Global Strategy: Managing For The 21St Century Essay, Research Paper
Global Strategy: Managing for the 21st Century
The term “globalization” has acquired considerable emotive force. Some view it
as a process that is beneficial as well as inevitable and irreversible. Others regard it
with hostility, even fear, believing that it increases inequality within and between
nations, threatens employment and living standards and thwarts social progress. This
paper is intended to offer an overview of some of the aspects of globalization and aims
to identify ways in which countries can tap the gains of this process, while remaining
realistic about its potential and its risks. Globalization offers extensive opportunities for
truly worldwide development but it is not progressing evenly. Some countries are
becoming integrated into the global economy more quickly than others. Countries that
have been able to integrate are seeing faster growth and reduced poverty.
Outward-oriented policies brought increased activity and greater prosperity to much of
East Asia, transforming it from one of the poorest areas of the world 40 years ago. And
as living standards rose, it became possible to make progress on democracy and
economic issues such as the environment and work standards.
By contrast, in the 1970s and 1980s when many countries in Latin America and
Africa pursued inward-oriented policies, their economies stagnated or declined, poverty
increased and high inflation became the norm (Graham, 1998). In many cases,
especially Africa, adverse external developments made the problems worse. As these
regions changed their policies, their incomes have begun to rise. Encouraging this
trend, not reversing it, is the best course for promoting growth, development and
poverty reduction. The crises in the emerging markets in the 1990s have made it quite
evident that the opportunities of globalization do not come without risks. Those risks
arise from volatile capital movements and the risks of social, economic, and
environmental degradation created by poverty (Graham, 1998). This is not a reason to
reverse direction, but for all concerned to embrace policy changes to build strong
economies and a stronger world financial system that will produce more rapid growth
and ensure that poverty is reduced.
Additionally, the globalization of the marketplace has created a need for
managers who can function effectively in the international business environment
(Walter, 1997). Despite this movement toward globalization, there remains significant
environmental differences between countries and regions. Managers in an international
business must be sensitive to these differences and also must adopt the appropriate
policies and strategies for dealing with them. It is a cliche to say that we live in a
globalized world in which investment flows, communications, and the operations of
multinationals from all parts of the world have changed the character of the
international business environment (Yip, 1995). But the easy concept of globalization
poses as many questions as it answers. Additionally, many managers wonder whether
their business should have a global strategy and if so how global should the business
strategy be. In Total Global Strategy, Yip (1995) defines measures for not only
identifying the raw characteristics necessary for the successful globalization of a
business, but the tools needed in order to adequately measure success of an
implemented strategy. Finally, many other resources related to globalization and
international marketing techniques and their relevance to todays economic and political
structures will be compared to attain a better understanding of how globalization can
affect a business and how that business can have an impact on society.
Globalization Levers and Industry Drivers
First, in keeping with tradition it is of utmost importance to begin with the basics
when planning a business strategy which will ultimately have the potential to go global.
A core strategy must first be developed which includes several key elements such as
the type of product or services, customer base, geographics involved, major resources
available, and the overall investment strategy (Yip, 1995). Without a sound core
strategy on which to build, a worldwide business need not bother with global strategy.
Next, it is important that the core strategy is internationalized so that it can be
determined whether or not the company possess the qualities necessary to be effective
on a global level (Yip, 1995). The first and most important step in internationalizing
the core business strategy is to select the geographic markets in which to compete
(Yip, 1995). In deciding geographic preference one should consider market
attractiveness, potential competition and ways in which to adapt to local conditions
(Yip, 1995). Many factors must be considered such as barriers to trade, tariffs, laws,
language differences and so on (Yip, 1995). Other aspects of the internationalization
strategy to take account of are foreign needs, preferences, culture, and climate (Yip,
1995). Obviously, many considerations must be examined and scrutinized in order to
determine overall quality of the market. Finally, once a successful internationalization
of the core strategy has been implemented and determined to be effective, a
globalization of that strategy must be integrated to take advantage of business
leverage and competitive advantage (Yip, 1995). Consequently, industry levers and
drivers also play an important role in combination with the successful implementation of
a diverse and well planned global strategy to determine the overall success of a
business.
There are several direct and indirect factors affecting the process by which the
core strategy, internationalization of that strategy, and the final globalization of the
strategy are successfully or unsuccessfully integrated into the business process. The
direct factors I am speaking about, also termed levers, can be directly controlled by the
business to either negatively or positively impact a given situation or circumstance.
The indirect factors, or drivers, are not as easily controlled and consist of market
trends, overall economic growth, and the nature of marketing in a given business (Yip,
1995). Conversely, the levers are accessible and controllable by the business and
consist of market participation, product, location, marketing technique, and competitive
moves (Yip, 1995). There are four specific industry globalization drivers which exist as
defined by Yip (1995) which include market drivers, cost drivers, government drivers,
and competitive drivers. Unfortunately, drivers are primarily uncontrollable by the
worldwide business community as individuals and thus can provide the downfall for an
otherwise potentially sound organization/business. To get a better grasp of the
relevance each lever and driver has on business profitability we will examine in depth
the key lever and driver in the specific named groups to show what notable affect each
can have on a business. It is interesting to look at the different factors which effect
overall success of a business when it initially seems to be a clear cut and well defined
parameter in choosing where and what product you will sell in order to succeed. My
personal experiences, although limited to domestic applications, have also been driven
by the same industry standards (drivers/levers). For any given market there exists
parameters by which a company must operate in order to be efficient and productive.
Without giving thought to specific industry drivers a company would surely fail. A good
example of this can be seen in the airline industry where struggling airlines working on
a thin profit margin are forced to continually lower prices in order to stay competitive.
They do so because the industry has determined that the market will only tolerate a
survival of the fittest concept. This means that if smaller, more fragile airlines cannot
match the predatory pricing strategies of the industry leaders then the success of their
companies will be in jeopardy. Therefore, it can be seen over the years that airlines
such as Eastern, Pan Am, and recently ValuJet have succumb to industry pressure and
failed miserably while attempting to allude industry drivers in order to turn a higher
profit.
