseas sales office. If initially successful, the firm makes structural changes to accommodate their evolving international activities—from international divisions, to area divisions, to a worldwide product division with a global matrix structure, a multidomes-tic or some global structure.

The international division is thus an intermediate step in reorganizing a firm from domestic to global in scope. As such it is a compromise between home-country orientation and control to realization that the epicenter of the firm has shifted toward foreign markets and a wider worldview. Strauss-Elite, an Israeli food company, added an international division several years ago alongside its domestic coffee, salty snacks, dairy, confectionary, and salads divisions. More recently the structure has been changed to reflect a hybrid global orientation, with two product divisions (coffee and a chocolate company) representing the company's product focus and two geographic divisions (Israel and North America) representing the planned trajectory of market growth.

Howard Perlmutter identifies various mindsets associated with these shifts—including the “polycen-tric” phase, wherein the firm begins to identify with the foreign markets in which it now operates; and a truly global or “geocentric” mindset. For example, KPMG is a global professional service firm with member firms in 145 countries and a global geographic structure that divides the world into three regions (the Americas, Asia Pacific and Europe, the Middle East and Africa). However, the global firm is divided into three professional practices, namely, Audit, Tax, and Advisory. The emergent matrix structure is at once truly global (or geocentric) in that it enables KPMG to see the world as one market, and at the same time it allows the polycentric specialization in different markets that is essential to the delivery of professional services.

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