Organization for Export: Industry Approach

The Small Business Administration (SBA) states that, besides multinational firms such as General Motors or IBM, there are many small-scale industries that export their output. For many of these companies, there are a number of organizational issues that need to be ad­dressed to achieve an optimal allocation of resources. Some of the issues include (1) the level at which export decisions should be made; (2) the need for a separate export department; and (3) if the decision is made to establish a separate department, its organization within the overall structure of the firm, including coordination and control of several activities. Such organizational issues involve three related areas:

1. Subdivision of line operations based on certain fundamental competencies: This relates to functional (e.g., production, finance), product, and geographical variables. A firm’s or­ganizational structure is often designed to fit its corporate strategy, which is, in turn, responsive to environmental realities (Albaum, Stradskov, Duerr, and Dowd, 2002).
2. Centralization or decentralization of export tasks andfunctions: Centralization is generally advantageous for firms with highly standardized products, product usage, buying behav­ior, and distribution outlets. Advantages from centralization also tend to accrue to firms (1) with few customers and large multinational competitors, and (2) with high R&D to sales ratio and rapid technological changes.
3. Coordination and control: Coordination and control of various activities among the vari­ous units of the organization is determined by the information-sharing needs of central management and foreign units.

Conventional business literature suggests that the choice of organizational structure de­termines export performance. The development of formal structures becomes important as the firm grows in size and complexity and to facilitate responses to internal and external changes. The adoption of flexible organizational structure can partly offset the disadvantage arising from formal organizational structure (Enderwick and Ranayne, 2004).

A study by Beamish, Karavis, Goerzon, and Lane (1999) shows that the organizational structure within which a firm manages its exports has a significant impact on export perfor­mance. It also suggests that management commitment to internationalize by establishing a separate export department increases firms’ export performance.

Organizational Structures

An international company can organize its export-import department along functional, product, market, or geographical lines. Some firms organize their international division at headquarters on the basis of functional areas. Under this arrangement, functional staff lo­cated at the head office (e.g., marketing, finance) serve all regions in their specialties. Such a structure is easy to supervise and provides access to specialized skills. However, it could lead to coordination problems among various units as well as duplication of tasks and resources. It is generally suitable for companies that produce standardized products during the early stages of international operations.

Organization of export operations along product lines is suitable for firms with diversified product lines and extensive R&D activities. Under this structure, product di­vision managers become responsible for the production and marketing of their respective product lines throughout the world. Even though this structure poses limited coordina­tion problems and promotes cost efficiency in existing markets, it leads to duplication of resources and facilities in various countries and inconsistencies in divisional activities and procedures.

Organization along geographical lines is essentially based on the division of foreign markets into regions that are, in turn, subdivided into areas or subsidiaries. The regions are self-contained and obtain the necessary resources for marketing and research. This structure is suitable for firms with homogenous products that need efficient distribution and product lines that have similar technologies and common end-use markets (Albaum et al., 2002). It allows firms to respond to the changing demands of the market. This or­ganizational approach makes coordination of tasks difficult when new and diverse prod­ucts are involved. It also leads to duplication of certain tasks at the regional level. Certain companies adopt a mixed structure to manage international marketing activities. This structure combines two or more competencies on a worldwide basis. This approach is described as follows:

Instead of designating international boundaries, geographical area divisions or product divisions as profit centers, they are all responsible for profitability. Na­tional organizations are responsible for country profits, geographical area divi­sions for a group of national markets and product divisions for worldwide product profitability. (Albaum et al., 1994, pp. 469-470)

A separate export department within a firm may become necessary as overseas sales vol­ume increases. However, the provision of additional resources for a separate department is not warranted at the early phase of market entry, since such activities can often be handled by domestic marketing units.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.