Thus, we you can see that a globalization strategy is multidimensional. As well,
it can be determined that many factors are present when determining effectiveness and
success. Perhaps, the most controllable lever which has been evaluated is
international marketing . The world has indeed become a smaller place. International
marketing has intensified and is evident in nearly all aspects of daily life. The shoes
we wear may come from Brazil, stockings from China, trousers from Taiwan, belts from
Korea, shirts from France, ties from Italy, and watches from Switzerland (Walters,
1997). Competitive forces are no longer restricted by local regions or national
boundaries. According to Walters (1997), to be successful in today’s economy,
companies must be simultaneously responsive to local and global market conditions,
within the context of being supportive of the company’s own overall strategies. “The
global corporation accepts for better or for worse that technology drives consumers
relentlessly toward the same common goals-alleviation of life’s burdens and the
expansion of discretionary time and spending power” (Levitt 1999). This is especially
true in a world of increasingly complex competitive structures. Companies must resolve
the strategic issues of product/market scope, long-term objectives, and functional
policies (Levitt, 1999). International marketing skills are an important ingredient for
every company, whether or not it is currently involved in exporting activities (Buzzell
1997). International marketing skills are important ingredients for every company,
therefore it is vital to identify which skills are needed. After searching the literature,
there seemed to be no studies regarding identification of the specific skills needed to
be effective in international marketing. However, three studies (Busche, 1990; Scott,
1999; and Graham, 1998) were completed to determine the general perceptions of
business people regarding their need for international trade training. Each of these
studies concluded that international marketing was the number one priority area for
international business training.
A study completed by Busche (1990) found that nearly 77 percent of the
respondents supported a need for international training. Marketing was the area
identified by nearly 64 percent as a potential problem area. Respondents showed a
special interest in international marketing with a highly perceived need for training in
six topics: (1) research on foreign markets; (2) working through agents and distributors;
(3) export marketing know-how; (4) how to find international opportunities; (5)
developing an international business plan; and (6) cultural aspects of sales to foreign
consumers (Busche, 1990). These topics were mixtures of both skill sets and areas for
knowledge acquisition, yet clearly identified the general area of international marketing
as a priority. Another study concurred with the identification of international marketing
as a topic deserving training priority. Scott (1999) found that 84 percent of the
southern California business respondents polled expressed a need for training at the
California community colleges. The course selected by 67 percent as being useful to
employees was International Marketing. Unfortunately, the conclusion of this study did
not reveal any insight about which skills were needed to be effective in international
marketing although a need still remains to identify those necessary skills needed to be
effective in this area.
Since the vast majority of international marketing studies involve context-specific
knowledge, markets and cultures are widely different across countries (Myers, 1999).
As Graham (1998) said, this may be why not much has been learned about
international marketing in the last twenty-five years. The conclusion of the study was
that research should pursue an exploratory approach to building knowledge in
international marketing. Research identifying the skills needed to be effective in
international marketing may, in fact, create the progressive portfolio of skills needed to
cut across context-specific knowledge and themes effectively (Graham, 1998). A
progressive portfolio of international marketing skills would allow employees to
accumulate skills that help them “adapt to technological and market changes, to
improve their prospects or to explore their potential” (Wills, 1998). Conclusions from
the three studies previously cited clearly point toward the necessity to identify which
skills are needed to be effective in international marketing. However, these studies
also indicate that there is much difference of opinion regarding which international
marketing skills are most important. Using the knowledge available, academic
international marketing experts could provide a sound assessment of the relative
importance of international marketing skills.
The structure of the field of international marketing has remained basically the
same over the past several decades. However, the emphasis given within the literature
clearly reveals that international marketing activities have been given diversified
breadth and depth of coverage over the years, with distinct clusters of international
marketing skills being emphasized sporadically throughout the time period from Borden
(1964) up to Smith (1998). The marketing mix elements of product, price, place, and
promotion, as understood by Neil Borden (1964), were emphasized as the basis for
marketing activities for several decades, yet a study completed by Berry (1990) which
ranked the importance of marketing mix activities, offered a distinct difference of
opinion. The Berry (1990) study identified customer sensitivity as the most important
marketing mix activity. This reflects a major shift in emphasis regarding the importance
of various types of skills-from certain skills being needed primarily by employees within
the marketing function, to certain skills now being needed by all employees whose work
affects customers, which “involves almost everyone in the business” (Hiam, 1997).
Dissimilar emphasis on the importance of various types of international
marketing skills continues in recent literature and studies. The switch in emphasis to
personal skills is reflected by other recent literature as well. “A company’s ability to
conduct business in global markets depends primarily on how closely the skills of its
personnel match the opportunities present in the market” (Dahringer, 1994).
International marketing is viewed as a system of interacting and interrelated activities
which requires multifunctional skills, according to Albaum (1994). Skills needed to be
effective in international marketing may encompass more than just the technical skills
needed on the job. According to Michael S. Schell, president of Windham
International, a New York-based global relocation-management company,
Expatriate assignments rarely fail because the person cannot accommodate to the
technical demands of the job. The expatriate selections are made by line
managers based on technical competence. They fail because of family and
personal issues and lack of cultural skills that haven’t been part of the process.
(Solomon 1994).
Given the distinct opinions regarding skills needed for effective international
marketing, there is a need, therefore, for international marketing experts, both
accomplished international marketers and academic researchers to determine the
importance of each of the skills identified as being needed for effective international
marketing. The need exists not only to identify the skills necessary for effective
international marketing and determine the importance of each of these skills, but also to
realistically identify the degree to which employees have these skills. A need exists to
identify the extent to which employees perceive that they have the identified skills.
These skills encompass more than just the technical aspects of international marketing.
A means of identifying the gap between the skills these employees have and the skills
they need, and an understanding of this gap is required before appropriate training
programs can be developed (Solomon, 1994).
