Horizontal Differentiation: The Design of the Formal Structure

Horizontal differentiation describes the division of labor (how tasks are grouped

into departments, divisions and subsidiaries throughout the MNE. There are several types of

horizontal structures for MNEs:

1. International Division Structure. An international division groups all international

activities into a single division within a firm. This is usually the case when foreign operations

represent a small percentage of an MNE’s total revenues. The MNE will have several domestic

departments or divisions, and an international division. This type of structure is more

appropriate for MNEs that have adopted the home replication strategy.

2. Product Division Structure. A product division structure groups an MNE’s worldwide

operations by products. This type of structure is more appropriate for MNEs that have adopted

the global strategy. Each division coordinate worldwide operations for a particular product.

3. Geographic Division Structure. A geographic division structure groups activities on a

regional basis. It is used when a firm has extensive foreign operations that are not dominated by

a single country or region. This structure is more appropriate for MNEs that have adopted the

multidomestic strategy.

4. Matrix Structure. A matrix structure is a structure designed to give functional, product,

and/or geographic groups a common focus. This type of structure is more appropriate for MNEs

that have adopted the transnational strategy. This structure is referred to as a matrix structure

because the MNE will address two conflicting demands, pressures for local responsiveness and

pressures for global integration (cost reduction).