The company's strategy determines the operational needs and business issues as well as other issues that need to be considered such as: target market, competition, suppliers and other factors that affect the business operations of the enterprise such as geographical conditions, government regulations, taxes and technology. The management structure of the company must be appropriate to its objectives and operating model; decentralization or centralization must be considered for the level of efficiency when applied: business operations based on scale for cost efficiency or regional knowledge for quick and timely decisions.
2.1. Centralisation
Centralization is a corporate governance model in which important decisions are made at the highest level. In the centralized corporate governance model, decisions on corporate operations are divided into three levels of responsibility. The leadership level (the highest level) often holds all important strategic decisions such as market strategy, pricing strategy, product strategy, etc. Intermediate levels are mainly responsible for implementing the above decisions, implementing orders from superiors to subordinates (operational) and have very little initiative and independence in coordinating activities in the company. The operational level is the one who executes orders from the leadership (after they have been fully and clearly implemented by the intermediate level). In the current international context, centralization has changed a lot due to regional conditions as well as the company's goals. Therefore, a large company with absolute centralization is almost non-existent today. In the centralized management model, all activities of the Office and the company's production and business activities are under the direct leadership of the General Director. The company headquarters carries out centralized management of the subordinate branches, which are the investment center and profit center, through functional departments (organized by function) and assigns specific responsibilities.
specific and clear to functional departments to serve management activities to support production and business activities.
Normally, the centralized management organization model is applied in TNCs that are not large in scale and have relatively homogeneous production and business activities, or if there is diversification, it is only a mechanical extension of the main production and business sector.
Figure 5: Centralized organizational model
Leadership
Intermediate level
Operational level
Source: Nguyen Trung Van (2006) " Organizational structure of international business companies" , International Marketing textbook, Foreign Trade University, page 40
(1) Advantages of centralized organizational model
- Ensure centralized, unified and timely management of the company's leadership (Company Office) in developing, implementing and adjusting the daily production and business plans of the entire company.
- Ensure proper and timely attention to important and major investment items of the entire company. Ensure the company operates in accordance with the set strategies, without being scattered and with high consistency.
- Create unity and initiative in distributing resources among functional departments in the company.
(2) Limitations of the model
-The risk of focusing too much on daily production and business activities, administrative work leading to underestimating the role of strategic planning and long-term business planning due to the integration of the function of strategic planning and investment decision making with the function of directing business activities of the company's board of directors.
- In the process of allocating resources and planning strategies in a company, conflicts easily arise between core production and business activities and other supporting activities.
- Lack of coordination in the management board because each deputy general director is assigned to be in charge of a separate field of operation. If there is no close connection and coordination between different departments in the company, it will lead to a situation where people only focus on the benefits in the field they are in charge of without paying due attention to the benefits of the entire company.
- Does not encourage creativity of subordinates. Lower levels are less proactive because they only follow orders.
- In some cases, senior leaders' direct and deep intervention in the daily production and business activities of member units will indirectly increase management costs, even hinder the dynamism and creativity of each member and the overall efficiency of the whole company.
2.2. Decentration
Decentralization is a corporate management model in which decisions about its operations are made by a separate authority. Depending on the importance of each issue, senior or junior managers will be responsible for approval. In a decentralized management organization model, the headquarters of the corporation will be responsible for coordinating activities.
In general, it does not directly control the production and business activities of its member units. Each management level has a high degree of autonomy in finance and business. With this decentralized organizational structure, information is processed quickly between leaders and production and business departments, reducing intermediate levels, reducing administrative orders, and decisions are made more promptly and in line with the situation of the facility.
Top management
Figure 6: Decentralized management model
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Source: Nguyen Trung Van (2006) " Organizational structure of international business companies" , International Marketing textbook, Foreign Trade University.
(1) Advantages of decentralized management model
- Reduce the burden on senior managers. This way, these managers can focus on activities related to the group's strategy rather than being too involved in the company's day-to-day business operations.
- Reduce the administrative and command nature of the company, branches are given more autonomy in production and business and therefore have the ability to adapt more quickly to fluctuations in the local market. The autonomy of member enterprises is enhanced because the parent company, through holding shares, only implements decisions related to prices, output and distribution of consumption markets, member companies have the right to decide on other equally important issues such as determining
business scale and capital investment. That is beneficial to member units when buying and selling products and services, reducing price competition, while not infringing on the autonomy and inherent positivity of member businesses.