Most important is that the identification of the general skills needed to be
effective in international marketing have not been previously studied and are especially
needed at a time of a rapidly changing global economy. Second, available research
indicates the level of importance attached to each of the identified skills. Third, it
provides information on the degree to which employees in exporting companies
typically have these skills. Finally, if there is a gap between the skills employees in
exporting companies have and the skills they need to be effective in international
marketing, there must be studies that will provide information on types of training
modules needed to develop the skills identified as necessary.
Conversely, the most prevalent industry driver, which is often an uncontrollable
form of market or business trend determination, is the combination of market, cost,
government, and competitive drivers (Yip, 1995). This is established by the fact that
each feeds off of the other and when one driver is affected the whole group tends to be
affected. Market drivers can be associated and affected by many phenomenons.
When large nations began to have per capita income convergence such as Japan
overtaking the United States or Hong Kong overtaking New Zealand we began to see a
shift in the drive towards market growth. Other examples are the convergence of life
styles and tastes, increasing travel creating global customers, organizations beginning
to behave as global customers, and establishment of world brands such as Coca-Cola,
Levi’s, etc.(Yip, 1995). Cost drivers can be affected when there is a continuing push
for economies of scale and accelerating technology innovation with advances in
transportation and emergence of newly industrialized countries. Likewise, government
plays an important role and can be an effective protagonist or antagonist by reducing
tariff barriers (NAFTA), creation of trading blocs, and decline in the role of governments
as producers and/or customers (Yip, 1995). Finally, we examine competitive drivers
and reveal that they are associated with a continuing increase in the level of world
trade. The overall effectiveness of this driver will either increase or decrease based on
scenarios such as the incident of a rise in new competitors intent upon becoming global
competitors and when there is increased formation of global strategic alliances (Yip,
1995). Together, these four sets of drivers cover all the critical industry conditions that
affect the potential for globalization. While other groupings are possible, these four
distinguish among the sources of the drivers and, therefore, help managers to identify
and deal with them more easily.
Global Organization and Human Resource Management
It seems as though a day cannot go by without reading about the growing
revenues multinational organizations are generating from their international sales.
Recently, there was a flurry in the press of the flattening of McDonalds’ sales in the
U.S., and how the company was going to lower the prices of their burgers to get more
competitive and recapture a larger market share. Buried in those stories were statistics,
such as the fact that McDonalds generates 54% of its profits from its 20,000-plus
Golden Arches in 100 countries, and that it was opening restaurants in four or five new
countries each year (Shepherd, 1999). So, while domestic sales were flat, the
company’s income was still growing. Also buried in those stories was the fact that
McDonalds restaurants are kosher in Israel, are made without beef in India, and
represent gourmet dining in Moscow (Shepherd, 1999). The company is a master at
tailoring to local tastes. While the McDonalds story is interesting, it is not
extraordinary. It serves as an example of what most companies are doing in adapting
product for the global marketplace. Organizations are also focusing on building global
management skills as well as tailoring products. The process of business globalization
is not a one-shot event, and needs to represent an ongoing effort by companies to
position themselves for success in the international arena. That is why Windham
International likes to refer to globalization, not as a process, but as a cycle (Solomon,
1994). The dividends of having a globally competent workforce and business culture,
are enormous. In fact, in the coming millennium, global business skills will become a
prerequisite for corporate management. Understanding how to shift between cultures
and intuitively adjust management behavior will be essential if a company is to ensure
success and maximize the potential from its core businesses in a global, competitive
environment (Solomon, 1994).
Creating a globally coherent corporate culture requires weaving cultural
awareness into the corporate fabric. Companies do this by integrating the cultural
lessons learned through actual practice into all of their human resource development
and training programs (Van Wachem, 1994). Furthermore, the importance of
conducting global awareness programs cannot be overemphasized, especially in an
American environment which has been insulated from international competition by the
depth of its own marketplace and resources. Global Awareness programs can last
anywhere from one day to several weeks (Van Wachem, 1994). Programs focus on
providing participants with an understanding of how culture impacts lives and creates a
set of values, how cultures are different, and how some of those differences manifest
themselves. The objectives of these programs is to build intercultural fluency (Van
Wachem, 1994). In their most basic form, global awareness programs provide
participants with greater understanding and new skills to operate more effectively in the
international business arena. They enable employees to better understand and
implement the company’s global strategies and appreciate the importance of the global
market in the vitality of the company. A typical program might instruct participants how
to (Van Wachem, 1994) :
? Appreciate cultural diversity.
? Recognize the impact of culture on business.
? Master global management skills.
? Understand how culture impacts business issues.
. Impart knowledge about challenges faced by business people around the world,
including significant concerns and motivations of business people.
? Develop a framework for understanding cultural differences.
? Master strategies for cross-cultural problem-solving and negotiation skills.
? Learn decision-making strategies that work across cultures.
? Explore ways to build business relationships.
But the business globalization cycle doesn’t end with a one-shot program. It then
becomes important for organizations to continue to integrate these global awareness
exercises into their ongoing training efforts, and by developing a continuous flow of
information and knowledge, be able to build global business skills, and enhance global
understanding (Van Wachem, 1994). Obviously those programs need to be different for
different levels of the company. While senior managers need to learn to think and act
globally, individuals at other levels of the organization must learn to communicate by
phone, fax, and e-mail. Thus, ongoing training is crucial. Intercultural training and
global business awareness workshops are, quite simply, the next logical step in
companies that are active learning organizations, those that adapt and learn what the
marketplace presents (Van Wachem, 1994). Understanding culture and global markets
and acquiring competencies about what is appropriate in different parts of the world is
central to the development of any corporate culture that is going into the international
marketplace. These kinds of skills and learnings must be integrated throughout. Within
this context, repatriation is part of the continuing effort to globalize the corporate
culture. Repatriated employees play a crucial role in the globalization process. First,
they add invaluable knowledge to the global wisdom of a company as a result of their
international experiences and they continue to broaden the scope of global vision and
general global awareness within the corporation by sharing their experiences, both
triumphs and failures (Van Wachem, 1994). Second, they serve as role models and
mentors for others who may consider expatriate assignments (Van Wachem, 1994). In
order to succeed, repatriation programs must address the expatriate’s need to return to
the home country with minimal emotional turmoil. Reentry to the home country can be
traumatic, and many experts agree it is a time requiring as much cultural adaptation as
the initial international move. Not only is the expatriate and family returning to an
environment that is quite different from the one they left, but they don’t expect it to be
altered.
