Centralization happens when a company focuses the centralization of authority from the whole towards a particular group, which usually happens to be the top management since top management assumes the decision making authority. On the other hand, decision-making authority in a decentralized organization is passed over to the lower tiers that may be the organization’s branches, subsidiaries, or divisions. Advantages of centralization include uniformity of standards, reduction in the cost of operation, and increased profitability of business while disadvantages of centralization include conflict between the internal organizational culture and external culture, and the need of a very efficient IT-based system. Advantages of decentralization include increased competition whereas the disadvantages of decentralization include increased need of training and customization of employees’ skills.
One advantage of centralization is uniformity of standards. Since the company has a centralized system, the product or service generated by the company has the same quality wherever it is made in the world. Another advantage of a centralized organizational structure of an international company is that it reduces the cost of operation in three fundamental ways. Firstly, the company is able to exploit the economies of scale. The international company can benefit from its products’ or services’ special pricing in numerous ways that include but are not limited to bulk pricing, single orders or multiple orders, and volume discounts. Secondly, in a centralized system, an international company escapes the need to duplicate the procedures or efforts to address the needs of branches in different parts of the world. Thirdly, centralization of the system reduces the regulatory costs. In addition to that, centralization promotes a culture of more consistency and accountability