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

agreements under which governments agree to forswear trade barriers – most notably,

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

362