Good repatriation programs also recognize that expats are an important asset to
the business because of their accumulated knowledge and experience (Van Wachem,
1994). What better and more visible role model could future expats have than someone
who has been in the trenches and returned–having done the job successfully? If the
organization recognizes and values the contribution, it sends out a profoundly different
message than a firm where employees return to no job, passed over for promotion or
slotted into a dead-end position. The way returning expats are treated in an
organization sends out clear and strong signals to others who are considering taking
such assignments. Keeping in mind that the talent pool for potential expats is not great
even in the largest and most successful global companies, retaining the wisdom of
returning employees and institutionalizing it is critical for the message it sends to future
expats as well as the ability to retain global wisdom (Van Wachem, 1994). Finally,
when you think about it, few roles for the human resource manager are as consistent
with an organization’s global business mission as providing a globally astute workforce
throughout all levels of the organization who will implement that mission.
Globalization Process and Strategy: A Time Line
Globalization has become an increasingly fashionable term and in fact it is still
the economic buzzword. Despite much loose talk about the “new” global economy,
today’s international economic integration is neither unprecedented nor is it an
innovation of the past. The shrinking of distance and the increase in interplay and
interdependence has been a subject of the whole century, and longer (Emmott, 1999).
Basically it all started when men crossed the border of their caves in order to exchange
supplies with someone else. Phoenician traders roamed the known world with goods,
twenty-five centuries ago, during the Golden Age of Greece, collecting market specific
data and bringing information as well as products to customers (Lewis 1999). Seven
hundred years ago, the Medicis became what may have been the first “vertically
integrated global operator”, buying raw materials and converting or manufacturing them
(Lewis, 1999). The Medicis eventually operated some 100 branches in France, Naples
and Turkey, with trading offices in London and many other capitals, and to this day may
be one of the most efficient and profitable “international” companies ever developed
(Lewis, 1999).
The difference in our century is the speed of change. A decade ago no one
would have anticipated the collapse of communism in the Eastern European countries,
dismantling of apartheid in South Africa, Berlin becoming the capital of a reunited
Germany, Czechoslovakia, Yugoslavia and the USSR broken up into over 20 states, or
150 countries backing a climate convention. Economic historians like to argue that
trade and capital flows were more global in the late 19th century, a laissez-faire era
that came to abrupt end with the outbreak of World War I. Although barriers and other
government interventions were practically non-existent, capital took a week or more to
cross the Atlantic and much longer to reach Asia (Shepherd, 1999). The capital
exporting countries were mainly Britain, France and the Netherlands. The hot
emerging markets during this period were in the United States, Japan, and Argentina
and trade was, by today’s standards, minuscule and corporations were tiny (Shepherd,
1999) .
After World War I the world moved into a period of fierce trade protectionism and
tight restrictions on capital movement (Eiteman, 1999). During the early 1930’s,
America sharply increased its tariffs, and other countries retaliated, making the Great
Depression even greater (Eiteman, 1999). The volume of world trade decreased
significantly and international capital flows virtually dried up in the inter war period.
Capital controls were maintained after World War II, as the victors decided to keep
their exchange rates fixed – an arrangement known as the Bretton Wood System
(Eiteman, 1999). But the big economic powers also agreed that reducing trade barriers
would be vital for a recovery. They set up the General Agreement on Tariffs and Trade
(GATT), which organized a series of negotiations that gradually reduced import tariffs.
GATT was replaced by the World Trade Organization (WTO) in 1995 (Eiteman ,1999).
In the early 1970s, the Bretton Woods System collapsed and the currencies were
allowed to “float” against one another at whatever rate the market set. This was seen
as a signal for the rebirth of a global capital market. America and Germany quickly
stopped trying to control the inflow and outflow of capital. The United Kingdom
abolished capital controls in 1979 and Japan in 1980. However, France and Italy did
not abandon the last of their restrictions on cross border investment until 1990
(Eiteman, 1999). This is part of the reason why continental Europeans tend to worry
more about the power of global capital markets. (Eiteman ,1999) From a historical
point of view, globalization can thus be seen as a long and more or less constant
process. Nevertheless, we will see that there are new different ways, in which economy
was and is becoming faster and more internationally integrated.
Global capital markets are growing at a remarkable rate. A decade ago, about
190 billion dollars passed through the hands of currency traders in New York, London
and Tokyo every day (Blecker, 1999). By 1998 daily turnover had reached almost 1.5
trillion dollars (Blecker 1999). These bold figures confirm that the world’s capital
markets have been transformed. Ever larger sums of money are moving across
borders, and ever more countries have access to international finance.
The international flows of capital are a major channel of globalization and their
importance can be assessed by the development of foreign direct investment (FDI),
which is directly concerned with the emergence of international production networks.
Over the whole period since 1980, FDI constantly increased as exports did as well
(Blecker, 1999). During 1980-97 in particular, global FDI outflows increased at an
average rate of about 13 percent a year, compared with average rates of 7 percent
both for world exports of goods and services and for world GDP (at current prices)
during 1980-96 (Blecker, 1999). The increase in direct investment flows has laid the
foundation for a marked expansion of international production by globally operating
corporations, which now have an estimated 3.4 trillion dollars invested in about
449,000 foreign affiliates throughout the world (Mallampally, 1999). But over the past
few years, the movement of goods and services across national boundaries has
become the subject of intense public attention all over the world. To the public at large,
trade is the most obvious manifestation of a global world economy (Boltho, 1999).