(2) Limitations of decentralized management model
Besides the above advantages, the decentralized model also has some limitations such as member units can be too engrossed in separate activities in their own market areas and neglect the overall strategies of the entire enterprise; lack of consistency in management, sometimes leading to disagreements and conflicts between the strategy of the entire corporation and the development direction of member units.
Thanks to its advantages over centralization, the decentralized model is becoming more and more popular in businesses today. Multinational companies, due to their characteristics of having branches widely distributed internationally, apply decentralization in management to help reduce operational risks because decisions are made more promptly and in accordance with current conditions in the host country. In TNCs, strategic decisions that affect the long-term operations and development direction of the company will be made by senior leaders - usually senior leaders at the company headquarters; while decisions related to the base such as tactical decisions will be decided by the base leaders at that branch.
However, absolute centralization or decentralization is not an optimal choice in most TNCs today, but usually these companies tend to apply a combination of both management models above, which is suitable for both.
Large corporations require both centralization and decentralization but aim for overall efficiency.
Centralization is reflected in the central control mechanism of the top management over three most important areas. One is deciding on strategic issues of the whole group: new investment or withdrawal from a local market, strategic development orientation, long-term development plan, annual plan of the group. Two is deciding on general policies and operating transactions outside the group. Three is making decisions on appointment, selection, evaluation, dismissal of senior officials of the group. Important resources are concentrated in the parent company for the purpose of increasing benefits of scale or to protect the core capabilities of the enterprise, for example, basic research. Another area that requires centralization in management is the financial management function or treasury of the company and the development of global management processes.
The allocation of resources and the management of internal transactions of the headquarters are not only based on the financial activities of each subsidiary, but more importantly, it links these activities with the implementation of business strategy and optimizes the performance of the entire group.
The decentralization is reflected in the fact that subsidiaries or branches have a high degree of autonomy in making investment and business decisions; have more autonomy in production and business and financial autonomy. The business activities of member units are under the direct management and supervision of functional departments such as human resources department, project department, etc. Decentralization should be applied when managing resources to create benefits from flexibility or differences in the operations of each branch.
Under this model, TNCs are structured so that senior managers focus on strategic, long-term, and important decisions.
to ensure the optimization of all operations of the entire corporation while business management decisions are delegated to lower levels of management.
The above model emphasizes the optimization of the entire operations of the corporation and its subsidiaries through the mobilization of larger resources to build and implement business strategies effectively. The clear advantage of applying a combination of both decentralization and centralization is the research-strategy building function and the internal transaction management function of the top management level. The corporate headquarters effectively evaluates and monitors the operations of specialized departments, and the recruitment and dismissal of senior managers of this department. Based on long-term supply and demand monitoring and evaluation, the board of directors will decide to enter a potential new market or withdraw from an inefficient market.
II. SOME BASIC MODELS OF TNCs' COMPANY ORGANIZATION
In recent decades, many multinational corporations have restructured their operations to adapt to changes in the international business situation and especially changes in the international marketing environment. Through their tireless efforts, TNCs have achieved great successes in their operations and expansion into the world market.
It can be seen that the organizational model of TNCs basically has many similarities with the organization of domestic companies, but there are still fundamental differences arising from the nature and scale of business activities abroad as well as the level of management of the parent company over its branches around the world. However, an ideal corporate organization must establish branches that can react quickly to certain market conditions.
changes in production technology and special human resource needs. However, the corporate organizational model must still meet the requirements of the domestic market and the global strategies of the parent company.
By expanding globally, TNCs can reap three fundamental benefits:
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The first benefit is that the company can increase cost efficiency through
rationalization of production facilities and centralization of management processes. These activities are especially important in companies that produce televisions, trucks, and mobile phones because costs are greatly influenced by the market and the rationalization of production.
The second benefit the company gains is improved communication and better flow of resources through closer links between domestic production and international operations.
The third and greatest benefit is the benefit of focusing on global strategy to adapt quickly to global competition.
In addition to the benefits listed above, there are political pressures that make decisions more complex. Branch managers are often eager to control sales and increase opportunities for their product lines. In fact, branch managers often attribute the success of their international division to the technology, marketing, and management efforts of the parent company.
Below are some basic models of corporate organizational structure of TNCs from the initial stage of expanding into the world market until developing into a large corporation with the ability to greatly influence the world economy.