Question

Multinational firms reform their structure on the basis of their activities. John Stopford has developed a model in this respect. Illustrate and discuss the Stopford and Wells matrix and its four structural stages in the internationalisation of a firm using a diagram.

Answer 1

The most widely used strategy-structure models for MNC structures was proposed
by Stopford and Wells, 1972 by using two international strategies: "foreign product diversification" which implies ' the extent to which an MNC diversifies its product lines in the foreign market and "area diversification" (the extent to which an MNC can diversify it's roots intodifferent geographical areas. Product diversification is operationalized as foreign product diversity (the number of product lines offered for sales in foreign countries), and area diversification as foreign sales
( That is the percentage of sales occurred in foreign countries) . They proposed that certain
strategy-structure patterns will evolve when these two strategies are examined simultaneously. When an MNC follows the strategy of low foreign product diversification
and low area diversification, it tends to use an international division structure, because of the fact that such structure gathers the limited international expertise in one division to cope with theearly stage of internationalization, characterized by low levels ofstrategies .When they follows strategy of high foreign product diversification and low area diversification, it tends to use a worldwide product division structure, because such structure provides the shortest possible communication channels for any product line - inspite of being less sensitive to the local conditions of various areas, which is less critical to its overall operatioAs for MNCs with low foreign product diversification and high area diversification. In their study, the above propositions were empirically supported.In addition Stopford and Wells also predicted that, when levels of both foreign product diversification and area diversification are high, MNCs will directed to use a matrix2. The reason lies in the dual structural dimensions in a matrix are established to facilitate both foreign product diversification and area diversification simultaneously However, this prediction was not supported by their data, represented in figure 1 given below

Foreign Product Diversification Misfitted by Matrix.   
Foreign product diversification has long been viewed as an important strategic factor that
influences firm characteristics including the level of divisionalization ,the degree of foreign expansion and performance . However, foreign product diversification is not an appropriate contingency for matrix structure, which does not fit high foreign product diversification. The relationship between foreign product diversification and matrix can be explained by the information-processing perspective, whereby information-processing is used as an explanatory concept between strategy and structure .
MNCs have strategy-structure fits when the information-processing capacities of their
structures fit the information-processing requirements of their strategies .
In Fig 2 below the strategy-structure link between foreign product diversification and various
MNC structures is explained by the information-processing perspective.
When a company has a low level of foreign product diversification, it tends to use the
functional structure, which provides functional specialization for the company.Fig 2 below represent the The inverted U-shaped
relationship between foreign product diversification and head-
quarters information analysing
capacity