World trade flows more freely than it ever used to. This is due mainly to international
a
the General Agreement on Tariffs and Trade (Boltho, 1999). There have been eight
rounds of GATT talks since 1947, in which countries have cut their import tariffs. Tariffs
on manufactured goods, for example, are now down to around 3.8% in industrial
countries (IMF, 1999).
The most recent GATT round, the Uruguay round, ended in 1993. The Uruguay
round did much more than cut tariffs on goods. It heralded a big institutional change,
creating the World Trade Organization, which now boasts 134 members (as of
February 1999), as a successor to GATT (IMF, 1999). It also made big changes to the
rules of world trade. First, it began the process of opening up the most heavily
protected industries, agriculture and textiles (IMF, 1999). Second, it vastly extended the
scope of international trade rules, now covering services as well as goods. New issues,
such as foreigners’ “intellectual property” like patents and copyrights, were addressed
for the first time and services can now be traded internationally (IMF, 1999). As a
result of the GATT/WTO negotiations and unilateral decisions, almost all countries
have lowered barriers to foreign trade. Although liberalization has proceeded at
different speeds in different places, the trend is worldwide. Over the past decade, trade
has increased twice as fast as output, foreign direct investment three times as fast and
cross-border trade in shares ten times as fast (WTO, 1998). This development
suggests that the world economy becomes more integrated (WTO, 1998). Apparently,
the gap between export growth and GDP growth has further enlarged in the recent
past, which can be understood as an increase in the speed of globalization (Eiteman,
1999).
With the costs of communication and computing decreasing rapidly, the natural
barriers of time and space that separate national markets have been falling as well.
The cost of a three-minute telephone call between New York and London for example,
has decreased from 3 dollars (in constant prices from 1996) in 1930 to less than 1
dollar today (World Bank, 1997). The cost of computer processing power has dropped
by an average of 30% a year in real terms over the past couple of decades (World
Bank, 1997). In Information technology, the world has experienced a revolution. The
web represents a world wide information network. In 1998, 180 million Internet
workstations provided a worldwide network and Andy Grove of Intel believes that there
may be 500 million in another five years (Shepherd, 1999). The dimension can be
illustrated by some examples: Global stars as IBM and Microsoft are increasingly
focusing on the Internet business, and Reuters set up a new global ventures group to
pursue Internet investments (Shepherd, 1999). Cable & Wireless bought MCI’s US
Internet business for 1.75 billion dollars, then acquired a German and a Taiwan Internet
provider and hiked its three year budget by 3.3 billion dollars to build a global Internet
protocol network for multinationals (Shepherd, 1999). E-commerce is predicted to
become one of the most important market grounds of the next millennium and “all the
world’s businesses spend more on telecommunications each year than they do on oil”.
(Maass, 1997).
Another important factor for an increased globalization process is to be seen in
the plunge of traditional costs of covering distances by land, sea and air. They have
been reduced to approximately one fifth since the twenties and thirties respectively.
The “death of distance”, as Cairncross (1997) called it, facilitates the establishment and
monitoring of international production networks, enlarges trading areas, and enables
firms to exploit international cost differentials by the fragmentation and relocation of
production and global sourcing (Cairncross, 1997). Furthermore, the development of
high tech and telecommunication facilities together with the massive decrease of prices
for information sharing and transport can be seen as a dominant force of the
globalization process.
When comparing different regions in our world one will encounter completely
different opinions, languages, gestures, habits, rituals, behavioral patterns and so on.
As culture is about values and values are partly unconscious, acquired in early
childhood and then further developed, confirmed and reinforced later on, they are
hardly discussible and will not change quickly (Hofstede,1996). Therefore one might
argue that no globalization of culture is evident. However, there are tendencies
towards a “global culture”. The increasingly global media and entertainment industry
including cross-border satellite television broadcasting and almost “global”
TV-channels like CNN have an integrating effect on cultural diversity (Hofstede, 1996).
In most corners of the world for example, the name of Mickey Mouse will elicit at least a
glimmer of recognition. Walt Disney’s most famous creation was one of the first stars
with a global name, showing that there is a kind of convergence in consumer lifestyle
and behavior.
Signs of Globalization
Multinational corporations operate all over the world in ways never before
imagined. With operations in 100 or more countries, selling products in as many as 200
countries, global players gain revenues larger than most countries’ GDP (Shepherd,
1999). Corporate management can share best practices within seconds with modern
telecommunication from New York to Bangkok or have troubleshooting teams fly within
hours from Buenos Aires to Seoul. (Shepherd 1999) In order to enhance their
operational efficiency and profitability along the entire industrial chain many
corporations have adopted global corporate strategies (Yip, 1995). The global
enterprise organizes its operations from R&D for product and process innovation,
through production and distribution, to final sales and marketing as an internationally
integrated ensemble (Yip, 1995). It obtains raw materials from cost efficient sources,
manufactures or assembles goods in the lowest cost zones, acquires and develops
technological expertise wherever it is favorable, and uses its managerial and technical
resources as economically as possible, to enter markets as efficiently as possible (Yip,
1995). These worldwide operating organizations are particularly common in
high-technology, high-skill and capital-intensive industries such as computers,
electronics and chemicals, as well as in some assembly industries like automobiles, all
of which benefit from economies of scale through the whole industrial supply chain from
R&D to final sales (Graham, 1998). Another sign that companies are becoming global
is the fact that more and more companies are transforming their organizational
structures based on economic regions to global product lines. Consumer product
companies such as Nestl? or McDonald’s have standardized production and
distribution although they customized their products to local tastes (Shepherd, 1999).
Partners and suppliers that serve other multinationals, however, have come under
increasing pressure to provide the same products and services anywhere in the world
(Shepherd, 1999). The growth of the multinational enterprises seems likely to spur
further development in the history of globalization. Corporations want the freedom to
shift employees from country to country, and to use citizens of one country to alleviate
skills shortages in another. This will be not so much a quantitative change but a
qualitative one – namely, greater migration of workers with skills, or “human capital”.
As already stated above, globalization might be seen, at least historically, as a more or
less constant process. However, it is due to the more recent speed-up of the process
that scholars have paid more attention to it and termed the phenomenon as
globalization. There has been some dramatic changes taking place, namely the
liberalization process leading to more and more free trade and capital flows, the
development of information technology, the plunge of transportation and
telecommunication costs and the shift from “workers” to “human capital” introducing a
new quality of globalization (Graham, 1998). Today globalization is often used as a
buzzword describing the reality in which corporations are embedded.
Complexity in Global Operations
Complexity in global operations arises from multiple environments in which
global actors are embedded where one must consider the wide variety of issues, the
existence of multiple ways of operating globally, and the constant change of the
operating environment (Hansen, 1999). As one example of this complexity, we present
a framework that highlights complexity in the choosing of foreign operations (Hansen,
1999) which upon deeper examination proves to be a very challenging ordeal. Global
forces that create change towards a global operating environment can be identified as
deregulation, technological advances, increased competition, demanding customers,
etc. (Hansen, 1999). These demand a new attitude to business. A global organization
is associated with both different attitude and different activities from its more
circumscribed, international predecessor. Success and survival in a global world or
when trying to “go global” yields three main implications for corporations (Parker 1996):
1. Social responsibility: The raising globalization in economy creates a
tendency towards a redistribution of power and responsibilities between governments
and corporations. There are growing expectations for businesses to adapt roles
previously played by governmental entities. On the government side, the resources
saved hereby provide the opportunity to reallocate resources in education, training, and
other modes of knowledge creation. On the corporate side again this means adopting
roles which governments have played previously and – as ethics varies according to
culture – firms have to find a balance between what is acceptable in different cultures.
This involves not tolerating business practices that are illegal in other countries, which
involves dangerous work for the population, or which might be harmful to the
environment. Also, customers pressure large corporations to tackle human right issues
and to promote a democratic society organized around values like freedom, equality,
well-being, justice, mutual respect and to deal with the growing gap between rich and
poor, armed conflicts around the word, minimal legal protection in some parts of the
world and corrupt regimes.
2. Organization strategy: In creating sustainable competitive advantage in a
global world, strategies must be informed of political, legal and social as well as
economic considerations. They should be able to yield industry foresight and leverage
global knowledge. Thus global strategies have profound implications for human
resource strategies as well. Global corporations should not just try to establish an elite
of jet setters – they might be difficult to integrate into the corporate mainstream – or an
international team of big-picture overseers to the exclusion of focused experts. Here,
organizational learning is in a central position. In summary, global corporations should
apply an overall strategy to co-ordinate and integrate dispersed operations and
diversification in order to provide higher customer and shareholder value in their
diverse markets.
3. Organization structure: Global organizations need to develop relationships
with their interest groups and manage these relationships well in order to create
efficient and productive networks. Internally, this means that organizations with high
organization structures will have to flatten their pyramids and implement
cross-functional ways of thinking. Matrix organization structures are one way of doing
this. The knowledge revolution associated with globalization has the potential to
restructure not only existing organizations but also the way work is organized and
conducted (e.g. telecommuting). This requires fundamental rethinking of how
organizational participants think about their relationship with the organization and the
organization’s role in a global world.
Global or Local?
In today’s international markets it is difficult to find a simple answer to the
question whether to globalize or localize a product. The primary goal of a company is
usually to maximize its shareholder value, which means maximizing income, minimizing
expenses, minimizing assets and maximizing liabilities (Douglas, 1997). Respective to
products, maximizing income means adapting products to meet local environments and
minimizing expenses means to standardize them as much as possible. International
segmentation studies have revealed that global standardization is appropriate only in
relation to certain product markets or market segments under certain market conditions
(Douglas, 1997). The choice of strategy on the level of standardization or adaptation is
depending on the contingent variables (Porter,1996): (1) product characteristics – from
universal over modified to country tailored ; (2) country characteristics – such as social
and political system or, economical and technological development, or cultural context,
etc. and (3) consumer characteristics – social classes, age, sex, urban or rural
residency, lifestyle, etc. An interaction between all three characteristics implies
feasibility of an international niching strategy by customizing the marketing mix to
identified consumer niches across countries and segments. An interaction between,
product and country characteristics implies a product adaptation strategy by tailoring
country-clusters on the basis of a product-market match. An interaction between
country and consumer characteristics implies feasibility of a product transformation
strategy, in which product offerings are standardized and positioning and promotion are
adapted for different target consumer segments in different countries (Walters, 1997).
An interaction between product and consumer characteristics implies a global
segmentation strategy concentrating on one marketing mix for one segment or a
different marketing mix for each segment. If no interaction between the three
characteristics can be shown, a global standardization strategy or a gradual
standardization strategy may be feasible (Porter, 1996).
Global Market Segmentation
A central issue in global marketing is assessing markets, which is usually done
by segmenting them. Global market segments are transnational market segments,
which have been acquired by utilizing country specific segmentation criteria, individual
characteristics of customers or both of the previously mentioned segmentation criteria
(Walters, 1997). Traditionally, global market segmentation has been undertaken by
using either county specific criteria or transnational variables common to individual
customers in different nations as a basis for segmentation (Walters 1997). Country
specific global segmentation criteria include economic growth and development criteria.
Individual characteristics of customers as a global segmentation criteria include
demographic variables: e.g. sex, age, income level, social class and education level,
psychographic variables: e.g. lifestyle factors in regard to work and leisure habits such
as activities, interests and opinions, and behavioral variables: e.g. patterns of
consumption, product category and brand loyalty and context of product usage
(Walters, 1997). More recently, hierarchical segmentation processes have emerged.
These hybrids attempt to combine the benefits of both presented approaches to global
market segmentation. The advantage of this type of approach is that initial country
sorting allows identifying a context for consumer behavior, which enjoys significant
homogeneity (Walters, 1997). In such an environment, it is more probable that
similarity in lifestyle, behavior and decision-maker characteristics will translate into
viable transnational market segments. Three different ways of carrying out this process
are presented by Walters (1997):
1. Kale and Sudharshan: initial country screening followed by
microsegmentation, where the focus is on transnational similarities between customer
groups. Either segments are identified within target markets and then aggregated
across the qualified countries based on similarity or individual customers in all the
qualified countries are directly aggregated into segments.
2. Kreutzer: target markets are separated from all other countries, segments are
delineated within target countries sharing common features and finally factors that may
require marketing mix modification are taken into account.
3. Amine and Cavusgil: country clustering, lifestyle segmentation in which
targeted consumers are identified and aggregated across countries thus directly
delineating transnational segments and focusing on consumer behavior and identifying
two “shopping” clusters.
Walters (1997) states, “In the operationalization of segmentation strategies it
should be noted, that if the scope of international operations is broad, it might be
appropriate to utilize multiple segmentation processes and criteria simultaneously
within the corporation.” Additionally, many international market segments are less well
defined than domestic ones and normally not truly global in scope and finally, the
linkage between segmentation and the desire for standardization in global marketing is
significant (Walters, 1997).
In the production function Collins (1995) suggest, that corporations need to
adopt a global view in order to alleviate the impact of downward pressure of costs, to
slash excess capacity and to realize the synergy benefits of mergers and acquisitions.
When pursuing a global manufacturing strategy, which means assessing a portfolio of
plants and reviewing total manufacturing costs rather than assessing costs on a
plant-to-plant-basis, six different issues need to be considered (Collins ,1995):
1. Avoid manufacturing shortsightedness: This means slashing over-capacity
(many European manufacturers are operating at less than 50% capacity utilization
rates), avoiding duplication and attaining critical mass. Here, a managerial mindset
change may be required.
2. Build product focused plant networks: This implies launching product
focused operations, concentrating expertise in a few carefully chosen locations, finding
a proper relationship between the head office and subsidiaries and centralizing control
and co-ordination.
3. Create pan-regional organization structures: Rationalize plant location
decisions by e.g. consolidating operations to low-cost sites, considering governmental
regulations and incentives of setting up a plant in a certain area and taking customer
influences on plant location and plant product palette into account. This may lead to
improved plant designs that facilitate teamwork, better quality and better and more
rapid materials handling. Ultimately, this aspect is about balancing centralized task
sharing and local autonomy.
4. Adopt rigid flexibility: The type of flexibility desired should be examined
carefully. Then simple operating ways are combined with company internal discipline in
order to attain the right kind of flexibility. Often, this means undergoing Business
Process Reengineering (BPR) for establishing a stable, fundamental framework that
facilitates the factory’s flexibility. Thus adopting rigid flexibility implies increased
standardization where possible and attention to manufacturability, production
co-ordination, problem solving, and experimentation.
5. Standardize systems, procedures, products and packages to gain
effectiveness of material flow and information exchange. This implies standardizing
product formulations or engineering specifications, product numbering,
components/parts numbering, quality assurance standards, and computer systems.
6. Identify obstacles to implementation: Be aware of implementation problems
due to various internal and external factors, such as demolition of executive’s status or
esteem, expatriates, cultural differences, governmental regulations, problems in
harmonizing products for different countries, union/management relations,
environmental concerns, incompatibility of computer information systems, etc.
Management Strategy-(ABB)
Unfortunately, no universal global management strategy can be outlined, rather,
groups of specialists including business managers, country managers and functional
managers should work together to create organization-wide processes and structures
in support of their global commitment (Taylor, 1991). Asea Brown Boveri (ABB) is an
example of a global enterprise that combines global scale and world class technology
with deep roots in local markets. It is more multidomestic than multinational and
therefore can be seen as a federation of national companies (Taylor, 1991). The case
of ABB highlights some of the implications of globalization on management. The
interplay of structure and dynamics can be recognized as creating the core of
organizations themselves – actors create, develop and manifest themselves in and
through enactment. Conducting global business involves several contradictions – e.g.
global versus local, big versus small, decentralized versus centralized, flexible versus
strong – that a company has to tackle in order to work effectively and productively
(Taylor 1991).
Along one dimension a global company is a kind of distributed global network
meaning that executives around the world make decisions on product strategy and
performance without regard for national borders. Along a second dimension, it is a
collection of traditionally organized national companies, each serving its home market
as effectively as possible. ABB’s global matrix holds the two dimensions together,
allows them to optimize their businesses globally and maximize performance in every
company (Taylor, 1991). The matrix is led by business area leaders who co-ordinate
the efforts of business area managers, country managers and presidents of local
companies (Taylor, 1991). The business operations are organized by independent
companies with their own president, budget and balance sheet. The presidents of the
individual companies are relatively autonomous and free to conduct business within
their company as best they can. This relative independence from the group motivates
the national companies to higher performances, thus optimizing group results. Also, the
companies are able to focus better on their core competencies in their home markets
(Taylor, 1991). Business area managers optimize the group strategy and performance
independent of national borders while allowing local companies to drive execution.
Individual companies are kept small in size for the purpose of allowing flexible
operations for responding to customer needs more efficiently (Taylor, 1991). Managing
change is crucial in order to tackle the shift from local to global and in order to solve
post-acquisition problems associated with integrating the several acquired traditional
companies into the global ABB group. To make the individual companies profitable,
ABB has developed a business and managerial reform philosophy, which has four core
principles (Taylor,1991):
1. Immediately reorganize operations into profit centers with well-defined
budgets, strict performance targets, and clear lines of authority and accountability in
order to motivate management.
2. Identify a core group of change agents from local management, give small
teams responsibility for championing high priority programs, and closely monitor
results.
3. Transfer expertise from around the world to support the change process,
without interfering with it or running it directly.
4. Keep standards high and demand quick results.
Case Automotive Industry in Latin America
Different corporations have tackled the problems that arise with their
ever-globalizing operating environment in different ways. New governmental policies,
the macroeconomic stabilization process, the trade and financial liberalization, the
deregulation of the economy, wide-ranging privatization programs, loosening of the
regulatory frameworks applicable to private investment and regional integration
movements have drastically altered the business environment, making investment in
the region more attractive (ECLAC, 1998). Additionally, the globalization process has
modified the structure of the world market, the nature of competition, the technological
demands and the international rules and standards for trade and investment. This new
situation forced global operating companies in the region to rethink their strategies.
Some decided to withdraw from the market and to supply their market through exports
(ECLAC, 1998). Other companies streamlined or restructured their operations in order
to defend or increase their market share. New investments were made in the light of
new national, subregional (NAFTA and Mercosur) or international environment
(ECLAC,1998). The manufacturing sector in Latin America has pursued two different
strategies (ECLAC, 1998):
1. efficiency oriented plans consisting of internationally integrated production
systems, and/or
2. plans to get access to national and subregional markets.
Ford is one of the main players that applied the first strategy very intensively in
Mexico. To protect itself from Asian competitors, especially in the U.S. market, Ford
made considerable direct investments in Mexico, established plants that were capable
of manufacturing competitive engines and vehicles for export on the world market
(ECLAC, 1998). With its partner Mazda, Ford was able to apply international
technology and organizational systems in these plants and increased competitiveness
on the North American markets even against its Asian threats. The combination of a
changing global competitive situation, a new governmental subregional policy, and a
rethought business strategy produced extraordinary results for the company (ECLAC,
1998). Fiat’s basic strategy in dealing with the Asian challenge was to defend and gain
new market share in Brazil. Fiat invested heavily and focused its operations by
choosing to produce only two models, tailored for the Brazilian market, to meet the
special market conditions (ECLAC, 1998). In order to do this efficiently and
productively, they invested substantially into restructuring and modernizing their
operations. The hereby-gained economies of scale in conjunction with Brazil’s
government supporting policy of manufacturing small car models enabled Fiat to
penetrate the Brazilian compact car market. With those two models Fiat achieved an
average production volume far above what it had obtained previously when it was
bringing out six different models. After the success achieved with the compact car in
Brazil and in order to correct its weak exports efforts, Fiat started to place more faith in
the potential of Mercosur. Fiat resumed its operations in Argentina because of the
favorable outlook of Mercosur and good bilateral agreements. Fiat invested in both
countries hereby managing modernization and expansion of its production facilities,
even laying the foundation for a subregional integrated production system (ECLAC,
1998).
General Motors implemented an interesting strategy in Chile as it specialized in
a single model and continued to use the same manufacturing methods for more than
twenty years (ECLAC, 1998). In addition, the key parts of this car (engine and chassis)
were imported. Although its operations had been profitable GM received subsidies from
the Chilean government for years and is now in the dilemma that it has to rethink its
strategy because the government decided to cut these subsidies. The options for GM
are to close the plant and relocate the operations to Santiago de Chile, shut down its
production operations and import the models for the local market, export to Argentina
and Brazil on preferential terms due to Chile’s associate membership in Mercosur or to
upgrade the operation and develop a new project geared to Mercosur (ECLAC, 1998).
The ongoing trade liberalization process threatens to lower import barriers,
which is why GM must move quickly in Venezuela in order to be ready when Venezuela
joins Mercosur and trade barriers are eliminated. At the moment GM’s plant is
competitive only because vehicle imports are subject to 35% tariff (ECLAC, 1998). The
probable GM strategy is to reduce the numbers of models produced and to invest
heavily. To sum up GM’s situation: Latin America’s automotive industry is concentrated
in the large markets like Argentina, Brazil and Mexico. Smaller operations have a focus
on one model that is highly demanded in the domestic market or can be exported to
other Latin American markets (ECLAC, 1998). Latin America was and still is a region
with future growth potential for the automotive industry. However, regional differences
exist thus national and subregional policy goals differ and start from different premises,
which forces the individual companies to develop market tailored strategies depending
on the country or region they operate in. Trade agreements like NAFTA and Mercosur,
which can be seen as early advocates in the trend towards a truly global operating
environment, ease operations across traditional barriers thus increasing competition
and making both national economies and the world economy work more efficiently and
productively.
Conclusion
The implications of globalization are potentially revolutionary, leading to
significant and wide ranging chances in every sphere of life and creating new
challenges for organizations of all types. Even though a firm does not see itself as
global, it interacts in a global world. Thus enterprises should understand that all their
activities are part of an all-affecting globalization process. When a firm pursues a
global strategy this involves more flexible arrangements that allow other organizations
to benefit from global opportunities, too. As we have seen, structures change as their
underlying causal forces change. Thus if it were possible to understand the forces
underlying structures, future happenings could become more predictable. Further, if it
were possible to manage these forces, the present could be managed. And because
the future has its roots in both history and present, by managing the present we could
at least partly manage the future. Corporations have to deal with problems arising from
the complexity, everlasting change and uncertainties of the global operating
environments in which they are embedded. For doing this, they should try to be open
minded in order to gain an awareness of the changes which are taking place and
affecting them in multiple ways. Once corporations are open minded and aware, they
can start a learning process which generates tools for the analyzing and further
understanding of their business environments. Hence open mindedness and
awareness provides corporations with additional practical insights and conceptual
eyeglasses for the tackling of their business environments. An understanding of
different operating realities, again, is needed for making the right decisions. In other
words, a global actor has to be flexible and tough, creative and open-minded, with fresh
ideas and visions in order to be able to tackle the problems arising from the complexity,
change and uncertainties of its operating environments. However, one should not
forget the basics of doing business which means world competitiveness arises from
corporate assets and corporate processes . This involves taking into account issues
like corporate infrastructure, financing, technology, people, quality, speed,
customization, customer service, market share, growth, profitability, etc. (Hansen,
1999).
In summary, adopting a global strategy may lead to ruthless ways of thinking and
acting. This may include unpopular decisions as far as downsizing operations are
concerned, because employees often do not understand that they are a company’s
investment and thus have to generate return on investment for justifying their existence.
Likewise, political considerations may also have to be taken into account. As
globaliza
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